EXTRA REPORT: Where Are Nigeria’s Four Refineries Amidst Fuel Scarcity?

Asks Supo Balogun, The Nigerian Expression (TNE)

Like a thief in the night, Nigeria’s embarrassing spectacle of fuel queues sneaked again into the nation’s consciousness in the build-up to the Yuletide.

From the trickles of vehicles in filling stations initially attributed to panic buying, the quagmire had built into a national crisis holding the entire country prostrate again.

After more than two years respite of the debilitating fuel crisis, the anger evident in President Muhammadu Buhari’s New Year broadcast was quite understandable.

But where are the nation’s four refineries even if they were constructed in the 60s, 70s and 80s? We shall come to that shortly.

A fuming President Buhari vowed that those who subjected Nigerians to harrowing experiences during the Christmas and New Year celebrations by hoarding and diverting fuel will not go unpunished.

ALSO READ: Buhari expresses sadness over fuel-inflicted hardships on Nigerians

In spite of the president’s soul stirring speech in his trade mark seminal intervention at critical junctions in the nation’s socio-economic trajectory, the fuel crisis has continued to rage across many states of the federation.

The Minister of State for Petroleum, Dr Ibe Kachikwu, appeared on Thursday before the National Assembly Joint Committees on Petroleum (Downstream) investigating the causes of the current fuel scarcity, saying it is shameful that a country after over 35 years cannot produce sufficient fuel for its citizens.

ALSO READ: Kachikwu debunks reports on plans to increase fuel price

“Unless we have operational refineries, there will be no permanent solution to the fuel crisis in the country.

“The gearing up of private refineries and the modular refineries will complement the efforts of the government owned refineries to ensure there is adequate supply of petroleum products in the country,” he further says.

In advocating a revitalisation of the nation’s refineries, the minister has support across a cross section of stakeholders who believe this offers the long-term answer to the perennial acute shortage of petroleum products.

But the story of the nation’s refineries is an unhappy allegory of the rise and fall of empires. NNPC’s existing four refineries, including the two located at Port Harcourt with a combined capacity of 210,000 b/d, the 125,000 b/d Warri refinery and the 110,000 b/d northern Kaduna refinery, have operated in fits for years due to neglect and official corruption.

The scorecard released by NNPC for the month of August 2017 for example readily explains the dire straits the refineries have found themselves. According to the NNPC, Nigeria’s refineries in the month of August 2017 made a loss of N4.54 billion.

ALSO READ: Crude oil production stands at 2.35m barrels per day – NNPC

The oil giant in its monthly financial report says the combined value of output by the refineries (at import parity price) for August 2017 amounts to ₦25.10billion while the associated crude plus freight costs and operational expenses are ₦21.32billion and ₦8.41billion respectively.

This, it says, resulted in an operating deficit of ₦4.64 billion by the refineries. Even more depressing was the revelation that the refineries’ combined capacity utilisation was only 9.50 per cent, with Port Harcourt Refining Company recording the highest of 33.83 per cent.

Has the nation’s then refineries become a basket case?

Experts are divided over the path to plod on the refinery conundrum. Some argue that it will be a complete waste to sink in colossal sums of money in repairing the refineries as they are too old.

Shell constructed the first Port Harcourt refinery in 1965. It was upgraded and taken over by the Federal Government in 1971.

The Warri Refinery and Petrochemical Plant was constructed by an Italian firm in 1978 while the Kaduna Refinery and Petrochemical Plant was constructed by a Japanese firm in 1980. The second Port Harcourt Refinery was constructed by a consortium of Japanese and French firms in 1989.

If the whopping $6billion said to be needed to get the refineries working optimally is anything to go by, experts argue that no rational investor would put its money down on an unviable project.

Indeed those who argue that the refineries are Beyond Economic Repair (BER) say estimated repair cost is most likely to exceed 80 percent of its replacement value.

Conversely, others argue that reluctance by the original manufacturers to repair the refineries could be an international conspiracy to ensure that Nigeria ships its crude oil abroad, create jobs for citizens of other nations and then force the country to import finished products in the form of petrol, diesel and kerosene. They indeed say that age is just a number as the world’s oldest refinery, Digboi Refinery in Assam, India, constructed in 1901 is still functional!

Based on this, they argue that the refineries should be privatised based on Public Private Partnership (PPP) model following a transparent process.

But the history of the previous privatisation exercise is hardly edifying. In 2007, Africa’s richest man, Aliko Dangote, had made a bid through his Bluestar Consortium to acquire 51 percent stake in both the Port Harcourt and Kaduna refineries.

Zenon Petrol, however, acquired both refineries for $721 million, sparking off a public outcry which culminated in a national strike led by the National Union of Petroleum and Natural Gas Workers (NUPENG) and PENGASSAN.

At the Senate hearing on the issue, the NNPC had alleged that  “people with money wanted to take them for free.” It also promised an outraged nation that the refineries would function optimally six months after the reversal of the sale.

Dangote’s words then after his 2007 botched bid still resonates even today:

“For the last eight years, the government has given NNPC about $700 million to refurbish the two refineries (Port Harcourt and Kaduna). That money was not properly applied. In addition, even after it was applied, the refineries are still not working.

“They are worth nothing… there are too many people eating too much money right from importers, right from people within the NNPC that are collecting bribes to allocate products.

“I am saying that because I know what I am saying.”

This readily explains government’s intention to refurbish the refineries with an eye on making them attractive to potential investors.

The clearest indication of the policy direction on refineries may well have been given recently by Anibor Kragha, NNPC Chief Operating Officer (Refineries), in a presentation at the 2017 Association of Energy Correspondents of Nigeria (NAEC) conference in Lagos.

The NNPC chief said selling the refineries in their current state will not be in the best interest of the country.

But it was Kachikwu in an address at the event, who offered an insight into the refurbishment initiative.

He says: “In optimising local refinancing capacity, the first thing we did was to initiate steps towards revamping our own refineries in Port Harcourt, Warri and Kaduna.

“The refineries are not to be concessioned nor sold in whole or part because with the current state, optimal value would not be obtained.”

Kachikwu admits that funding remains a challenge “as telling someone to invest about $1billion in the refineries rehabilitation with no equity and waiting for incremental volumes of refined products to recoup their investment” is a tall order.

Happily though, there appears a glimmer of hope as the Dangote refinery on the outskirts of Lagos is expected to be completed in 2019. The massive 650,000 barrel-per-day refinery is designed to turn the country’s crude oil into petroleum products for the nation’s long suffering consumers.

Dangote, who is worth an estimated $15 billion, believes his refinery and petrochemical plant has the potential to satisfy Nigeria’s daily requirement of between 445,000 and 550,000 barrels of fuel, with enough capacity to spare for export.

On Aug. 27, 2015, President Muhammadu Buhari approved 65 licences for the establishment of private refineries. This is in addition to the 18 licences former President Goodluck Jonathan approved in 2013.

Ironically, only that of Dangote and Eko Petrochemical and Refining Company Limited owned by Captain Emmanuel Ihenacho, had so far given an indication of seriousness.

If the now legalised modular refineries scattered all over the Niger Delta are regulated to offer critical support to the supply chain, perhaps the country will be able to put behind it this unpleasant paradox of scarcity in the midst of abundance.

However, Nigeria must consider one of Kachikwu’s options before local refineries go into operation: One, is for the Central Bank to allow the marketers access forex at the rate of N204 to a dollar as against the official rate of N305 to keep the pump price of fuel per litre at N145.

Two, to give room for modulated deregulation where NNPC will be allowed to continue selling at N145 per litre in all its mega stations across the country while the independent marketers should be allowed to sell at whatever price is profitable to them in all their outlets.

Three, to look at the direction of blanket subsidy for all the importers in bridging the gap which will be like going back to a problem that had earlier been solved.


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