Kachikwu: Refineries are scraps, discard them
Minister of State for Petroleum Resources, Ibe Kachikwu’s plan to embark on another round of expensive and ultimately wasteful repairs of Nigeria’s old and dilapidated refineries is most unfortunate and a reflection of Nigerian style of repeating the same mistakes severally and expecting a different outcome.
The plan, as aptly described by the common sense advocate, Ben Murray Bruce, is akin to taking for servicing a Mercedes Benz 450SEL 6.9 in the year 2015. The cost of the service will be more than the car is worth because Mercedes Benz stopped making the 450SEL in 1981. Any part required for the service would have to be custom made from Germany or cannibalised from another Mercedes Benz 450SEL. The repairer, if he were to be honest, will advise that the person buy a new Mercedes because there is nothing as expensive as an old Mercedes.
The Senator gave two examples with the cost of Turn Around Maintenance (TAM) for the Port Harcourt refinery and a new refinery built in Kyrgyzstan. The cost for the TAM for Port Harcourt refinery, as tendered by the original builder, was $297 million as of 2013. However, in the same year, the Azeri state energy company SOCAR built a 40,000 barrel per day refining capacity refinery at $250 million in Kyrgyzstan.
Also in the same year, Comico Oil built a 100,000 barrel per day refining capacity refinery for $250 million in Serbia. These are but a few examples of refineries being built with an amount less than what we spend on maintaining our own refinery.
In 2007, after spending over N90 billion on the TAM of the nation’s refineries without much result, the administration of former President Olusegun Obasanjo, decided to sell 51% equity stake in the Port Harcourt and Kaduna refineries to a consortium – Bluestar Consortium Limited for a sum of $721m.
The consortium, made up of Dangote Oils (55%), Zenon Oil (25%), Rivers State Government (15%), and Transnational Corporation (5%), promised to get the refineries working at full capacity within months.
The Nigerian Labour Congress, NUPENG, PENGASSAN, and the NNPC strongly opposed the deal and prevailed on late President Yar’Adua to cancel the sale. The unions, as well as the NNPC, unanimously agreed that the NNPC was capable of turning around the fortunes of the refineries to make them function at 100% capacity within months.
More than 10 years after, billions of naira had been wasted on various repairs of the refineries but still the government is hell-bent on spending more money to “repair and upgrade” the refineries. The plan, according to government sources, is to commit initial funds of $1.2 billion and invite the Original Refinery Builders to repair, operate and manage the refineries while also soliciting for investments into the refineries.
But this strategy has been tried before and didn’t work. Diezani Alison-Madueke had also invited the original builders to repair, operate and managed the refineries but these turned down the offer.
What is more, according to figures from the NNPC, an investment of $6 billion dollars is required to make the refineries function optimally. This is pure waste. We are comforted by the thought that no rational investor will commit his/her funds to such wasteful venture.
We have been running away from the reality for long. The refineries are old and obsolete and no amount of money pumped into them will make them operate optimally. The Port Harcourt refinery was built in 1965 and upgraded in 1989. The Warri refinery was built in 1978, while the Kaduna refinery was finished in 1980. Our refineries have an average age of over 30 years. Since they were built, new technology has been introduced that has made much of their operating systems near obsolete.
Other nations are building brand new refineries for less the price we are devoting to servicing our old and dilapidated ones that never seem to work. We need to sell-off these refineries or better still discard them as scraps to any interested investor that can turn them around.