Nigeria’s refineries: An expensive paradox
‘’What is more, according to figures from the NNPC, an investment of US$6.0 billion is required to make the refineries function optimally………. We are comforted by the thought that no rational investor will commit his/her funds to such wasteful venture”- BusinessDay Editorial, 19 June 2017.
From operations and engineering standpoints, running an oil refinery for optimal performance is very complex as the plant requires a lot of resources. If the sum of US$ 6.0 billion is required to make the nation’s refineries work optimally as reflected in the above quote, I say without prejudice to the position of the honorable Minister of State for Petroleum Resources, Ibe Kachikwu, that the nation is going to waste money. Why? If the manufacturer came to inspect the refineries some time ago, but declined to repair the plants, it could be that the refineries being paraded by the nation are Beyond Economic Repair (BER). The refineries may be BER because they are not capable of being repaired, while estimated repair cost is most likely to exceed about 80 percent of its replacement value. Conversely, refusal to repair by the manufacturer could be an international conspiracy to ensure that Nigeria ships its crude oil abroad, create jobs for citizens of other nations, and import finished products- petrol, diesel, kerosene, jewelries, cars, etcetera.
Nigeria is blessed with large deposits of crude oil, has refineries, and the market, but lacks significant refining capacity to refine crude oil. The lack of maintenance of Nigeria’s refineries over a long time is partly responsible for the current state of disrepair. As nations are closing old refineries some are still using theirs. If India is still using its oldest refinery at Assam built in 1901, then there is no reason why those owned by Nigeria should not work. It is most unfortunate that Nigeria has not built indigenous technological capability over time to enable local firms manufacture under licensing agreement some basic spare parts of these refineries. The cost of repairs would have been reduced drastically. To repair the refineries now will be at exorbitant cost. That is the price Nigeria has to pay for her technological backwardness.
Paradoxically, Nigeria has emerged as an importer of fuel instead of being an exporter of same product. What a shame! Whatever decision taken on the refineries will reflect policy makers’ understanding of the complex issues involved with continued government ownership and maintenance of these aged national assets. It is the proposed maintenance of the refineries that made Kachikwu prophecy that “Nigeria will stop fuel importation by 2019.” Ibe Kachikwu went further to promise Nigerians generously that he would resign if the nation doesn’t achieve self-sufficiency in crude oil refining by 2019. I admire Ibe Kachikwu’s patriotism and confidence, but engineering does not work on emotions.
The capacity of our refineries exists on paper but the truth is that a combination of bureaucracy, inefficiency, sporadic crude oil supplies, lack of adequate funding and protracted disrepair left our refineries operating at barley 24 percent capacity utilization as reflected in NNPC’s report released in April 2017.Maintenance of oil refineries takes time. These obsolete refineries cannot work at 100 percent capacity utilization after several years of neglect arising from inadequate maintenance, notwithstanding the billions of dollars spent.
When the refineries were in a state of disrepair and needed Turn Around Maintenance (TAM), most times the TAM was not forthcoming. Why, I asked? Some say “the TAM was neglected because it was a conduit for siphoning funds from government coffers.” Is this true? Some experts reason that “it is due to lack of political will on the part of government to make the refineries work.” Regrettably, the easiest way for the Federal Government (FG) to solve problems associated with TAM was importation of fuel.
Importation of fuel became a big time business in Nigeria. In fact, fuel subsidy almost crippled Nigeria’s economy but for the drop in crude oil price and economic recession. Nigeria is at crossroads in its history where crucial decisions have to be taken on whether to buy new refineries, privatize existing ones or repair them. Whether new refineries are to be procured, existing ones privatized or maintained and operated by the FG, policy makers must weigh the consequences of whatever decision they take. Their decision must be in the interest of the nation.
Some stakeholders in the nation’s oil and gas industry are in favor of privatizing the refineries while the FG is opposed to it. Anyone interested in the debate will want to know what Nigeria stands to gain or lose if these refineries: one in Warri, two in Port Harcourt and one in Kaduna are either privatized or repaired for use.
If the FG insists on maintaining and operating the refineries, it will be a drain pipe for the nation in this austere times. My candid view is that the FG should privatize these refineries bearing in mind the role these refineries play in national security. A Public Private Partnership (PPP) would serve the nation well. The FG should not make the mistake of just privatizing the refineries without appropriate laws and regulations, provision of infrastructure and capacity building. Transparency and accountability are vital elements of any privatization process. This is to avoid a repetition of what the nation is currently going through with epileptic power supply after privatization of Power Holding Corporation of Nigeria (PHCN). If the FG can get the refineries working using a PPP model, Nigeria stands to induce investments, create employment, and increase revenue. The FG should ensure that whoever the partner is must be sensitive to the nation’s security interest. Otherwise, if there are no rational investor willing to commit funds to repairing and upgrading these refineries, Nigeria should place an order for a new refinery with higher capacity than existing ones, and the capability to refine Nigeria’s crude oil.
MA Johnson