Cautious optimism greets NNPC’s proposed partnership for refineries

Analysts say NNPC’s move to engage investors as joint venture technical partners for the rehabilitation and operations of its three refineries, while a good move, requires proper scrutiny.

In tender published in major newspapers, the national oil firm said the partners would fund, rehabilitate and jointly “operate the 210,000-barrel-per-day Port Harcourt Refinery, the 110,000-bpd Kaduna Refinery and the 125,000-bpd Warri Refinery.”

Obadiah Mailafia, former deputy governor, Central Bank of Nigeria, calls for due diligence, which is of utmost importance in executing the results of the tender.

“This new initiative, welcome as it seems, might mean even lesser control of the national assets. We must negotiate the best terms if this is to work in the national interest,” he says.

Chijioke Mama, energy analyst, says it is a viable solution to the refining crises in Nigeria, as “private sector participation in an operate and monetise model such as this, has been successfully adopted elsewhere in the world.

“However, investors should be cautious with respect to the lack of total clarity in the nation’s downstream policy and product and product pricing. Overall, it’s a good initiative form by NNPC and a worthy investment opportunity for players with the right strategy and capability.”

The bidding, which will end on May 30, does not include any provision for transfer of assets, just limited to partnership to make the refineries operational and increase overall productivity through technically and financially capable private operators.

The current fuel scarcity that has seen long queues at filling stations is partly the result of NNPC’s failure to meet local production quotas due to the deplorable state of the refineries.

Losses arising from the shut-in of the refineries led to fall in crude oil processed by 224,342 metric tons and a loss of N14.17 billion between January and February, according to data from NNPC operations report.

Meanwhile, Henry Ikem-Obih, group executive director/chief operations officer, NNPC Downstream, said the refineries would begin operations in April.

“Most of the work being done at the refineries is on site, that is, just getting them ready to start cracking crude so that they too can start contributing to the amount of fuel we have to distribute across Nigeria. We have to ensure that within the month of April, we have some local refineries contributing to the amount of fuel we have to distribute across the country.”

NNPC says this latest information on the tender supersedes earlier pronouncements on the issue.

Sources say a total liberalisation of the downstream sector and selling off the refineries to private investors will be a good long-term move.

President Muhammadu Buhari has made overhauling the NNPC a key part of his administration’s energy security objective.

Last month he approved the restructuring of the NNPC into seven new divisions. Ibe Kachikwu, minister of state for petroleum resources, announced the new structure that will see the NNPC have five core new divisions comprising the upstream, downstream, refining group, gas and power, as well as the ventures’ groups.

The other two, he said, are finance and services groups. He said the restructuring was the only opportunity available to the NNPC to become productive again, adding that employees of the corporation would have to work to earn their wages going forward.