Nigeria’s refineries: everything but sell

The decision to hold on to Nigeria’s derelict refineries by the Federal government despite recommendations from experts and industry operators to sell them is forcing the managers to come up with all kinds of ideas on how to make it profitable, many impractical.

NNPC has four refineries, two in Port Harcourt, and one each in Kaduna and Warri with a combined capacity of 445,000 barrels per day.

While the Port Harcourt refineries has a combined installed capacity of 210,000 bpd, the installed capacities of Kaduna and Warri refines are 110,000 bpd and 125,000 bpd respectively.

NNPC says it has plans to ramp the refineries to 60 percent capacity utilisation from current average levels of less than 10 per cent which looks like a tall ambition in view of the fact that it has sustained about 10 per cent production for the past two years.

In 2016, the corporation announced that it has secured interests from some investors to collocate the refineries. The deal was to allow private investors to cite their own refineries around NNPC’s refineries and pay for rental use of NNPC facilities.

“However the challenge that we had was that it was difficult to guarantee crude supply to them knowing fully well that the existing crude transportation infrastructure is not sufficient to supply the existing refineries what they need not to talk of supplying other refineries,” says Umar Ajiya, NNPC’s group general manager, corporate planning and strategy.

As a result of this, NNPC in 2017 said it will upgrade facilities and partner with foreign investors to ramp up capacity utilisation to 60 per cent and become a net exporter of petroleum products by 2019.

In January, the corporation announced interests from global energy and transportation giant GE which seeks to assist Nigeria in raising capacity for the refineries.

Italian energy company Eni says it seeks to rehabilitate the Port Harcourt refineries and increase participation in offshore upstream oil and gas production operations and signed a memorandum of understanding (MoU) with Nigeria’s petroleum ministry which also includes building Phase 2 of the Okpai Power Plant.

It may not be a coincidence that these interests are coming at a time when Nigeria is preparing for oil license bid rounds and these may yet be attempts at positioning for lucrative oil deals.

The NNPC has secured a Presidential Mandate to get funds from technical partners to retrofit the refineries. In the plan, the technical partners will act as financiers rather than equity holders.

The model the corporation is adopting is to procure funds and crude for fixing the refineries from their technical partners and pay back upon production from these refineries.

But this model is fraught with uncertainties as it is government-driven and investors have little trust in initiatives from Nigerian government with a history of policy somersaults.

However, this deal is contingent on timing, quickly completing the construction of the refineries and bringing them to full capacity before the Dangote refineries come on stream.

Billed to come on stream in 2019, the Dangote refinery with a capacity of 650,000 bpd, the $12billion facility also includes $3billion investment in subsea pipeline.

Experts say Nigeria’s refineries will be pressured when these plans are actualised as the fight for market share in the downstream sector will be intense.

ISAAC ANYAOGU