The plan by the Federal Government to make Nigeria a net exporter of petroleum products by 2023 appears to be a tall order considering the parlous state of its four refineries currently operating far below installed capacity.
The countries refineries include the Warri Refining and Petrochemical Company, Kaduna Refining and Petrochemical Company, and Port Harcourt Refining Company.
Efforts by the Nigerian National Petroleum Corporation (NNPC) to get private operators involved in the rehabilitation of the national asset have failed over the years.
Indeed the huge budgetary allocation for the Turn Around Maintenance (TAM) of the refineries which the NNPC put at $1.8 billion has raised quite some concern among stakeholders in the economy.
To checkmate the NNPC from committing state resources into what has been described as a deep rooted waste, the 8th National Assembly stopped a planned round of TAM due to past unfruitful attempts.
According to the March 2018, monthly operations report of NNPC, there was a decline in the cumulative performance of Nigeria’s refineries, which showed a N5billion reduction in the Corporation’s group profit.
Stakeholders have however, canvassed the privatisation of the refineries, a model the Federal Government appears not too comfortable about.
Again the July monthly operations report of the NNPC indicated that the three refineries processed no barrel of crude oil and no other product during the month under review. In the report, the refineries also performed woefully in terms of the volume of crude oil they processed, adding that there their combined yield efficiency dropped from the 31.19 per cent in June to zero per cent in July 2019.
An analysis of the combined performance of the facilities also showed that after they recorded an opening stock of 212,165 metric tonnes, the refineries posted zero per cent as crude processed, finished and intermediate products.
They also recorded zero per cent as plant consumption, losses and capacity utilisation. Their combined plant capacity was put at 445,000 barrels per day.
The NNPC said, “In July 2019, the three refineries processed no crude and produce no product for the month as against 38,977MT processed in June 2019.
“Combined yield efficiency is zero per cent compared to 31.19 per cent recorded in June 2019 owing largely to rehabilitation work being carried out in the refineries.”
The national oil firm insisted that the poor output of the facilities was due to the work being carried out on the refineries.
It said, “For the month of July 2019, the three refineries produced no intermediate product, hence, combined capacity utilisation is at zero per cent.
“The waning operational performance recorded is attributable to ongoing revamp of the refineries which is expected to further enhance capacity utilisation once completed.”
The NNPC also stated that the refineries posted a loss of N13.84billion in July 2019.
The report stated, “The Corporation has been adopting a Merchant Plant Refineries Business Model since January 2017. The model takes cognisance of the products worth and crude costs.
“The combined value of output by the three refineries (at import parity price) for the month of July 2019 amounted to N0.83billion. No associated crude plus freight cost for the three refineries since there was no production while operational expenses amounted to N14.66billion. This resulted in an operating deficit of N13.84billion by the refineries.”
Afreximbank pledges support
But in a bid to bail out the ailing refineries, the African Export and Import Bank (Afreximbank) has pledged to partner NNPC to rehabilitate the refineries and construct pipeline assets.
Executive Vice President of Afreximbank, Mr. Amr Kamel, stated this during a business visit to the Group Managing Director of NNPC, Mr. Melle Kyari, in company of other top officials of the bank. Apart from financing refineries rehabilitation and other downstream projects, Kamel expressed interest in participating in some other projects such as the Ajaokuta-Kaduna- Kano (AKK) pipeline system.
He said the bank’s management team thought it imperative to interact with NNPC, being a key player in one of the most viable sectors of the Nigerian economy which is the largest in Africa, with a view to seeking collaboration on ways to further grow the oil and gas sector.
Responding, Kyari said the corporation was ready to collaborate with Afreximbank or any financial institution willing to finance its critical projects, especially refineries rehabilitation, downstream infrastructure, including pipelines.
The NNPC boss said the corporation was open to financial and technical partnership with reputable financial institutions like the Afreximbank to develop the Industry.
“We have a number of financing needs, it depends on how much you are bringing to the table. We need support particularly in refineries rehabilitation, depot optimisation and pipeline financing”, the GMD stated.
He assured the team of his readiness to work with the bank. He added: “We will provide you with basic information. We are ready to talk to you”.
Reasons for rehabilitation glitches
There are indications that interest rates on pre-funding loan and commercial pricing for Direct Sale-Direct Purchase (DSDP) of crude between the NNPC and international oil companies, among few other concerns, are among the issues that stalled the provision of funds for the revamp of Nigeria’s refineries by private investors.
It was gathered that although everything required to get the rehabilitation of the refineries going had been progressed to an advanced stage, negotiations with the consortia of private sector financiers to secure funding for the project had stalled. Former NNPC GMD, Maikanti Baru, had stated that the negotiations “stalled as NNPC and the consortia have varying positions on key commercial terms.”
Baru explained that the development had led to a slight delay in the full take-off of the refineries’ rehabilitation project as scheduled.
He added, “Interest rates on pre-funding loan and commercial pricing for DSDP, among other commercial terms, have impacted completion of the funding agreements and first drawdown on funds to mobilise the original refinery builders to site.”
The DSDP arrangement between the NNPC and international oil companies basically allows the corporation to exchange crude oil with international oil traders for imported petroleum products over a period of time.
Dangote refinery as game changer
Dangote refinery is a 650,000 barrels per day (bpd) integrated refinery and petrochemical project under construction in the Lekki Free Zone near Lagos, Nigeria. It is expected to be the Africa’s biggest oil refinery and the world’s biggest single-train facility, upon completion in 2020. Dangote Oil Refinery, a company owned by the Nigeria-based Dangote Group, is developing the project with an estimated investment of $14bn.
The Dangote refinery will process a variety of light and medium grades of crude to produce Euro-V quality clean fuels including gasoline and diesel as well as jet fuel and polypropylene. The integrated refinery and petrochemical project is expected to generate 9,500 direct and 25,000 indirect jobs.
The Minister of State for Petroleum Resources, Chief Timipre Sylva, said during a project tour to the refinery site said the ability of Dangote Petroleum Refinery to boost foreign direct investment, remained top notch adding that the completion would be the beginning of the Nigerian success story in the oil industry.
Sylva said it was necessary to support the Dangote Refinery project to ensure its successful completion to realise the Federal Government’s aspiration of reversing the ugly trend of fuel importation.
“This is a very heart-warming moment for all of us as Nigerians. There is no way a project of this magnitude will be going on and government will not be interested. Anywhere in the world, if a citizen of a country has committed so much money into investing in this kind of massive project, government must show interest.
“I must say now that Dangote Group has turned this project to the story of all of us, we must all support this project to succeed, because the success of this project signals a lot. Of course, I am sure that the whole world is looking at the success of this project.
Investors all over the world will look at the success of this project and will come to Nigeria to at least also enjoy the benefit of investing here. So, we are actually here to assure you, Dangote Group, that as a government, as NNPC, we will support this project as much as we can. You have definitely done very well.’’
Sylva said the Dangote Petroleum Refinery and Petrochemical complex was a testament that the country possesses an enabling environment for businesses to thrive, and added that the success of the project would boost investor confidence in the country’s oil and gas projects.