Stories by Adewale Sanyaolu
The move by the Nigerian National Petroleum Corporation (NNPC) to spend about $1.8 billion on the Turn Around Maintenance (TAM) of the Port Harcourt, Warri, and Kaduna refineries is to say the least mind boggling, especially at a time the country is going through financial challenges.
More worrisome perhaps is the fact that similar exercises carried out in the past aimed at returning the refineries to profitability to function at optimal capacity had gulped more than $20 billion without yielding the desired result.
PricewaterhouseCoopers (PWC) Nigeria, in a document titled, ‘‘Nigeria’s Refining Revolution’’ disclosed that Nigeria’s per capita refining capacity is 0.002 barrels per day (bpd)/capita, low even by Africa’s standards, when compared with Libya’s 0.06 bpd/capita, and South Africa’s 0.01 bpd/capita.
The refining opportunity
Nigeria is the second largest producer of oil in Africa, producing over 1.5 million bpd (as at January 2017). With proven crude oil reserves estimates of about 37 billion barrels as at 2015, Nigeria boasts of about 29 percent of the continent’s crude reserves (2nd in Africa).
Nigeria is also one of the largest consumers of refined products in Africa (5th as at 2014, behind Egypt, South Africa, Algeria and Morocco) and accounts for over 7 per cent of Africa’s refined products consumption.
In 2015, the refined products consumption was estimated to be about 24 billion litres and products consumed include petrol, diesel, kerosene and Aviation Turbine Kerosene (ATK). To the detriment of national earnings, these products are majorly imported from US, North Western Europe and other sources.
Imports currently account for over 80 per cent of Nigeria’s refined product supply, creating a huge potential for local refining. The West African market also holds significant potential as refineries such as SIR (Ivory Coast), SOGARA (Gabon) and SAR (Senegal), cannot meet current demand for refined products in the region, estimated at 39 billion litres.
PWC therefore submitted that there is an opportunity for potential uptake by neighboring countries if the market has Nigeria’s refined products readily available.
Reps query move to spend $1.8bn on refineries’ TAM
Meanwhile, the House of Representatives recently sought the viability of further spending on the country’s four refineries with the daily allocation of 445,000 barrels of crude to the facilities. The House noted that the same refineries had already gulped “more than $20 billion” on TAM but without appreciable improvement in their performances to justify the expenditure. The lawmakers said Nigeria’s refineries had the “worst performance record in Africa” at 11 per cent capacity, compared to the 81 per cent scored by Egypt and the 85 per cent recorded by South Africa.
A lawmaker from Ogun State, Mr. Ibrahim Isiaka, described the performance of the refineries as “abysmal.”
“The House is cognisant of the fact that whopping sums of $308 million; $57 million; $200 million and lately, more than N264 billion were spent on them and yet it was reported that the NNPC is seeking $1.8 billion to carry out another TAM to make the refineries attractive to investors,” he said.
He recalled that efforts by the Federal Government to bring private individuals on board to build new refineries had also not been successful.
Isiaka stated: “Despite major paradigm shift and consideration of different reliefs, including reduction of licensing fee for new refineries from $1 million to $50,000 to make domestic refining attractive and reduce huge capital flight to fuel importation, only Aliko Dangote has put the licence to use.
Deputy Speaker, Mr. Yussuff Lasun, resolved to determine the current health status of the four refineries by investigating the TAM carried out so far on them. It also resolved to “identify the private and corporate individuals that have refused to utilise the licences,” as well as their readiness to build the refineries.
A report jointly prepared by the African Refiners Association and the World Bank found that capacity utilisation in the four refineries over the years averaged a mere 18 per cent of their installed processing capacity of 445,000 barrels of crude per day. Egypt’s nine refineries (774,000bpd capacity) averaged 81 per cent; Algeria’s five (303,700bpd) 94 per cent; Libya’s five (380,000 bpd) 87 per cent and South Africa’s four (545,000bpd) 85 per cent.
Most former NNPC GMDs have urged government to hand over the refineries to the private sector to manage. At a symposium in January 2015, the ex-NNPC chiefs confessed that they only took directives from the government.
Ibrahim Isiaka, a member of the House of Representatives, who raised the motion for a probe, recalled how capacity utilisation recently dipped to 11 per cent on the average. Warri and Kaduna frequently witnessed zero per cent utilisation. But not long ago, the NNPC variously spent $308 million, $457 million, $200 million and N264 billion on maintenance. The company put average utilisation at 24.59 per cent in April and 23.9 per cent in May this year.
NNPC spends $16 million to $20 million per day importing refined products, Africa Business Insight reported in August 2016. The National Bureau of Statistics (NBS) said N2.56 trillion was spent on this wasteful practice in 2016.
What should be done?
Experts say about $1.5 billion will build a 100,000bpd refinery instead of pouring money into ageing equipment that have not been properly maintained over the years. They equally advised that government should introduce and enforce legislation compelling oil majors producing above a certain threshold to take on at least 20 per cent equity in a local existing refinery or a start-up, adding that national patrimony is the ability to dictate the rules, levy taxes and enforce same to the letter.
Giving further insight into ways out of the quagmire, Partners, PWC Nigeria Africa Oil and Gas Leaders, Pedro Omontuemhen, and Darrell McGraw, recommended refining asset economics and structural commercial considerations for investors and indentifies the modular refinery, an off-the-shelf solution, as the cost-effective supply option for investors, especially when diesel is the lightest yield.
‘‘The world is expected to continue to run primarily on fossil fuels to supply its energy in the near to medium term. This continuous dependence should see countries such as Nigeria focusing on adding value to their natural resources. With oil prices expected to remain relatively low in the medium to long term, the focus on refining should become imperative,’’ they averred.