Why stakeholders want Nigeria’s idle refineries sold

• $25b Spent On TAM In 10 Years, N272b On Salary In Four Years
• Insist Profitability May Remain Elusive 

As Nigerians continue to wait for the country’s refineries operated by the Nigerian National Petroleum Company Limited (NNPCL) to come on stream, the over $25 billion expenses incurred by the assets on Turn Around Maintenance (TAM) in the last 10 years and about N272 billion incurred on staff salaries and other expenses since they were shutdown four years ago are creating fresh concerns among stakeholders.

Investigations by 9th National Assembly showed that NNPC spent more than N11.35 trillion ($25 billion) on fixing the country’s three moribund refineries in the past 10 years.  Although the lawmakers recommended a forensic audit of the TAM, given that the cost of the TAM could build two new refineries, nothing has been done on the matter. This is even as the country has continued to import petroleum products despite being the leading crude oil producer in Africa.

Meanwhile, data on operating expenses from the refineries shows that the national oil company must have spent about N272 billion to keep workers at the facilities in the last four years despite being shut down.

The last NNPC Monthly Financial and Operations Report for August 2021, the same month the Petroleum Industry Act (PIA) was passed, showed that the yearly expenses from maintaining the moribund assets stood at about N68 billion. As of 2021, NNPC had 7,338 staff and 1,603 of the workers were at the Kaduna, Port Harcourt and Warri refineries.

About 660 staff were at the Kaduna Refining and Petrochemical Company (KRPC); 506 staff were at the Port Harcourt Refining Company (PHRC) while 437 were at Warri Refining and Petrochemical Company (WRPC).

The NNPC had adopted a Merchant Plant Refineries Business Model since January 2017, as the combined value of output by the three refineries for the month of August 2021 was N190 million while losses stood at N4.01 billion. The gap between what the refinery made and the loss stood at 2,010.53 per cent.

A year before the August 2021 financial and operation report, precisely on September 10, 2020, the Group Chief Executive Officer of NNPC, Mele Kyari, said the refineries were already shut down, meaning that the overhead made up the major losses the firm incurred.

“All the four refineries in three locations are shut down and it was a deliberate decision for two reasons. One is that the delivery of crude oil to these refineries is completely challenged because the pipeline network has been completely compromised by vandals and all kinds of people that will not allow us to operate these pipelines,” Kyari said.

Recall that the Federal Government had approved $1.5 billion to rehabilitate and upgrade the Port Harcourt refinery complex in March 2021 while the Kaduna and Warri refineries are expected to gulp about $1.4 billion.

After many elusive deadlines, Kyari said the Port-Harcourt refinery would commence operation this December with a possible output of 12 million litres of Premium Motor Spirit per day or 18.4 per cent of the country’s 65 million litres daily consumption.

The development comes amid plans by workers at the Warri refinery to stage a protest over what they called a provocation by NNPCL top management for failing to approve and implement the Support Staff Condition of Service/Improved Remuneration Package, and the recent NNPCL advertisement seeking experienced hire of maximum 37 years of age.

In a letter signed by Lead Support staff representative, IghomitedoDafe, the staff slated the 19th of this month for the protest to press home their demands.

This comes as some stakeholders have called for the sale of the 445,000bpd capacity refineries, maintaining that the infrastructure would remain a drainpipe on the nation’s resources.

President of the Nigerian Economic Society (NES), Prof. Adeola Adenikinju, told The Guardian that the country needed to sell the refineries or continue to lose money through them.

“They should be sold off. We should count our loss and get out of the refinery business. Otherwise, it will remain a bottomless pit for Nigeria’s resources,” Adenikinju said.

Chief Technical Officer at Lekoil, Samuel Olotu, said the apparent difficulty with sustaining the nation’s crude production at a good level to support the economy and the lack of sufficient crude supply to local refineries were putting pressure on the economy.

Olotu said the amount spent on the maintenance of Nigeria’s refineries so far is more than enough to build a brand new refinery years back.

According to him, the right step to take is to privatise the old refineries with NNPC Ltd retaining some equity and then inject the revenue from the sale into growing upstream crude production.

While the country is unable to produce enough crude, forcing the NNPCL to resort to borrowing, Olotu said privatisation of the refineries remains a viable option to the national oil company.

To a renowned energy scholar, Prof. WunmiIledare, the full implementation of the PIA is the leeway for the refineries to return to operation.

According to him, a properly constituted NNPCL board would take the best decision on the facility.

“They can decide to sell or run the refineries using the NLNG model.  Right now the refineries are nothing but cesspools and time will tell if things will ever change. New wine in an old wine bottle is an anomaly,” Iledare said.

Also, an energy expert and former management staff of Shell Nigeria, AmehMadaki, said the billions of dollars pumped into the turn-around maintenance of the refineries would not produce any result.

“Why no one has gone to jail for the fraud around the turn around maintenance costs of these refineries over the years beats every right thinking imagination. The reality is that those refineries should have been sold off as scrap years ago and the workers eased off into the economy to play other roles instead of being a perpetual drainpipe on the scarce resources of a gasping country, economically,” Ameh said.

Ameh, who is also a legal expert, described Nigeria as a moving crime scene, stressing that something urgent needs to be done, as the current situation is totally unacceptable and unsustainable.
Energy expert, Dan Kunle, said the refineries would never work optimally and deliver dividends or return the capital invested on them to the treasury.

Kunle said: “If we capitalise all the rehabilitation investment to date and add up to the original EPC costs in the 70s and 80s, the summation will alarm Nigerians. We can never expect NNPC to operate the refineries efficiently.”

Stressing that privatisation is the best option for the country, Kunle said without such a move, the assets would go the way of Ajaokuta Steel company.

“Please look around the country in the last 30 years. Which state owned enterprise is successful in Nigeria? NLNG Bonny is 51 per cent owned and operated by the IOCs. Nigeria public servants and managers are not trained to produce profit but to rentier. This is sad enough,” he said.

He noted that the money that has been pumped from upstream to midstream and downstream would not be available anymore because the upstream lacks good investments, thus productions have persistently dropped and revenue streams have equally dropped.

He stated that total deregulation of the downstream is the answer, noting that overhauling NNPCL and unbundling all the vertical monopoly structures created within the company is sacrosanct.

Speaking on workers’ salaries at NNPCL, Kunle said the “fat salaries and allowances across the vertical monopolistic structure” operated since 1973 should be restructured to reflect that of teachers and lecturers, adding that the company has not done anything special.

Group Chairman/CEO at International Energy Services, Dr. DiranFawibe, however, said it was not enough to throw figures around regarding what has been spent on TAM and the salary of staff, stressing that the National Assembly must be able to break down the figures.

According to him, NNPCL may need to come up with cost analysis on what would put the assets on production stream, adding that selling the refineries as scraps would not have been the best option.

Fawibe, who expressed optimism that all the refineries would come on stream, however wants NNPCL to be realistic on its projections as to when the refineries would start working.

An economist and Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr. Muda Yusuf, wants the NLNG model to be adopted for the refineries.

Yusuf said the interference of bureaucrats and politicians must be removed from the oil sector for a better, efficient and transparent management, stressing that such a move is the only way to unlock value from the sector.

Yusuf insisted that NNPC might not have the capacity to manage the critical assets in the oil sector including the refineries, adding that the quality seen in Saudi Aramco, Petrobras and other national oil companies is not seen in NNPC.

He stressed that throwing money around would not help the oil sector, adding that the experience over the past decade, including the mismanagement of the oil industry, is responsible for the country’s current economic woes.

Recall that former president Olusegun Obasanjo had some time ago revealed that Shell refused to buy equity stake in the refineries during his tenure between 1999 and 2007 over poor management and poor maintenance of the facilities.

“When I was President, I invited Shell, and I said come and take equity participation and run our refineries for us. They refused and said our refineries have not been well maintained. We have brought amateurs rather than professionals. They said there is too much corruption with the way our refineries are run and maintained, and they did not want to get involved in such a mess,” he said.