If there is one thing Nigerians desire, it is value addition to the crude oil and gas produced in the country. For decades, political elite and managers of the Nigerian National Petroleum Company Limited (NNPCL) have largely neglected this, favouring the importation of petroleum products and subsidies instead. Now, with refineries beginning to emerge, the many flawed approaches to managing the oil sector in Nigeria are coming to a head particularly in the case of the country’s four state-owned refineries.In this report, KINGSLEY JEREMIAH examines the future of the $3 billion invested in the Port Harcourt, Warri, and Kaduna refineries. Despite the renewed focus on revitalising these facilities, questions remain about whether this substantial investment will yield the intended results or if it will be another example of poor management and wasted resources in Nigeria’s troubled oil industry.

On March 17, 2021, when the Federal Executive Council (FEC) approved the rehabilitation of the 61-year-old Port Harcourt Refinery at a cost of $1.5b, followed by the 46 years old Warri and 44 years old Kaduna refineries for $1.4b, there was renewed expectations for Nigeria’s ailing oil infrastructure given the persistent challenge of energy security and foreign exchange crisis.

Expectations were high that by September 2022, the first phase of the Port Harcourt refinery, particularly, the 60,000 barrels-per-day unit, would be operational, with full rehabilitation of the entire facility slated for completion by 2025.

However, three years later, the Nigerian National Petroleum Company Limited (NNPCL) has made little tangible progress, leaving Nigerians frustrated as the much-anticipated revival of the refineries remains elusive.

Shortly after the FEC meeting of March 17, 2021, the then Minister of State for Petroleum, Timipre Sylva, disclosed that the facility would be done in three phases of 18, 24 and 44 months. That’s calculating from April 2021 when the Nigerian National Petroleum Company Limited (NNPCL) awarded the engineering, procurement and construction (EPC) contract to Tecnimont, a subsidiary of Italy’s Maire Tecnimont, after initially awarding a contract worth about $50m to the company to carry out checks and equipment inspections of the Port Harcourt refinery.

Going by the contract of the assets, the Port Harcourt is expected to be totally overhauled into a new facility while the other two assets will be repaired. The implications are that Nigeria will only get a facelift from Kaduna and Warri Refinery while possibly change of units will take place at Port Harcourt Refinery. 

How did we get here?
Nigeria has four refineries. Two are located in Port Harcourt (PHRC), and one each in Kaduna (KRPC) and Warri (WRPC). The refineries have a combined installed capacity of 445,000 bpd. A comprehensive network of pipelines and depots strategically located across Nigeria to link these refineries. 

The PHRC built about 1965 is made up of two refineries, located at Alesa Eleme near Port Harcourt with a jetty (for product import and export). The jetty is located 7.5km away from the refinery complex.

In 1983, the old Port Harcourt refinery with 60,000 barrels per day nameplate CDU capacity and the tankage facilities were acquired by NNPC from Shell. Subsequently, a new 150,000 bpd export refinery was built in 1988 and commissioned in 1989. Therefore, the current combined installed capacity of PHRC is 210,000 bpd.

The plant utilises bonny light crude oil to produce Liquefied Petroleum Gas (LPG), Premium Motor Spirit (PMS), Dual Purpose Kerosene (DPK), Automotive Gas Oil (AGO), Low Pour Fuel Oil (LPFO) and High Pour Fuel Oil (HPFO).

The Warri Refinery was established in 1978 with a refining capacity of 100,000 barrels per stream day plant and was debottlenecked to 125,000 barrels per stream day in 1987. The refinery is located at Ekpan, Warri, Delta State, and it is operated by the Warri Refining and Petrochemicals Company (WRPC) Limited. 

The refinery was installed as a complex conversion plant capable of producing Liquefied Petroleum Gas (LPG), Premium Motor Spirit (PMS), Dual Purpose Kerosene (DPK), Automotive Gas Oil (AGO), and Fuel Oil from a blend of Escravos and Ughelli crude oils.

WRPC has a petrochemical plant complex that produces polypropylene and carbon black from the propylene-rich feedstock and decant oil from the Fluid Catalytic Cracking unit (FCCU).

The Kaduna refinery has a refining capacity of 110,000 barrels per day and is located in Kaduna, Kaduna State. The plant is run by the Kaduna Refining and Petrochemicals (KRPC) Limited.

The KRPC possesses a fuels plant commissioned in 1983 and the 30,000 MT per year Petrochemical Plant in 1988. The refining plant has two distillation units that utilise Escravos and Ughelli crude oils for fuels production and imported heavy crude oil for lube base oil, asphalt and waxes.

Products obtained from KRPC include Liquefied Petroleum Gas (LPG), Premium Motor Spirit (PMS), HouseHold Kerosene (HHK), Aviation Turbine Kerosene (ATK), Automotive Gas Oil (AGO) and Fuel Oil. The petrochemical plant produces Linear Alkyl Benzene (LAB).

Most stakeholders see the change in the management of the refineries from Shell to NNPC as a major issue for the refinery, especially coupled with the loss of the financial autonomy of NNPC and eventually political interference in the asset.

Former Group Managing Director of NNPC, late Maikanti Baru, who handed over to the current management, revealed that the nation’s refineries had not undergone Turn Around Maintenance (TAM) for an aggregate of 42 years combined.

While refineries did not undergo TAM, the National Assembly, especially the ninth National Assembly, said NNPC spent more than N11.35 trillion ($25 billion) on fixing the country’s three moribund refineries in the past 10 years.

The National Assembly did not act on this investigation as no one has been arrested or prosecuted over the fund, which should build a new mega refinery. Most experts, who insisted that TAM remained a major scam that must be investigated, noted that oil elite in the country have frustrated the operation of the refineries to their gains.

Port-Harcourt, Warri, Kaduna Refineries Owe N4.5trn As Idle Workers Earn N272b  
In its financial statement for 2023, NNPC revealed that the country’s refineries are indebted to the tune of N4.5trn. The Port Harcourt Refinery currently owes about N1.9trn, Kaduna Refinery N1.3trn and Warri Refinery N1.1trn. The record of the debt of these assets in the 2022 audited statement showed that Port Harcourt Refinery had a debt profile of N806b, Warri N597b and Kaduna N487b.

The last Nigerian National Petroleum Company Limited (NNPC) monthly financial and operations report released in August 2021, the same month the Petroleum Industry Act (PIA) was passed, revealed that maintaining the country’s moribund refineries costs about N68b yearly, mainly in salaries. Rising by N68b yearly for the four years that the facility has been shutdown, it means that, without refining any crude oil, the refinery workers got N272b, a situation, which added to the high employee benefits of over N500b seen in NNPC audited statements released last month. Salaries and other benefits for NNPC employees in 2023 stood at N583.797b from N266.923b in 2022, according to its recently released audited financial report. The company’s general and administrative expenses surged to N2.991trn in 2023, an increase of over 70 per cent from the N1.704 trn recorded in 2022.

As of 2021, NNPC had 7,338 staff, with 1,603 of them stationed at the Kaduna, Port Harcourt and Warri refineries. The Kaduna Refining and Petrochemical Company (KRPC) alone employed 660 workers, representing 8.99 per cent of the company’s total workforce, while the Port Harcourt Refining Company (PHRC) had 506 staff, and the Warri Refining and Petrochemical Company (WRPC) employed 437.

Despite adopting a Merchant Plant Refineries Business Model in January 2017, the combined output from the three refineries for August 2021 was valued at just N190m, while losses stood at a staggering N4.01b, a loss margin of 2,010.53 per cent.

Notably, these losses persisted even after the refineries were shut down. On September 10, 2020, Group Chief Executive Officer of NNPC, Mele Kyari, confirmed that all four refineries, across three locations, had been deliberately closed.

Kyari explained that the decision was driven by two key factors: the compromised state of the crude oil delivery pipelines, which had been severely vandalised and the resulting inability to operate the refineries efficiently.

As a result, much of NNPC’s financial burden came from overhead costs despite the refineries being non-operational. Before being shut down, the refineries were part of the reasons NNPC did not make profit for about 40 years. For instance, analysis from NNPC financial records showed that the corporation recorded losses in the region of N551.46b from January 2015 to December 2018, refinery top the reasons while losses were not abating. 

Indeed, Nigerian refineries made a total loss of N132.5b in 2018 alone. That is a 39 per cent increase from the N95.09b losses it incurred in 2017.  While the refineries remained dormant, BudgIT, a public finance focused Non-Governmental Organisation, showed that the Federal Government spent about N10trn to subsidise imported fuel between 2006 and 2018.

In 2023, what was paid as subsidy was as high as N7trn with N3.5trn budgeted in the first six months of the year and NNPC claiming that the Federal Government owes N4.4trn on subsidy in 2024.

Dangote VS NNPC Refineries And The Challenge Of Crude Oil 
The many years of government control of the downstream sector of the oil industry, combined with the people, mainly elite gaining from subsidies, has made Nigeria one of the only major oil producing countries in the world that relies absolutely on importation of petroleum product.

About 18 years ago, private investors had rushed to apply for refinery licences under former President Olusegun Obasanjo. Some others did so during former President Muhammed Buhari’s tenure, as he granted some other licences, bringing total refinery licenses to about 62.

By implications, the country’s refining capacity on paper given these 62 licences stand at over 2.3 million barrels per day. This is about one million barrels higher than the country’s total crude oil daily production. For these refineries to succeed, the country must increase crude oil production or allocate more money to import crude oil into the country. 

From licences, notable facilities like the Dangote Refinery has 650,000 bpd capacity, BUA Refinery has 200,000 bpd capacity, NNPCL has a combined capacity of 445,000. OPAC refinery, the Walter Smith refinery, the Aradel refinery and the Edo refinery, which are already in operation, have a combined capacity of 27,000 barrels per day.

This brings the refineries that are either in operation or close to starting production to about 1.322 million barrels per day. The other refinery licences, mainly modular refineries, with unknown status, have close to one million barrels per day capacity.

By implication, NNPC, which has the bulk of his crude committed to forward sale would have more trouble when its refineries come on stream as serious rationing and possible conflict would come up in meeting up crude demand locally.

Under its Project Bison, in September 2021, NNPC entered into a forward sale agreement with Lekki Refinery Funding Limited to supply 35,000 bpd  for the settlement of the $1.036 billion (N426.2 billion) funding received for the financing of investment in Dangote Refinery.

The interest rate for the facility is 3-month libor plus 6.125 per cent. As at December 31, 2023, NNPC said it has paid $625 million principal, while $424 million (N324 billion) is still outstanding.
Under Project Gazelle, NNPCL in December 2023, entered into a forward sale agreement with Project Gazelle Funding Limited to supply 90,000 of crude oil per day from Production Sharing Contracts assets for the settlement of a $3 billion funding.

The funding, according to the company, was utilised to finance an advance payment of future taxes and royalty obligation due to the federation on PSC assets managed by the company on behalf of the federation.

As at December 31, 2023, a drawdown of $2.25 billion has been achieved from the initial facility of $3 billion. The interest rate for the facility is 3-month libor plus 6.5 per cent while the margin and Liquidity Premium are 6 per cent and 0.5 per cent respectively. NNPCL noted that the principal repayment commenced in June 2024.

Under another forward sale called Eagle Exporting, the state oil company said one of the subsidiaries within the Group, NNPC Exploration & Production Limited (NEPL), had capital commitments of $352.88 million (N158.3 billion) as at December 31, 2023.

This relates to the forward sale agreement with Eagle Export Financing Limited for the delivery of Crude Oil. Under the contract, Eagle Export Funding limited will make an upfront payment to NEPL for crude in a Forward Sale Agreement (FSA).

The payment received is required to be settled with delivery of crude oil volumes of at least 1,800,000 barrels of crude oil, which according to NNPCL must  be nominated and scheduled by NEPL (and delivered at the relevant delivery Terminal to Eagle Export Limited in every delivery period which commenced on 28 August 2020.

There is another sum of $300m (N124 billion) in forward sale agreement with Bestaf to fund the acquisition of Chevron Nigeria 40 per cent Interest in OML 86 and 88. Called Project Brogue, as at 31 December 2023, $218.30 million has been paid back. Hence, NNPC E&P Limited has a capital commitment to Middleton Funding Limited as at 31 December 2022 amounting to $81.7 million.

While there are other forward sale agreements, one of the critical concerns of most stakeholders is the competitive of NNPC refineries given previous records of inefficiency when compared with Dangote refinery which has the capacity to produce Nigeria’s daily demand.

It is good to note that Kaduna Refinery may rely on heavy crude from Venezuela, Russia and other countries which produce heavier crude, with dilapidated pipelines, most stakeholders are worried about the options that will be available to state oil firms and profit margins. By implication, the Kaduna Refinery may remain unprofitable and possibly obsolete if the country will need to truck imported crude all the way to Kaduna. 

Seeking private companies to run the refineries and concerns of stakeholders
Over the years, most stakeholders have been divided on whether to sell off the refineries after being fixed or to allow private companies to manage them.
Last week, NNPC Ltd announced plans to engage private firms for the operation and maintenance of two of its key refineries. In a statement seeking Expressions of Interest (EOI) from reputable and credible operations and maintenance companies to manage, the national oil company put up WRPC and KRPC.

According to NNPC, the move is aimed at ensuring the reliability and sustainability of the refineries to meet Nigeria’s fuel supply demands and enhance energy security. The company explained that the tender process for WRPC and KRPC would be consolidated into a single three-stage procedure, comprising EOI, technical, and commercial stages.

The process would explore cost-saving measures through optimised procurement of consumables, personnel management, and the use of advanced systems like Computerised Maintenance Management Software (CMMS) and Warehousing Management Systems (WMS).

While the company left Port Harcourt Refinery, getting a private company to manage and maintain the facility was lauded by most stakeholders. But they worry over the profitability of the assets in the face of security challenges for pipelines and existing debt of the facilities. 

Executive Director of the Centre for Transparency Advocacy (CTA), Faith Nwadishi, insisted that the $3 billion invested in the state refineries would amount to a waste, stressing that NNPC will not be able to compete with Dangote Refinery.

She noted that the crude oil challenge would affect NNPC, creating down time that would make return on investment elusive. “I don’t see any hope and this rubbishes all the work we have done with PIA and the advocacy that led to it. We need to hold NNPC accountable for the utilization of the $3 billion spent on the refinery,” she noted. 

With the Dangote refinery being modern, he noted that the government refineries even if privatised would be struggling with Dangote Refinery, adding that Dangote will remain a monopoly in the refinery business.

Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, had called for the adoption of the Nigeria Liquefied Natural Gas (NLNG) model to manage Nigeria’s refineries.

Yusuf emphasised that removing bureaucratic and political interference from the oil sector is essential for achieving better efficiency, transparency, and unlocking the true value of the industry.

According to him, NNPC lacks the capacity to effectively manage critical oil sector assets, including the refineries. He noted that the high standards seen in other national oil companies such as Saudi Aramco and Petrobras are missing in NNPC’s operations. He argued that merely injecting more money into the sector will not solve its problems, citing the mismanagement over the past decade as a key factor in Nigeria’s current economic challenges.

Yusuf’s remarks come amid recent statements by Obasanjo, who revealed that Shell refused to buy equity stakes in the country’s refineries during his presidency from 1999 to 2007. Obasanjo disclosed that Shell declined owing to poor management and maintenance, which had turned the refineries into a ‘mess’.

“When I was President, I invited Shell and said, ‘Come and take equity participation and run our refineries for us.’ They refused, saying our refineries have not been well-maintained. They pointed out that we had brought in amateurs instead of professionals and that corruption was rampant in how the refineries were managed and maintained. They did not want to get involved in such a mess,” Obasanjo stated.

Both views by Yusuf and Obasanjo highlight the need for structural reforms in the oil sector, with calls for professional management and reduced government involvement as the key to unlocking Nigeria’s refinery potential. Renowned energy expert, Professor Wunmi Iledare, emphasised the importance of maintaining optimism in the face of uncertainty.

“Hope must be kept alive. I have no reason to be hopeless at all,” he remarked. According to Iledare, it would be unfathomable for professionals to make such a significant investment decision without carefully considering the potential value it would bring. This, he believes, is a reason for optimism despite the challenges that may arise.

However, he acknowledged the possibility of setbacks, noting that any major endeavour comes with inherent risks. “I am hopeful, notwithstanding the likelihood of a failure exposure,” Iledare said, while stressing that the outcome will only become clear with time. 

Energy and Infrastructure expert, Dan Kunle, had noted that the attitude of Nigerians, the manager of the refinery and government regarding complex engineering projects like the refinery is below par.

To him, the political hype is unnecessary, adding that even if the political class would project propaganda, the NNPC shouldn’t have bought into politics instead gaining confidence in the changing market. 

He noted that about 25,000 barrels of crude would be needed to test run the old refinery, pressurising it to ensure a synchronisation of the hardware apparatus along with other facilities. Kunle said the process, which could take one to two months, remained unpredictable and could warrant importation of parts.

“NNPC must stop making political statements. They should concentrate on fact and clarification of technical details. We need to stop political hype,” Kunle said. 

Energy lawyer and former Shell management staff, Ameh Madaki, expressed strong skepticism regarding the revival of NNPC’s refineries. “I don’t have any confidence whatsoever in the takeoff of the NNPC refineries,” Madaki stated, highlighting the inefficacy of previous efforts. He criticised the $3 billion already committed to the refineries’ turnaround maintenance, describing it as “water under the bridge” with no meaningful results. Madaki also pointed out that despite various takeoff dates announced by the NNPC leadership, it remains evident to discerning observers that no production will emerge from the facilities in the foreseeable future.

Madaki further lamented the lack of accountability for those overseeing the refineries’ operations. “As usual, there will be no consequence management of any sort for the incompetence of all those involved in this charade,” he said.