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Location, non-availability of crude fuelling wastage at Kaduna Refinery

By Kingsley Jeremiah, Abuja
18 February 2018   |   4:25 am
In March 1988 when the Kaduna Refining and Petrochemical Company (KRPC) Limited came into being, expectations were sky-high. Since the country’s economy is largely oil-dependent...

Kaduna refinery

In March 1988 when the Kaduna Refining and Petrochemical Company (KRPC) Limited came into being, expectations were sky-high. Since the country’s economy is largely oil-dependent, refining crude for local consumption and for export were topmost on the agenda.

Expectedly, Nigerians were highly optimistic that the development would ultimately boost the country’s Gross Domestic Product, especially if local demands were met and refined products exported instead of exporting crude oil alone.

Indeed, it was not out of place to conclude that the refinery (which was built with the capacity of turning 110, 000 Barrel Per Stream Day (BPSD)) even if not growing rapidly, would have cat-walked to a conglomerate capable of competing internationally. But those prospects have remained distant till date, and the firm managed by the Nigerian National Petroleum Corporation (NNPC), has witnessed more setbacks than successes in its entire 30-year journey.

On January 15 this year, its Executive Director, Services, Abdullahi Idris, announced that the plant has shutdown operations due to avoidable reasons, principally the non-availability of crude oil. The shutdown brought an end to the four million litres of petrol, 2.5 million litres of automotive gas oil and 1.6 million litres of kerosene that the plant has been producing daily, in recent times.

Kaduna Refinery, A Historical Perspective
KRPC Limited was designed to process both imported paraffinic and Nigerian crude oils into fuels and lube products, and was constructed by Chiyoda Chemical Engineering and Construction Company (now Chiyoda Corporation) of Japan.

According to the NNPC, in December 1986, the design capacity of the fuels plants of the refinery was successfully increased from 50, 000 BPSD to 60, 000 BPSD, bringing the total refinery installed capacity to 110, 000 BPSD.

In March 1988, the 30, 000 metric tonnes/year Linear Alkyl Benzene Plant under the then Petrochemical Sector of the NNPC was commissioned. The plant was designed to derive its entire raw materials including utility supplies from the refinery. Same year, it was decided that the two plants (that is the Fuels Plant of the refinery and Linear Alkyl Benzene Plant) should merge into a single subsidiary company of NNPC in view of their interdependence, common goal and proximity. That was how the KRPC came into being.

“The decision to construct the third NNPC refinery in Kaduna was taken in 1974 along with that of the second NNPC refinery located at Warri. However, it was decided that work would commence on the construction of the third refinery whenever the projection of the consumption of petroleum products justified it.

By early 1975, in view of the fuel shortages experienced then, the Federal Government decided that work on the third refinery should be advanced. It was envisaged that the refinery was to be a simple hydro skimming type refinery in order to meet up with the fuel demand then,” the NNPC said on its website.

It continued: “Based on the feasibility studies carried out, which took into consideration, the consumption of the various petroleum products within the northern zone, and adequate means of disposal for the surplus products, a refinery with crude oil capacity of 42, 000 BPSD could be easily justified. Hence, the refinery was designed for a capacity of 60, 000 BPSD. It was much later that the Federal Government decided that the capacity for any refinery in Nigeria should not be below 100, 000 BPSD. However, this would have led to the production of large quantity of heavy ends. And one practical and viable solution is reprocessing the heavy fuel oils.

“In order to do this, the whole project plans had to be modified so that what initially was planned to be simply a hydro skimming type refinery, developed into an integrated refinery. The refinery would now be able to produce a wider variety of petroleum products, some of which should be lubricating base oils. Hence, it became necessary to import suitable paraffinic-based crude oil from Venezuela, Kuwait or Saudi Arabia.

“Products from the refinery include; fuels for use as Liquefied Petroleum Gas (LPG), Premium Motor Spirit (PMS), Automotive Gas Oil (AGO) or diesel oil, kerosene, fuel oil, Sulphur and those from the lubricating oils complex are base oils, asphalt (bitumen) and waxes,” the NNPC stated.

The lubricating oil complex of Kaduna Refinery is the first of its kind in West Africa and one of the largest in Africa. The consulting firm, King Wilkinson of Hague, Holland, in conjunction with NNPC engineers, developed the plan for the refinery. The contract for construction was awarded to Chiyoda Chemical Engineering and Construction Company of Japan in 1977.

The refinery project was completed and the Fuels Plant was commissioned in 1980. However the Lubes Plant was commissioned in 1983 and Petrochemical Plant much later in 1988. The initial operation and maintenance were carried out by Nigerian staff and expatriate personnel as technical backup, and by 1985, Nigerian staff had virtually taken over all the maintenance and operations.

Epileptic Operations, Perennial Losses
Even though the Kaduna Refinery is the newest refinery in the country, it has not only remained largely under-utilised and performed far below capacity, it has also continued to run at a loss perpetually, adding up to the burden of the state-owned oil corporation.

Not long ago, the NNPC said that the KRPC lost about N2.2b annually ‎to illegal tapping on its raw water pipeline alone. In July last year, the group announced an N11.87b loss, which it attributed to the downtime and “unimpressive performance of the refineries.”

Between January and November last year, an analysis of the group’s finances also has revealed that the refineries and other units collectively led the company to a shortfall amounting to N270.386b. Kaduna Refinery, reportedly recorded losses totalling about N27.36b.

In most cases, the recurring shutdown of the refinery is blamed on the non-availability of crude oil, even as most stakeholders say that the location of the refinery and the dependency on heavy crude were bad business decisions.

“That refinery will constantly have problems because of it distance from any crude oil field. The refinery depends on pipeline from the Niger Delta to the North. The refinery is also equipped with only one-month storage capacity. The implication is that even if crude oil flow stops for only three weeks the refinery is out of supply. Those are the disadvantages we have to battle with,” Head, Energy Research, Ecobank, Dolapo Oni said.

Sourcing Crude From Niger Republic
The Group Managing Director of NNPC, Maikanti Baru had said: “Due to challenges with the aged refinery and crude oil pipelines that had been breached severally, the operations of the refinery have been epileptic. This we are determined to resolve through various intervention methods, including evaluation of alternative crude oil supply from Niger Republic through building of pipelines of over 1, 000 kilometers from Agades to Kaduna. That effort is being championed by Mr. President himself.”

Just recently, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu led a delegation to Niger Republic. The outcome of that engagement is expected to deliver another refinery at the border of Niger and Nigeria (Katsina State precisely). That meeting also raised hopes regarding the construction of pipelines from the Niger Republic to Nigeria.

While prioritising alternative sources of crude for refineries in the North, the pipeline may become useless should current exploration drive in the northern part of the country yield result, as the Federal Government, through the NNPC, restates its determination to continue pursuing oil exploration in the North.

President of the Nigerian Association of Petroleum Explorationists (NAPE), Abiodun Adesanya, is one of those bothered by the sustainability of the alternative plans to source crude from Niger Republic, considering the fact that investment in pipeline infrastructure is usually a very heavy investment.

“If we invest in pipeline to take crude to the refinery, how much can we realistically make? What is the plan for the pipelines to be sustainably maintained? This is an international agreement, which is a third option, so, we need to explore options within Nigeria, and it is only when we know that those things are not possible that we should talk about going outside the country because that could be very expensive. Just like we are supplying gas to some Africa countries today, Ghana has found gas and may not need us any more. What if we discover oil in the North? What happens if the pipelines are not needed anymore? These are serious economic or business plans that we really need to consider,” Adesanya said.

$20b For TAM Down The Drain
So far, the country has spent the sum of $20b on the Turn Around Maintenance (TAM) of the country’s refineries. But the question on the lips of many is, why is the NNPC always eager to embark on Turn Around Maintenance (TAM) than regular maintenance? A further request to spend another $1.8b on TAM has drawn the ire of stakeholders, some of whom have insisted that the process is nothing but outright fraud.

They maintain that the money if properly used, would have been enough to construct two new refineries with a combined capacity of 1.3 million barrels per day, as a similar refinery being built by the Dangote Group is estimated to cost about $12 billion and turn out 650, 000 barrels of oil daily.

President, Nigerian Association for Energy Economics (NAEE), Prof. Wunmi Iledare, who expressed sadness at how office holders make a fortune from managing public assets, said the Petroleum Industry Governance Bill (PIGB) would eventually change the narrative and turn the corporation to a commercial entity.

“I think the way the government spends money to maintain the refinery leaves a lot to be desired. It gives the impression that it is not really particular about getting optimum value from the investment it is making. That has been the hallmark from one government to the other, and I don’t think this current government is doing any better because it does not have the opportunity cost mentality in the way it thinks about solving some of the problems.

“So, in essence, I don’t think we are incapable of solving the problems of the Kaduna Refinery, I just think we are not employing the recourses that we have for optimal value creation.  If we do, the refinery will be up and running because it is not any big deal to run a refinery.

“It is painful when people want to convert the peoples’ commonwealth to their personal wealth. We need a reorientation whereby we have high regards for our commonwealth and make the process of converting it into personal wealth by some more difficult, this is what the PIGB will address,” Iledare said.

However, some analysts at the FBN Quest Capital Limited, recently warned the Federal Government against carrying out a fresh TAM on any of the refineries, maintaining that the NNPC should consider allowing its refineries to “wither away” because new refineries like the 650, 000 barrels per day (bpd)-capacity Dangote Refinery and others scheduled to come on stream soon would be the game-changers.

Member representing Ifo/Ewekoro Federal Constituency at the House of Representatives, Ibrahim Isiaka, also queried the viability of further expenditure on the country’s four refineries, and the daily allocation of 445, 000 barrels of crude to the facilities, which have continued to perform poorly. He objected any further injection of funds to the facilities for the purposes of TAM.

“The House is cognizant of the fact that the sums of $308m, $57m, $200m, and lately, more than N264b were spent on refineries, yet it was reported that the NNPC is seeking another $1.8b to carry out another TAM to make the refineries attractive to investors,” Isiaka, said.

On the flipside, Oni says government needs to spend more money to fix the Kaduna Refinery and others before selling them off eventually.

“We must put them in good shape and let them work before putting them up for sale, but the problem is that government has found it difficult consistently to fix those refineries. The other side is to get people that would own the refineries to get involved in the financing at this stage. That I think will be a better option,” Oni said.

Scrapping Or Privatising Kaduna Refinery 
Former Special Adviser to President Olusegun Obasanjo on Petroleum Matters, Dr. Emmanuel Egbogah, had told The Guardian that the Kaduna Refinery was as good as scrap.

According to him, the refinery has bad features, which are never discussed, especially the fact that Nigeria would have to import heavy crude from Venezuela to refine at the facility, since the country’s light crude is incompatible with the refinery’s technology.

“We would be better off building a new refinery that is functional,” said Egbogah, who is also the Chairman of Emerald Energy Resources.

Iledare, Oni and Adesanya, do not totally agree with Egbogah on the scrapping of the refinery, but are cynical about spending more money on the asset.

Both Oni and Adesanya are of the view that the best option for the country was for the Kaduna Refinery to be privatised. “Let the likes of Dangote, Tony Elumelu and Femi Otedola buy it,” Adesanya said.

But for Iledare, scrapping or selling off the facility was not it because the NNPC would not have an asset to fall back to.

Meanwhile, the NNPC recently said the corporation was inching closer to arriving at the choice of financiers for the Port Harcourt Refining Company Limited (PHRC), Warri Refining and Petrochemical Company Limited (WRPC), KRPC Limited.

Possible Solutions
Considering that fact that the refinery happens to be one of the youngest, some experts are of the view that it could be retained so that the new NNPC expected to be born from the PIBG would manage it since the corporation will ordinarily run as commercial entity.

Since the major challenge is in getting crude oil supply to the plant, alternative sources of crude oil supply and expansion of storage capacity up to about three months, they say, could keep the refinery running for long. Before that happens, the KRPC is bound to remain an economic liability.