NewsPH Refinery Repairs And Matters Arising

PH Refinery Repairs And Matters Arising

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BEVERLY HILLS, March 08, (THEWILL) – Nigeria’s oldest refinery, Port Harcourt Refining Company, is at the verge of wearing a new look on account of spirited efforts to shop for $1 billion to effect its refurbishment. The complex consists of two plants with a combined capacity of 210,000 barrels per day (BPD), making it the largest among the nation’s four public-owned refineries. They all suffered a long neglect on account of their poor management by successive administrations.

The Managing Director of Nigerian National Petroleum Corporation, NNPC, Mele Kyari, recently shed light on the monumental mismanagement of the nation’s refineries when he disclosed that no turn around maintenance (TAM) of the refineries was carried out for over 42 years, despite humongous resources earmarked for same by successive administrations.

Little wonder, in 2019, the refineries lost some N167 billion ($439.47 million), and only Warri processed any crude. The following year, they were all shut pending rehabilitation.

Glo

Sadly, Nigeria, Africa’s largest oil producer and the sixth-largest oil-producing country in the world, is battling scarcity of fuel amidst a spike in the international crude oil price which should yield it more revenue to reactivate its economy battered by the COVID-19 pandemic.

While there is blame game between the oil marketers and NNPC which has remained the sole importer of the product into the country, Nigerians have continued to wonder the shape of the country’s deregulation which is import driven with little drive to bring back the ailing refineries and encourage the birth of new ones.

In 2015, President Muhammadu Buhari in an attempt to end the oil import subsidy payments, shut out the fuel marketers and, in effect, made the state-run NNPC the sole importer of fuel even when it lacked capacity for daily import of 51 million litres of petrol.

While the government claimed that it had stopped the subsidy payment regime, the NNPC made provisions for what it called “under-recovery”, which the corporation said rose by 1.174 per cent in the first two months of 2019.

The NNPC’s Monthly Financial and Operations Report (MFOR) indicated that N206,585 billion was paid out as under-recovery in January and February 2019, as against N16,212 billion recorded in the previous two months of 2018.

The chairman of the Major Oil Marketers Association of Nigeria, Adetunji Oyebanji, had recently disclosed that Nigeria spent N10.7 trillion on fuel subsidy in the last 10 years.

He said this at the 18th Annual Aret Adams Memorial Lecture Series 2021, where he also told participants that a whopping sum of N750 billion was spent as subsidy on imported fuel in 2019 by the federal government.

Ahead with uncertainty

To emphasize its commitment to the rehabilitation exercise, the NNPC said it is now on track to undertake the complete overhaul of Nigeria’s biggest refinery billed to commence in the first quarter of 2021. The corporation also said it has concluded talks with lenders to raise $1 billion for the rehabilitation of the facility. The refinery was shut in March 2019 for the first phase of the repair works after it secured the service of Italy’s Maire Tecnimont to handle the scoping of the refinery complex, with oil major Eni appointed as a technical adviser.

In December 2020, the corporation announced that it received seven bids submitted by local and international companies for engineering, procurement, and construction (EPC) contract awards for the repairs.

The successful negotiations of the funding arrangement, led by African Export-Import Bank (Afreximbank), has paved way for the NNPC to move to the commercial stage of pre-qualifying bids submitted by local and international companies for the EPC contract award regarding the rehabilitation of 210,000 bpd refinery. It said work at the refinery will be followed by repairs at the Warri and Kaduna plants. The rehabilitation programme is estimated to take around 18 to 24 months.

Previous attempts to revamp the refineries have been scuttled after the NNPC failed to secure the necessary funding, estimated at over $1.2 billion.

Kyari had said: “The vision of revamping the pipelines is in tandem with the refineries rehabilitation project, which we have promised to deliver by 2023. I am happy to announce that the funding challenge which had stalled the second phase of the rehabilitation of the Port Harcourt Refinery has been resolved. The contract for the second phase will soon be awarded and work will commence in Q1 of 2021.”

According to Kyari, a lot has been put in place to boost exploration and production with a view to achieving 3 million bpd production target.

Tale of woes

According to reports, total comprehensive loss recorded in 2014 in Port Harcourt Refinery stood at N27.2 billion; N35.8 billion in 2015; N43.4 billion in 2016; N53.8 billion in 2017 (N55.8 billion in the published 2018 report) and N45.6 billion in 2018.

Non-current liabilities included Corporate Headquarters funding of N372.5 billion in 2018 and N330.3 billion in 2017; retirement benefits N10.3 billion for defined contribution plans and N12.4 billion for defined benefit plans for 2018 and 2017 respectively.

In 2018, operating loss stood at about N46.6 billion as against N57.8 billion in 2017, with about N1.5 billion realised as revenue in 2018 and N4.8 billion in 2017 and processing expenses in 2018 put at N24 billion and N23.8 billion in 2017; administrative expenses was N24 billion in 2018 and N38.8 billion in 2017.

Administrative expenses include N9.2 billion and N10.9 billion as salaries, allowances and bonuses for 742 and 815 staff in 2018 and 2017 respectively.

Other expenses included staff welfare N1.3 billion in 2018 and N1.4 billion in 2017; staff terminal benefit N121.5 million in 2018 and N99.7 million in 2017; retirement benefits (defined plan) N1.6 billion in 2018 and N2.2 billion in 2017, and defined benefits N12.4 billion in 2017.

On turnover, N2.5 billion was realized in 2014; N683.5 million in 2015; N3.4 billion in 2016; N4.8 billion in 2017 and N1.5 billion in 2018. Hwever, processing expenses gulped about N20.6 billion in 2014; N25.7 billion in 2015; N24.4 billion in 2016; N23.8 billion in 2017, and N24 billion in 2018.

On Directors’ emoluments, the report showed N58.8 million each for 2018 and 2017 in favour of the Chairman of the Board, while the other directors received a minimum of N12 million and above every year.

Observers said there is no economic sense in rehabilitating a scrap but rather the government should muster the political will to get new refineries on the stream. A petroleum engineer, Martin Onovo, belongs to this school of thought.

“This is not the first time that promises have been made about fixing the refineries,” says former Group Finance Manager, Nigeria LNG, Victor Eromosele. “They have all made promises and set targets and they all failed. If you parked your car for a long period, even when you put in a new battery, you may not be able to start that car because of something called regression.” He added that rehabilitating the poorly performing refineries seems like a good strategy on paper, but it doesn’t make any economic sense to fix them.

Labour unions in the oil and gas sector have also relentlessly advocated the need to adopt the NLNG model to fix the nation’s ailing refineries. How far the repair of the refineries would go in ending fuel importation and giving meaning to the deregulation of the downstream sector of the petroleum industry is yet to be determined.

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