$1.5bn Approval for Port Harcourt Refinery: the Endless Cycle of Repairs

$1.5bn Approval for Port Harcourt Refinery: the Endless Cycle of Repairs

Port harcourt
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The Federal Executive Council recently approved the plan by the Ministry of Petroleum Resources to rehabilitate the Port Harcourt Refinery with a whopping $1.5bn. Minister of State for Petroleum Resources, Timipre Sylva, made the disclosure when he briefed State House correspondents on the outcome of the Council meeting held at the Presidential Villa, Abuja.

In the Minister’s words “The first phase is to be completed in 18 months, which will take the refinery to a production of 90 percent of its nameplate capacity.

“The second phase is to be completed in 24 months and all the final stages will be completed in 44 months as consultations are approved”.

The minister also disclosed that an Italian company, Tecnimont SPA, would undertake the repairs and a maintenance company would also be put in place, to ensure effective maintenance culture. Timipre assured that rehabilitation works on Kaduna and Warri refineries would be carried out on or before May 2023. According to the NNPC, the country’s PMS requirement by 2025, would be 1.52 million barrels per day.

The approval of $1.5 billion for the repairs of the PH Refinery is raising a lot of questions across the country. Why should Nigeria be spending such a huge amount to repair refineries that consistently run at a loss? The newly approved $1.5 billion translates to N2.047 trillion spent on the refineries between 2015 to 2020. What happened to funds approved for refinery repairs in the last six years?

Data collated from NNPC showed that N1.47 trillion was spent on the four refineries between 2015 and N2020. Breakdown of the figures revealed that the NNPC, in 2015, expended N82.82 billion on the refineries; while in 2016, N78.95 billion was spent.

N604.127 billion was equally spent on the refineries in 2017; while the amount expended on the refineries dropped to N426.66 billion in 2019.

According to figures contained in the just-released August 2020 report of the NNPC, with a revenue of N 6.54bn and a total expense of N 81.41bn, the refinery facilities ended up with a deficit of N 78.87bn.

From the report, “For 13 straight months, the facilities had been running without refining any volume of crude oil.” The data put the volume of crude processed by the facilities from August 2019 to August 2020 at zero metric tonnes. With a cumulative plant capacity of 445,000 barrels per day, the facilities posted a capacity utilisation of zero per cent all through the 13-month period.

The picture is in fact summarized by former vice-president, Atiku Abubakar, in a statement titled “$1.5 billion to renovate Port Harcourt Refinery”. Atiku queried why government should spend that amount to rehabilitate the PH refinery, while also maintaining that “We cannot as a nation expect to make economic progress if we continue to fund inefficiency, and we are going too deep into the debt trap for unnecessarily overpriced projects:

“…At other times, I have counselled that the best course of action would be to privatise our refineries to be run more effectively and efficiently by private hands.

“Moreover, the cost appears prohibitive. Too prohibitive, especially as Shell Petroleum Development Company last year sold its Martinez Refinery in California, USA, which is of a similar size as the Port Harcourt refinery for $1.2 billion.

“We must bear in mind that the Shell Martinez Refinery is more profitable than the Port Harcourt Refinery.

“Given this discrepancy, can we ask if there was a public tender before this cost was announced? Was due diligence performed? Because we are certainly not getting value for money. Not by a long stretch.“

Some commentators have equally shown concerns about the country receiving any positive result from this move because the country has seen many years of promises from successive governments, yet none has been able to get any of the refineries kicking. Even before the botched attempt made by former President Olusegun Obasanjo to sell the refineries, more than N2 trillion had been spent on rehabilitation of the nation’s ailing refineries but at no time have they operated above 20% installed capacity.

Fixing the refineries has always been a major project of the Buhari-led administration. As the Minister of State for Petroleum Resources puts it, this rehabilitation was in fulfillment of the Federal Government’s desire to resuscitate the country’s refineries to reduce the cost of processing petroleum products as well as boost the economy. The president has equally commissioned various modular refineries in some parts of the country: the most recent one being in Imo State.

Nevertheless, of the series of challenges the refining space is bedeviled with, ranging from theft of petroleum products to poor maintenance, and operational challenges, corruption ranks highest. Corruption in the downstream sector was also exposed during the subsidy probe. It revealed that some of the companies that took money for subsidy did not even import refined products at all.

Eradication of corruption in Nigeria’s oil sector is a long-standing political goal—one that has seen few results. The president has taken significant steps to crack down on corruption in the sector but the problem seems to be an entrenched type.

Just last year, the Senate probed the NNPC over the sum of $396 million expended on Turn-Around Maintenance of refineries in the country. According to Senator Yusuf Abubakar representing Taraba Central District, he noted that “despite the huge spending on Turn-Around Maintenance of refineries, NNPC announced a cumulative loss of N123.25 billion in 10 months (January to October 2019), putting the total revenue of facilities at N68.82 billion, while total expenses incurred was N192.1 billion within the same period.”

This resolve by the Senate to probe NNPC was followed by the 2016 report of the Nigerian Extractive Industries Transparency Initiative, NEITI, which strongly indicted the NNPC for withholding and short-changing the country.

Despite fears, Timipre Sylva however assured Nigerians on the ability of the contractor to restore the capacity of Port Harcourt refinery with the rehabilitation contract. According to him, “Talking about operations and maintenance, that has been a big problem for our refineries and that was also exhaustively discussed in council and the agreement is that we are going to appoint a professional maintenance and operations company to manage the refinery when it is finally rehabilitated.”

As the General Secretary, National Union of Petroleum and Natural Gas Workers, Olawale Afolabi, confirmed, “Port Harcourt is going to kick-off as they promised and that is the demonstration they’ve shown with that approval.

“Remember in December last year, the government and labour set up different committees and one of them is the steering committee for the rehabilitation of the four refineries.

“So the approval you are seeing today is one of the steps towards achieving this and ensuring that our refineries are meant to work again.”

A former Chairman, Petroleum Club, Lagos, Dr Godwin Ihetu, also confirmed that Technimont Spa is a well-known engineering company whose expertise to deliver can be trusted.

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The company has equally completed major projects such as modernisation and reconstruction works in Russia for the Heydar Aliyev Baku Oil Refinery, Amurski Gas Processing Plant Project, Tempa Rossa (Oil Field Development), amongst others.

But questions still hover on whether or not budgeting the huge amount for the renovation of a dying refinery at this critical period of 33% unemployment rate and infrastructural decay is a wise use of scarce funds. It is only with high hopes that Nigerians are looking forward to what this disturbing move will yield.

Andy Charles

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