Volte-Face On Refineries | Independent Newspapers Limited
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COLUMNIST, Echoes of Business

Volte-Face On Refineries

Posted: Sep 6, 2015 at 12:00 am   /   by   /   comments (0)

Echoes of Business

Conflicting reports emerged last week from the nation’s cash cow, the Nigerian National Petroleum Corporation (NNPC) over the future of Nigeria’s  refineries.

While the first information was a product of a panel set up by the Corporation to assess the performance of the refineries and associated logistics, the second statement conveyed a political undertone.

The NNPC, leaning on the outcome of its Stock Reconciliation Committee, had recommended the sale of the refineries located in Port-Harcourt, Warri and Kaduna. But few days after, the Corporation made a volte-face, stating that the refineries would not be sold.

The committee had made a strong case, citing the huge cost components of running the refineries  and concluded that it would be unprofitable to continue with their operation.

However, the NNPC Group Managing Director, Ibe Kachikwu,  said shortly after inspecting the Port Harcourt refinery in Eleme Local Government Area of Rivers State, last week  that rather than sell the nation’s refineries, government would embrace the option of increasing their capacity by making them 100 per cent efficient.

“There will never be a plan to sell the refineries. There might be a plan to have joint venture investors, but that is going to depend on how the refineries are going to work on their own. Obviously, we are going to be looking at all options to make the refineries 100 per cent efficient,” he said.

 The four refineries; two in Port Harcourt, and one each in Kaduna and Warri, have combined installed capacity of 445,000 barrels per day.

Although, these refineries have been operating sub-optimally, efforts to effect their repairs were frustrated by security challenges in the country.

Past initiatives made by the erstwhile Federal Government to  contract the rehabilitation work to the Original Equipment Manufacturers (OEMs) for concise technical repair of the assets of the refineries hit the rocks as the foreign experts turned down the invitation for fears of their safety.

While, the Government should be commended for resorting to local technicians to put the refineries in working conditions, there is a fly in the ointment.

The colossal drain of the nation’s resources through petroleum products importation has been blamed on the sub-optimal operation of the country’s refineries. The production capacities of these refineries are hamstrung by incessant vandalism on the major pipelines that supply crude to the refining points.

The issue of pipeline vandalism still sticks out as a sore thumb even as the Federal Government  has resorted to marine supply mechanism, to obviate  the scourge.    Two pipelines, Trans Niger and Nembe Creek ,out of the four major trunk lines in the country, are prone to frequent vandalism due to notorious nature of the axis, experts have estimated, adding that  500,000 barrels per day of crude oil were lost at every point in time vandals struck.

Resorting to barges to ferry the crude oil and products along the creeks to and fro the refineries is not without  huge financial cost. For instance, with the expected refining output of 62,500 barrels per day in Warri refinery, it would cost the Federal Government, through the NNPC, $437,500 each day   ($7 per barrel) for ferried crude and refined products.  Besides, experts have said, other challenges associated with the supply of the crude to the refineries in barges and trucks are constraining  their performance which also  has the tendencies to endanger the units of the refineries.   

Failure to privatize the refineries now, would make  them ill-equipped to compete with the $9 billion Dangote Refining Company which is expected to come on stream in 2018. The consequence could be a natural death for these government refineries as was the case when the emergence  of MTN sounded a death knell on Nigerian Telecommunications Limited (Nitel), two years after.

The option of joint venture agreement cannot be a better business arrangement for operating refineries  in Nigeria  now, especially with the dwindling  oil resources.  The NNPC, at present is grappling with the challenge of funding its own share of joint venture operations. The Corporation is hard put to meet its  cash calls  in  joint venture operations with the international oil companies  (IOCs), which as at January this year, had accumulated to $5 billion.  With the FG  slashing its capital budget for joint venture oil operations by 40 per cent in this year’s budget, coupled with the announcement by the IOCs to curb capital spending this year, where are the resources to fund new joint ventures when the future oil prices are still shaky?

Perhaps, the best option would be to privatize the refineries through listing on the Nigerian Stock Exchange. Apart from ensuring transparency and integrity of the process, the exercise would boost  the growth and development of the stock market and also put our common wealth in the hands of ordinary Nigerians who are willing to share from the cash cow.