FG faces daunting task over state of refineries

With global oil price now at below $42 per barrel, stifling Nigeria’s capacity to fund capital projects and meet recurrent expenditure obligations, experts in the oil industry insist that untold truths about the nation’s “moribund” refineries may be pushing President Muhammadu Buhari’s government towards a more daunting economic task.

“The Kaduna refinery will never work because of design faults and another major problem it has with its catalytic cracking unit, but those in the industry who know this very well will not tell the president,” said a former vice chairman of a leading petrochemical company in South-South Nigeria, who spoke with BusinessDay in Abuja recently.

As a result of this, he said, the refinery’s section that was built for the purpose of manufacturing lubricants has been totally shut down for over 20 years.

“The Warri refinery also has design problems right from the beginning and cannot meet more than 20 percent of national demand for refined petroleum products even if it is working at its highest capacity possible,” he further asserted.

However, “over four billion litres of substandard lubricant is illegally imported into the country annually, thereby killing the local lubricant manufacturing industry and the many jobs it could provide,” said A. Kasali, the manager, hydrocarbon processing plant of the Department for Petroleum Resources (DPR).

Nigerian authorities had assured earlier in the year that the Kaduna Refinery would commence full operations by August 2015. Port Harcourt was scheduled to even start running at an earlier date.

The Nigerian National Petroleum Corporation (NNPC) has put the amount of crude oil processed by the Kaduna, Port Harcourt and Warri refineries in October at zero percent.

The corporation’s data also shows that only the four months of January, July, September and August recorded marginal production activity of 11.2, 13.6, 24.1 and 2.0 percentage points respectively.

From January to October 2015, the three refineries processed 682,901mt or 7.005 bbl of crude oil per day, and only at a paltry capacity utilisation of 5.18 percent.

Ibe Kachikwu, NNPC’s group managing director and minister of state for petroleum, maintains that the refineries will not be sold to private investors, even as they continue to post losses and not profits to the government.

This is against the backdrop that the Kaduna refinery employs “an estimated 3,000 people” whose work does not add value to the national economy, but are paid monthly, thereby bringing the economic sense of retaining them as government workers into question.

With job losses pushing the country’s unemployment levels even higher, the need for Nigerian refineries to work at full capacity has become increasingly urgent.

Emmanuel Egbogah, an international petroleum expert, who co-authored the Petroleum Industry Bill (PIB), noted that the Port Harcourt and Warri refineries could be managed, but that of Kaduna is a big problem.

Egbogah said, “count the Kaduna refinery out because it is so obsolete, so bad that there is no way it will ever produce oil, it can never function properly, it is impossible. The Warri and Port Harcourt refineries can work if properly rehabilitated but not through the turnaround maintenance (TAM) normally done without any results.”

Unfortunately, the contracts for TAM, according to him, are not given to companies that do refineries, but on political basis to a party man, whose company is still doing the maintenance till date.

The Kaduna refinery operates an entirely analogue system that was made to refine heavy crude, which is not found in Nigeria but imported from Venezuela.

This hardly makes any economic sense, as Nigeria itself remains the single largest producer of crude oil in Africa, but the crude oil type it produces is light.

It is believed that the uneconomical policy is still in force because its total cost is being borne by the government.

The Federal Government spent a whopping N4.5trn on fuel subsidy financing between 2006 and 2012, according to audit reports of the Nigerian Extractive Industries Transparency Initiative (NEITI).

“Holding onto the refineries is not a good idea for the government. They need to be privatised, with the increasingly expensive oil subsidy removed for market forces to decide prices for the locally refined products,” Egbogah stressed.

India, a developing economy like Nigeria, is said to be hosting the best functioning refinery in the world. Located in Jamnagar, this refinery processes 1.3 million barrels of crude oil per day.

“The money being spent by the Nigerian government on fuel subsidy could adequately finance the construction of a new refinery in Nigeria with the capacity to process 600,000 barrels of crude oil per day and eliminate the recurring fuel scarcity,” Egbogah further observed.

YANGE IKYAA