In April 2021, the Nigerian government let out a $1.5 billion contract to Italian Marie Technimont for the rehabilitation of its Port Harcourt refinery which became operational in 1965.
On the surface, the allure of a functional refinery is undeniable. Nigeria, Africa’s biggest oil producer, currently imports most of its refined fuel, bleeding its already-stressed forex reserves. Reviving Port Harcourt, with a capacity of 210,000 barrels per day, promises significant savings and a boost to national pride.
A revived refinery, supporters said, would not only produce cheaper fuel but also create jobs, boost local businesses, and foster downstream industries like petrochemicals.
Sceptics cast a wary eye
Past attempts at revitalising the refinery have been plagued by cost overruns, delays, and allegations of graft. The $1.5 billion price tag raises eyebrows, with critics questioning whether it is a profitable venture considering Nigeria’s precarious fiscal challenges.
They point to the refinery’s history of breakdowns and operational inefficiencies, suggesting throwing money at it might be akin to pouring water into a sieve.
“Nigerian National Petroleum (NNPC) Ltd did not do much construction of any sort in the thirty years between 1990 and 2020 and a lot of organisational knowledge has certainly been lost in this period,” said Dimeji Bassir, an oil and gas industry executive and Ofserv, an independent consultancy specialising in subsurface engineering, project management.
“We can infer therefore that the refinery revamp projects being spearheaded by NNPC are much bigger than the individuals leading them, particularly with little to no operational history to leverage—in planning and executing the projects—along with ingrained cultural inefficiencies to contend with,” he added.
Aisha Mohammed, an energy analyst at the Lagos-based Centre for Development Studies, said refining operations are complex with extremely tight unit economics. Therefore, he struggled to understand the government’s insistence on operating the refineries rather than handing them over to the private sector.
“Unlike bureaucratic government workers, the investors will manage them efficiently, leading to improved productivity, better maintenance of the facilities and job creation,” Mohammed said from Nigeria’s commercial capital.
BusinessDay’s findings showed of the 18.1 million bpd of crude refined in the United States per official data, the US government owns none of the 132 refineries.
“Rather than have public workers, private investors could bring in new technologies and invest in upgrades that can modernise the refineries, making them more competitive and environmentally friendly,” he added.
The latest data from Wood Mackenzie, showed “As the energy transition progresses, refineries face an increasingly Darwinian battle for existence.”
In its report, the consultancy said that flexibility and the integration of oil refining and petrochemical production would be vital for the downstream industry in the future.
Olu Falae, the former secretary to the government of the federation and minister of finance, argued that the Federal Government is incapable of running refineries.
“We should not try to run refineries ourselves because if we try to do so, politics will interfere and we will mismanage them. I am sorry to say this,” Falae said on Channels Television’s Politics Today, December 4.
Other experts questioned the decision to repair the old 60,000 barrels per day aspect of the Port Harcourt refinery built in 1972 instead of the new 150, 000 barrels per day commissioned in 1989.
“We knew and had criticised the move to rebuild a 60-year-old 60,000 bpd refinery instead of doing a proper upgrade of the 40-year-old 150,000 bpd refinery,” a senior source in the petroleum industry said.
He added, “The age difference is a world of difference in the state of applicable technology. No one has spoken to the availability of the people to run these plants. None of the plants have operated in a decade”.
The Port Harcourt Refineries comprise two units, with the old plant having a refining capacity of 60,000 barrels per day (bpd) and the new plant 150,000 bpd, both summing up to 210,000 bpd.
“Port Harcourt should be sold to reputable investors, who would not only provide value but also give effective competition to Dangote Refinery, which is scheduled to come on stream shortly,” Mohammed said.
The NNPC Ltd had on January 4 revealed that test runs at the 60,000-bpd Port Harcourt refinery will be completed this month.
“Testing will conclude shortly, ensuring the refinery’s efficient operation. That phase will be completed this month,” Reuters quoted NNPC spokesperson, Femi Soneye, as saying.
Soneye added that the test run was a major step towards resuming operations five years after the plant was shut.
The state-owned oil company announced in December the mechanical completion of rehabilitation work on the Area-5 Plant of the facility.
It said the first phase of the plant had been completed, as the facility would start refining 60,000 barrels of crude oil daily after the Christmas break.
According to NNPC Ltd, the second phase of repair works of the Port-Harcourt refinery will be completed by the fourth quarter of 2024.
“This will give value to Nigeria, create jobs, provide feedstock for industries, revenue, foreign exchange, energy security and more. Phase one of this refinery is 60,000 barrels per day, the other one is 150,000 bpd. So, we have a complementary 210,000bpd refinery,” Mele Kyari, Group CEO of NNPC Ltd said.
But Bassir said the opportunity for NNPC Ltd to alter the narrative buoyed by a sense of accountability to its 200 million Nigerian shareholders, and perhaps personal ambition, should incentivise the project owners to seek outside help in steering the adrift revamp projects back on course.
“Lest they perpetuate the status quo— abundance of promises and bereftness of delivery. Hope is never a strategy, neither is optimism,” Bassir said.
BusinessDay’s finding showed the Port Harcourt Refinery posted losses totalling N206 billion for five consecutive years starting in 2014, while a breakdown of its administrative expenses incurred within the period comprising salaries, guest house costs, overhead costs and others stood at N106 billion.
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