In the face of poor performance and huge overheads, fixing Nigeria’s unprofitable refineries to functional capacity has remained the promise of every administration since 1999.
Abuja has however piled up debt rather than embrace global examples on how to run a successful refinery, failing to curb an appetite for waste that has eaten the country’s national budget for decades.
Nigeria’s long history of wasteful spending on turnaround maintenance has continued with the present government, as the Nigerian National Petroleum Corporation (NNPC) spent close to N2 trillion on maintaining its struggling refineries from 2015 till 2021, a development that had not brought Nigeria any closer to ending imports of refined petroleum products.
“Inefficiency is the gift of the present administration, except that sometimes, this gift is in oversupply. Or how else can anyone explain all the expenses on the refineries without any due diligence or risk evaluation,” a source familiar with the matter told BusinessDay.
“It would take more than another repair to cover the developing scandal that Nigeria’s refineries have become,” he said.
A detailed breakdown shows Nigeria’s four public refineries have been a drain on the finances of Africa’s biggest economy, as NNPC data showed Nigeria spent N82.82 billion on maintenance in 2015.
Read also: NNPC to take delivery of 2.3bn litres of PMS
Even though the spending has been futile, the wasteful pattern continued in the remaining three years of President Buhari’s first reign as the state-run energy company, NNPC, spent N78.95 billion, N604.127 billion and N426.66 billion in 2016, 2017 and 2018, respectively, on the refineries.
In 2019, NNPC records showed the amount expended on the refineries dropped to N218.18 billion. The NNPC also declared that N64.534 billion was spent on the three refining companies from January to June 2020.
The NNPC spent N100 billion on the rehabilitation of the nation’s refineries in 2021.
In its latest presentation to the Federation Account Allocation Committee (FAAC) meeting seen by BusinessDay, NNPC said it spent N100 billion on the rehabilitation of the nation’s refineries in 2021.
According to the state oil firm, the fund was used to revamp the facilities throughout the year.
Although the specific refineries were not stated, according to the funding report, NNPC said it spent N8.3 billion every month in 2021 to revamp the refineries.
The situation in Nigeria has become even more worrisome after the first-ever audited report of NNPC showed that Nigeria’s four refineries gulped a combined loss of N154.54 billion in 2018 compared to N252 billion in 2017.
According to advocates of fixing the refineries, the government’s main argument is that if the refineries are sold in their current state, they’ll be flogged for less than their scrap value.
“Refineries are one of the most complex facilities to run, they are capital, technology and management intensive operations, yet low margin,” Olagoke Balogun, former processor operator at Chevron with 13 years experience in the refining business, said.
Balogun noted, “Aside from corruption, the Nigerian state is grossly incompetent to run such complex operations even if they wanted to.”
In a world where global private refiners with stronger and more efficient systems are struggling to break even, most experts are in awe of President Buhari’s decision to shell out $1.5-billion to flog the dying Port Harcourt refinery horse, before, according to the new plan, handing them over to private companies to manage
While Nigeria’s economic managers seemed obsessed with maintaining its refineries; Petrobras, Brazil’s equivalent of the NNPC, decided that the smart thing to do was to sell off the refinery’s assets and cut its loss.
In a competitive global bid, Mubadala, Abu Dhabi’s state-owned investment fund offered to buy Petrobras’s 333,000bpd Landulpho Alves refinery for $1.8billion, a value higher than what the Nigerian government intends to invest in a rehabilitation of the Port Harcourt refinery guaranteed to produce a worse outcome.
According to some reports, the company could realise about $25billion-$35billion from the sale of its non-core assets in the next four years.
“Which means, by re-evaluating its assets, Brazil could get in four years what Nigeria used in 30 to fix its own rickety assets,” Joe Nwakwue, a former chair of the Society of Petroleum Engineers (SPE), said.
While the development in Brazil serves as a lesson for how Nigeria efficiently manages its refineries, the echoes from Zambia serves as warning.
At their peak, Zambia’s copper mines produced 12 percent of the world’s copper. They were the pride of Zambia and the glory of southern Africa.
However, a combination of steep crashes in commodity prices, global politics, internal incompetence and mismanagement, some of which are present in today’s Nigerian refineries put the future of the mines in grave danger.
In response to the economic crisis facing Zambia in the 90’s, President Frederick Chiluba was offered $165million by foregin investors to buy Konkola Copper Mines (KCM), the country’s largest mining facility.
President Chiluba haggled for nine years. When the price of copper finally collapsed in 2000, the best he could get for KCM was $90 million.
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