• Thursday, April 25, 2024
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BusinessDay

Buhari exits with refineries in limbo

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With just a few days to the end of President Muhammadu Buhari’s administration, his promise to bring the state-owned refineries back into production has yet to be fulfilled.

Nigeria has four major refineries with a cumulative production capacity of 445,000 barrels per day (bpd). The Port Harcourt refinery comprises two units – the old plant 60,000bpd and the new plant (150,000bpd), while Warri refinery has a capacity of 125,000bpd and the one in Kaduna has 110,000bpd.

Nigeria is relying almost wholly on imports for fuel, while spending over N400 billion monthly to subsidise petrol for consumers, according to Mele Kyari, group chief executive officer of Nigerian National Petroleum Company Limited (NNPCL).

Burgeoning fuel subsidies have put government incomes in a precarious situation and continue to push up the fiscal deficit, now at 5.3 percent of GDP, compared to the stipulated limit of 3 percent.

Following promises to rehabilitate the refineries, in March 2021, the Federal Executive Council approved $1.5 billion for the rehabilitation of the Port Harcourt refinery. The Federal Government said the rehabilitation contract was awarded to Tecnimont SPA, an Italian company, and the refinery would be rehabilitated in about 44 months.

In August 2021, FEC approved $1.48 billion for the rehabilitation of the Warri and Kaduna refineries. $897 million would be spent to repair the Warri refinery, while the Kaduna refinery will gulp $586 million. The contracts were awarded to Messers Saipem SPA and Saipem Contracting Limited and the refineries will be rehabilitated in three phases of 21, 23 and 33 months.

The funds were expected to come from many components, including the NNPCL, internally generated revenue, budgetary provisions and Afreximbank. However in rehabilitating the refineries, the government has continually had to shift the completion date.

Timipre Sylva, who was the minister of state for petroleum resources until recently, said in January 2023 that the rehabilitation of the Port Harcourt 60,000bpd refinery was being completed and it would commence operations by the first quarter of this year.

By February, Danladi Inuwa, executive vice president, business at NNPCL, said the refinery would commence operations by the second quarter of 2023.

Buhari, who doubles as minister of petroleum resources, said in October 2022 that the Warri refinery rehabilitation would deliver fuel production before the first half of 2023.

Joseph Obele, chairman for River State chapter of the Independent Petroleum Marketers Association of Nigeria, said in a statement that Sylva promised Nigerians that the Port Harcourt refinery would commence operations by December 2022, but he failed. He said he shifted it to the first quarter of 2023, and failed again.

“Now he is saying the second quarter of 2023; he will definitely fail. They are not committed to seeing the refinery functional. They are comfortable importing from the international market because they have shares in those foreign refineries,” Obele said.

With the refineries yet to come back on stream while gulping money, Nigeria stands the risk of continually relying on fuel imports and also spending heavily on petrol subsidy, which has been described by many as a drain on the government purse.

According to experts, having refineries that are efficiently and effectively functional in a country like Nigeria that has abundant resources will provide numerous opportunities such as the availability of petrol and other refined products to ensure energy security.

Data from the National Bureau of Statistics revealed that Nigeria’s petrol import bill hit N5.2 trillion in 2022, the highest in six years.

Hawilti, a Pan-African investment research firm, in its ‘Refineries Watch Q4 2022’ report, said that with functional refineries, Nigeria could become the biggest oil refiner in the region by 2025, which will provide opportunities to boost its exports and generate more foreign exchange. It said this would create more jobs and stimulate economic growth in the region.

Some experts are sceptical about the capacity of these refineries if and when the rehabilitation is eventually completed, having been shut down for repairs since June 2019, especially as the NNPCL says it expects them to operate at around 90 percent capacity when repairs are completed and production resume by 2023.

In September 2020, Kyari said the refineries were shut down because the pipelines transporting crude to them had been “completely compromised” and the plants required rehabilitation.

Read also: 10 key facts to know about Dangote refinery

Ayodele Oni, partner, energy practice group at Bloomfield Law Practice, told BusinessDay that there are different reasons why Nigeria is yet to get it right with its refineries, despite spending significantly on their rehabilitation.

“For one, most of the projects being undertaken for rehabilitation have been hampered in some ways by government bureaucracy, as too much time appears to be taken to get approvals for these projects, there has also been the challenge of corruption and lack of proper transparency with the implementation of rehabilitation exercises,” he said.

Sylva, while speaking on the ministry’s activities under Buhari’s administration said the government in its efforts to increase domestic refining capacity issued licences to prospective investors for the establishment of refineries with 20 to 30 percent equity stake.

Some of these private refineries include Duport refinery (30 percent), Walter Smith (30 percent), Azikel (20 percent), and Dangote (20 percent).