Over the past 12 years, Nigeria tried and failed four times to crank up its aging and unprofitable refineries. Now, the state-run energy company is giving it another shot, but this time around the government is broke.
Nigeria is currently on a fresh drive to rehabilitate its ailing and under-performing refineries as sources confirm the Nigerian National Petroleum Corporation (NNPC) have concluded talks with lenders to raise $1 billion for the rehabilitation of the Port Harcourt refinery scheduled to commence first quarter of 2021, according to S&P Global Platts.
This development has raised fresh concerns about the government’s plans to source funds for the project considering Nigeria’s precarious fiscal challenges.
The refineries’ long history of decay and wasteful spending on turnaround maintenance have triggered an increased feeling of bitterness in the hearts of many Nigerians whenever they hear the government’s intention to pump more money into them.
For most stakeholders, the past efforts on the refineries have not been justified, so, why continue to waste funds the government does not have considering it miraculous exit from recession and a huge 2020 fiscal deficit to the tune of N2.86 trillion, equivalent to 46.6 percent of the shortfalls recorded in that time period.
“This is not the first or third time that promises have been made about fixing the refineries,” says Victor Eromosele, former group finance manager, Nigeria LNG,” but, “They have all made promises and set targets, and they all failed. If you parked your car for a long period, even when you put in a new battery, you may not be able to start that car because of something called regression.”
Rehabilitating the poorly performing refineries seems like a good strategy on paper, but it does not make any economic sense to fix them, states Eromosele, who now consults at Vita Veritas.
“Too many things will have gone bad and refineries are like that car if parked for a long time. The only way to fix the refineries is to rebuild them from the start. We need to change that model completely and find ways to rebuild the refineries from the ground up,” he says.
The successful negotiations of the funding arrangement, led by African Export-Import Bank (Afreximbank), paved the way for the NNPC to move to the commercial stage of pre-qualifying bids submitted by local and international companies for the engineering, procurement and construction (EPC) contract award for the rehabilitation of 210,000bpd Port Harcourt refinery.
Eromosele proposes that the Nigerian government adopts “the Eleme strategy rather than waste a lot of money on an unprofitable venture.”
Indorama Eleme Petrochemicals Company Limited (IEPL) is the fifth Nigerian refinery owned and operated by Niger Delta Petroleum Resources (NDPR).
Formerly known as Eleme Petrochemicals Company Limited (EPCL), the company was acquired in 2006 from the NNPC during the privatisation programme by Indorama, who is the core investor.
The acquisition of the previously underutilised plant by IEPL has stabilised petrochemicals production in Nigeria, says Eromosele, who notes that the company is in the process of expanding the plant complex.
“Irrespective of the billions of dollars pumped into refineries, if the government still manages it, we would keep going in circles,” Joe Nwakwue, chairman, Society of Petroleum Engineers (SPE), tells BusinessDay, noting, “The refineries require significant work and most of the agreements to repair them are still on paper, no actual work has started.”
For Luqman Agboola, head of energy and infrastructure at Sofidam Capital, it will take more than a miracle to get Nigeria’s state-owned refineries rehabilitated in 2021, however, the private sector offers hopes of domestic refining.
Apart from the state-owned refineries, Africa’s biggest oil-producing country is expecting a combined refining capacity of over 623,000 barrels of oil per day to be completed before the end of 2021.
They include the over 600,000bpd capacity from Dangote Refinery; 10,000bpd from Niger Delta Petroleum Resources Refinery (NDPR); 7,000bpd from OPAC Refinery; 5,000bpd from Waltersmith Refining and Petrochemical Company Limited, and 1,000bpd from Edo Refinery.
“If the state-owned refineries are left in the hands of the government, it will continue to experience the same problem, irrespective of the huge amount of money pump into them,” Agboola states.
Records from Nigeria Natural Resources Charter (NNRC) reveal that Nigeria has spent billions of dollars in turnaround maintenance of the refineries in the past 25 years, the latest being over $396 million spent between 2013 and 2015 with nothing to show for it.
Despite the huge amount expended on the refineries, their woeful performances remained, as the NNPC stated that they posted trading deficits of N82.09 billion, N77.84 billion, N32.84 billion, N131.64 billion and N149.23 billion in 2015, 2016, 2017, 2018 and 2019, respectively, while in the first half of 2020, they posted trading deficits of N58.736 billion.
Nigeria’s refineries, which include the Northern 110,000bpd Kaduna refinery and the 125,000 bpd Warri refinery, have been shut down for repairs since early 2019, and the NNPC said it expects them to operate at around 90 percent capacity when repairs are completed and production resume by 2023.
But this timeline is expected to be pushed back as 2020 saw numerous delays exacerbated by the COVID-19 pandemic.
The refineries have operated sporadically due to years of neglect, forcing Africa’s largest crude producer to rely heavily on imports to meet its domestic fuel needs.
Previous attempts to revamp the refineries have been scuttled after the NNPC failed to secure the necessary funding, estimated at over $1.2 billion.
Nigeria also hopes that the increase in output from the four state-owned refineries, coupled with the start-up of the privately-owned Dangote refinery, would help it end its reliance on fuel imports.
Nigeria, an OPEC member, imports about 1 million – 1.25 million mt/month of petrol to meet national demand estimated at between 50 million and 60 million litres/day.
