• Friday, March 29, 2024
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BusinessDay

What you should know about Nigeria’s oil refinery quagmire

Lesson for Nigeria as Namibia’s energy sector sparks global investment rush

Nigeria has a total of four oil refineries and all owned by the state. The four have a name plate capacity of 420,000 barrels per day. Of these, there are two in Port Harcourt (210,000bpd), one in Warri (125,000bpd) and one in Kaduna (110,000bpd). All of them have been shut since 2019 – the Port Harcourt refineries since March and Warri and Kaduna since December – to carry out essential rehabilitation work.

Moreover, even before the shutdown, the refineries operated sub-optimally, at c14% capacity utilisation in 2017-18 and hovering at similar sub-optimal levels over the past few decades.

In 2019, PH Refinery contributed zero revenue, but incurred costs of N47bn; almost N4bn a month according to economist and banker Atedo Peterside..

Privatisation

In the twilight of the Obasanjo administration, two of the refineries were sold to private investors but this sale was surprisingly cancelled by Obasanjo’s successor. Many say that action was ill-advised and is at the root of Nigeria’s oil refining crisis today.

Nigeria imports all its refined petroleum products under little know swap contracts which involve the supply of products by contractors who get crude oil in return. Economists like Peterside see the privatisation of the refineries as the sure way out of the quagmire, especially given that the 650,000 barrels a day Dangote refinery will come on stream next year.

Subsidy

Hovering over this is the growing fiscal losses arising from an uncontrolled subsidy regime which is now said to cost Nigeria about N1.8bn daily. The subsidy has fuelled the smuggling of petrol across the land borders to countries where the product sells at more than twice the price in Nigeria.

Labour is insisting that any plan to remove or cut the subsidy must include the rehabilitation of the refineries and it would seem the government has bought into this.

Contract

This week, the government signed a contract valued at $1.5bn for the repairs of the Port Harcourt refinery despite the nationwide outrage that the mere information about this repair bill has attracted.

The $1.5 billion contract was signed Tuesday by the managing director of the Port Harcourt Refinery, Ahmed Dikko, and the vice president of Tecnimont, Sub-Saharan Africa, Davide Pellizola, respectively for NNPC and Tecnimont. The signing is the latest indication the contract for the repairs of the 210,000 barrels per-day-refinery has taken off. The Federal Executive Council approved the contract last month, a decision many analysts criticised.

Refinery rehabilitation, or turn around maintenance, TAM as is popularly called in Nigeria, has forever been swallowed up in controversy. Contracts upon contracts have been given out for refinery maintenance but the performance of the refineries has not improved.