Despite producing nothing, Nigeria’s four government owned refineries have been nothing but a drainpipe on Africa’s biggest economy, running at an operating deficit of N90.07 billion in the first seven months of 2019.
After years of neglect, Nigeria’s refineries with a combined capacity of 446,000 barrels per day (bpd) have not operated beyond a quarter of their installed capacity, mainly due to attacks on pipelines carrying crude to the plants as well as technical problems.
They are the Kaduna refinery with installed capacity of 110,000 bpd, two plants located in Port Harcourt with an installed capacity of 210,000 bpd, and the Warri refinery with an installed capacity of 125,000 bpd.
Latest data from Nigeria National Petroleum Corporation (NNPC) show the country’s ailing refineries had an operating deficit of N90.97 billion between January 2019 and July 2019, an amount higher than capital spending allocation in the 2020 budget to the Ministry of Education (N48 billion) and the Ministry of Health of (N46 billion).
Niyi Awodeyi, CEO at Subterra Energy Resources Limited, said the Federal Government has no business being involved in running these refineries because just a handful of people are benefitting from the system while the larger population of the people are living in penury.
“For example, Kaduna refinery has a budget allocation with over 2,000 staff that collect salaries on a regular basis and sometimes go for training overseas. When was the last time Kaduna refinery refined a drop of crude oil?” Awodeyi asked.
Another source in the NNPC explained that labour or personnel cost for all the refineries is a major contributor to the high operating cost recorded.
“When we put a structure in place to lay off workers, PENGASSAN and NUPENG national leaders threatened to shut down operations across the country,” the source said.
Further analysis revealed operating expenses of Nigeria’s refineries for the first seven months of 2019 stood at N88.95 billion.
“One of the recommendations submitted by one of the seven committees to advise the NNPC management on revamping the refineries is the redeployment of staff. So, where do we deploy them to? They are between 3,000 and 4,000 workers which is a big issue,” the source said.
A former general manager of Warri refinery who chose to speak anonymously told Businessday that selling the refineries is the best option, adding that fundamentally refineries are potentially profitable if they are upgraded and handled professionally.
“The refineries can be upgraded. It is the size of refinery that is most important and unless all the units are upgraded, we cannot have 90 percent optimisation from these four refineries,” he said.
The refineries’ operational deficit of N90.97 billion in seven months is also higher than N44.5 billion allocated to Basic Health Care Provision Fund (BHCPF), the fund set aside for the basic health needs of over 200 million people.
“The priority of any proactive government should be to rid the country of these four afflictions currently managed by NNPC,” said Budgit, a civic organisation that applies technology to intersect citizen engagement with institutional improvement to facilitate societal change.
Nigeria’s refineries have degenerated over time. In the last 18 years, the refineries became comatose, as successive governments failed to bring them up to their installed capacity despite promises to improve the performance of the refineries and commit significant resources to their rehabilitation.
The highest average capacity utilisation of the three refineries in an 11-year period from 2008 to 2018 was 26 percent recorded in 2009 while the latest data from NNPC revealed the three refineries currently operate at zero percent capacity utilisation.
NNPC, the government agency entrusted with the national asset, said in July that the three refineries processed “no crude and produced no product compared to the previous months as combined yield efficiency is 0.00 percent compared to 31.19 percent recorded in June 2019 owing largely to rehabilitation works being carried out in the refineries”.
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“No associated crude plus freight cost for the three refineries since there was no production while operational expenses amounted to N14.66 billion in July. This resulted to an operating deficit of N13.84 billion by the refineries in July,” NNPC said in its monthly report.
The inability to get the refineries working is taking a toll on Nigeria’s economy as a report by Nigeria Natural Resource Charter (NNRC) said between 2013 and 2017, Nigeria spent an estimated $36 billion importing petrol, an amount which can build four world-class refineries similar to Dangote refinery valued at $9 billion.
NNRC recommended that to get the four refineries functioning optimally, the government needs to divest at least 75 percent majority stake, engage service of competent consultants on the valuation of the assets, and organise a transparent and fair bidding round managed by independent advisors under the supervision of BPE.
“Appoint a Post Privatization Performance Monitoring Team comprising BPE officials that the state government partnered with investors to raise about $1 billion to build the 450- megawatt Azura power plant. He said that in Benin City alone, the state has generating capacity of about 900 megawatts.
Obaseki, however, lamented that despite the huge investment and the 900-megawatt capacity, Edo State is still in darkness.
He raised further concern that the states are hindered and independent consultants to checkmate the activities of investors and track performance of the refineries while also ensuring that the processes leading to the divestment of the four refineries are not politically hijacked and devoid of political interference or bureaucratic infraction of any sort,” NNRC, a global initiative designed to help governments and societies effectively harness the opportunities created by natural resources, said.
In what seems like a ritual, rather than fix its refineries, the NNPC requests bids from local and international oil companies to its share of 455,000 bpd allocated to it from joint venture arrangements with exploration companies. These companies bring back refined products which meet over 90 percent of Nigeria’s consumption.
Over time, previous governments have made spirited efforts to revamp the refineries but they failed because of corruption and lack of political will.
It was only former President Olusegun Obasanjo that attempted to revitalise the refineries by selling them to Aliko Dangote, who led a consortium of investors which had paid $721 million for two refineries, as the Federal Government was finding it difficult managing the facilities as at that time. The sale was, however, unfortunately overturned by late President Umaru Musa Yar’adua.
Mele Kyari, group managing director, Nigerian National Petroleum Corporation (NNPC), said he would work towards getting the nation’s four refineries working at optimal performance by 2023.
