BusinessDay

Cash is biggest hurdle facing FGN-Labour deal on refineries

The proposed agreement towards reviving Nigeria’s four moribund refineries between the Federal Government and labour unions may be an endless mission if several bottlenecks are not removed.

In a bid to avert a proposed nationwide strike led by Nigeria Labour Congress (NLC), the Federal Government led by the secretary to the federation, Boss Mustapha, agreed to speed up the rehabilitation of the four refineries while specifically targeting a 50-percent completion of Port Harcourt Refinery by December 2021.

For a government struggling with revenue and lack of funds to even finance 2020 budget, most stakeholders have raised questions on how the government plans to honour its agreement with the labour unions.

Finance challenges, along with Nigerian National Petroleum Corporation’s (NNPC) role in controlling crude production and pipelines, plus a multitude of risks spanning policy, regulation, politics, payments, operations and security are other concerns raised by experts.

“The petroleum refining business is capital intensive. To repair the Port Harcourt Refinery today will cost at least $1 billion,” Alexander Ogedegbe, former managing director, NNPC Port Harcourt Refinery, says.

Nigeria’s four state-owned refineries with a combined capacity of 445,000bpd have been idle for more than a year as they wait for essential maintenance, with little likelihood of resuming production as cash flow constraints and coronavirus-related movement restrictions hamper repairs.

“In the past, there have been talks of bringing partners to help refurbish the refineries and run them. Why is nobody talking about that,” Ogedegbe asks.

Ronke Onadeko, principal consultant, DRNL Consult Limited and member expert advisory panel, Nigeria Natural Resource Charter (NNRC) with focus on the downstream oil and gas sector, states that government’s promises about the refineries would not happen. “It is all talk,” Onadeko says.

Nigerians were irked following NNPC’s release of the 2018 audited report that revealed the four refineries recorded N154 billion in losses with the Kaduna Refining and Petrochemical Company (KRPC) incurring 42 percent of the total loss, without generating any revenue during the fiscal period.

Not only that, the turn-around maintenance (TAM) and operational expenditure (OPEX) for these refineries since the reversal of its privatisation by late President Musa Yar’Adua has gulped trillions of naira.

The decrepitude of the refineries in Africa’s largest crude producer is a reflection of the sorry state of an oil and gas sector starved of investment, but also a reminder of the country’s sluggish crude-driven economy. Oil still accounts for as much as 56 percent of state revenues.

“If I got $5,000 for each time government made such promise and failed I should be building a house by now. History is filled with evidence of the Federal Government’s inability to manage commercial entities,” Onadeko states.

Unlike other sectors in the economy where private sector money has come in to revolutionise the economics of things and improve the status quo, the government has continued to dominate Nigeria’s refining landscape. Some experts point to unclear policies and poor government regulation, while others blame insecurity and poor infrastructure. To be candid, both are correct.

Dangote Group and Niger Delta Petroleum Resources Refinery are two of only 40 projects since 2002 to receive refining licences that have made significant progress in construction, according to the Robert Gordon academics.

Yet, the government remains bullish. On August 31, the CEO of Nigeria’s Department of Petroleum Resources stated that the country would become a net exporter of petroleum products in 2022, predicting Nigeria would have domestic refining capacity of 1.475mbpd, which will come from 450,000bpd from the restored state refineries, 650,000bpd from Dangote Refinery and 375,000bpd from 27 modular refineries.

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