Explainer: Should NNPC which cannot run refineries build hospitals?

On June 11, Nigeria’s national oil company announced plans to build hospitals in 12 of the 36 states of Africa’s most populous country after failing to run and grounding four refineries in the last decade.

The 12 hospitals are billed for N21 billion ($54 million) and are part of a new corporate strategy of the Nigerian National Petroleum Corporation (NNPC) to grow non-oil investments, which will also include housing and power. The hospitals’ investment decision comes on the heels of the novel coronavirus pandemic that exacerbated the inadequacies of Nigeria’s health infrastructure.

The state-owned company’s exposure to the boom and bust cycle of global oil prices has been a source of major concern as it exposes government revenues to these external shocks, which in 2016 sent Africa’s biggest producer of oil into a recession when oil prices crashed in the international oil market. So, the NNPC said this is among “measures to cope with the boom and bust cycle in the global crude-oil market and to sustain revenue generation.”

This year alone, crude prices crashed to historic lows as demand fell with the outbreak of COVID-19. Before this, oversupply caused by volume and price wars between Saudi Arabia and Russia was already moderating oil prices downwards.

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This sent warning signals to Nigeria’s economy managers as the country depends on oil, for more than half of its revenue and 90 percent of export earnings. By April oil prices had fallen to a 21-year record low making President Muhammadu Buhari’s budget plans unrealisable.

However, the national oil company’s inability to run Nigeria’s four refineries has cast doubts on its ability to build and operate the proposed hospitals. In the last decade, the four refineries with nameplate combined capacity of 445, 000 barrels per day have operated at an average capacity utilisation of about 20 percent, placing Nigeria at the bottom of the ladder among African refineries.

People with a deep understanding of the sector have said that the series of so-called turn around maintenances (TAM) in the last 21 years have been shams and never done properly. The only one that was done properly was the one at the Port Harcourt refinery in 1991, after one and half years of operation by the original contractor who brought in Saipem as a sub-contractor.

A TAM requires preparations. New parts are made available, and the refinery is taken apart. The pumps are cleaned and put back together. “No other turn around maintenance has been done since 1991, not in Warri not anywhere. The contracts are awarded and frittered away. No audit has been carried out to check those TAMs,” Alexander Ogedegbe, former managing director of the Port Harcourt Refining Company said in a recent Webinar on refining in Nigeria.

According to the National Refineries Special Task Force Report of 2012, during the early 1990s, Nigerian Refineries produced enough petroleum products to satisfy national demand and exported the excess.

In 1991 and 1992, Nigeria earned US$124million and US$156million respectively from the export of petroleum products, Ogedegbe, in a presentation to the Academy of Engineering, June 11, 2009.

From 1990 – 91 Nigeria was completely self-sufficient in all products and was exporting to West Africa. “Between 1991 and now, the refineries lost steam for lack of maintenance, as and when due. As we speak today all the refineries have been shut down, not one is producing anything today,” Ogedegbe said.

No refinery today in Nigeria can run properly because they have degraded due to lack of maintenance. It is estimated that with $1 billion Port Harcourt refinery can be brought back. It cost $870 million in 1989 to build. It needs to be refurbished completely.

According to the former managing director of the Port Harcourt refinery, refineries can run for 50 years if they are maintained properly and the units upgraded accordingly. “I was at a refinery in San Francisco when we were about to build the Port Harcourt refinery that had been on for 101 years,” he said.

NNPC’s mismanagement of the refineries is not peculiar. Government-owned companies in Nigeria have a track record for inefficiency, incompetence, and running businesses aground.

This was the case with the Nigerian Telecommunications Limited (NITEL), which was able to deploy only 500, 000 active fixed lines by mid-2001 after it was established in 1985. This meant that unlike British Telecom (BT) and America’s AT&T, NITEL failed to fulfill the traditional role of governments building fixed wireline infrastructure. The story of the National Electric Power Authority (NEPA) managing Nigeria’s electricity industry is not any different.

The NNPC may have started the construction of a 200-bed emergency and infectious disease hospital in Kaita, Katsina State, one of the 12 planned hospitals, concerns remain about its ability to run these hospitals, given the national oil company’s antecedents in managing the refineries.