AFTER years of suboptimal performance and many failed attempts to revamp Nigeria’s ailing refineries, the Federal Government has opted for a new commercial model that will involve both local and foreign companies investing in the restoration of full operations at the Port Harcourt, Kaduna and Warri refineries. About 26 firms have reportedly indicated interest in participating in the effort to revamp the refineries. The amount required to put them back on stream has been estimated at about $2 billion (N720bn).
Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, who disclosed this at the recent Africa Oil Week in Cape Town, South Africa, said Nigeria was almost at the threshold of finalising the process of selecting the successful bidders and their names may be announced by January or February, next year. This development is expected to boost Nigeria’s efforts to reduce its reliance on the importation of petroleum products.
Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, who disclosed this at the recent Africa Oil Week in Cape Town, South Africa, said Nigeria was almost at the threshold of finalising the process of selecting the successful bidders and their names may be announced by January or February, next year. This development is expected to boost Nigeria’s efforts to reduce its reliance on the importation of petroleum products.
The plan to involve foreign and local investors in the rehabilitation of the refineries is good news that should achieve the desired results, if it is properly executed. Past successive governments had made similar plans and promises in the past, but they all came short of revamping the refineries after committing so much money to the Turnaround Maintenance (TAM) of the facilities. The huge investments did not turn around the fortunes of the refineries, which have installed capacity of 445,000 barrels per day (bpd).
However, in spite of the abundance of feedstock in the country, these refineries still produce much lower than this figure, which subjects Nigeria to the perennial importation of petroleum products, despite being Africa’s largest oil producer. Experts say the cost of importing fuel in one month alone can build ten modular refineries or, at the least, put two of the existing four refineries back on stream.
Nevertheless, the latest move to revamp the refineries is said to have received the approval of the presidency. President Muhammadu Buhari has always ruled out the sale of the refineries. Rather, he has given the nod for the engagement of strategic investors who would come with refining experience and funding to partner with local investors who understand Nigeria’s downstream oil market. Such technical know- how has become expedient.
It is heartening that the management of the Nigerian National Petroleum Corporation (NNPC) is already in talks with the original builders of the Port Harcourt and Kaduna refineries – Chiyoda and JGC, two Japanese engineering conglomerates – to undertake technical appraisal of the refineries from which the final funding model for the new arrangement would be agreed. Our advice is that such funding arrangement should be transparent.
Under the new model, the investors will recoup their investment from the incremental production of the refineries on agreed terms often known as the Rehabilitate, Operate and Transfer(ROT) model under public-private partnership arrangement.
It is necessary for the NNPC to carry out proper background checks on the firms that have turned in their Expressions of Interest (EoI). It should also engage the services of financial advisers. At least on paper, the processes laid out by NNPC for the restoration of the moribund refineries give a ray of hope.
Not long ago, the corporation stated that the revamping of the refineries would go hand-in-hand with other plans by the government to increase Nigeria’s domestic refining capacity. It had, earlier in the year, said it was given 24 months to deliver on the new funding model for the refineries. It has also explained that there are three levels in the revamping process: rehabilitation of existing refineries, co-location, and Greenfield, which includes modular refineries. But, the three involve separate works.
In his speech in Cape Town a few weeks ago, Dr. Kachikwu disclosed that Nigeria is aiming to increase its oil output in January 2018 to 1.8million bpd from the current 1.6 million, but would not breach the ceiling agreed with the Organisation of Petroleum Exporting Countries (OPEC) .
Over all, the time is overdue to put our refineries back on track. They should be up and running, and producing close to their optimal capacity. The frequent repairs that gulped huge amounts over the years have yielded little results. Only recently, the government said it was sourcing $1.12bn (N342.72bn) to repair the refineries. This is besides the N963bn reportedly spent in the last 18 years for the same purpose, without achieving the desired result.
Government should be careful not to rely totally on oncoming private refineries that have not yet come on stream to meet the national oil demand. We, therefore, urge the eight committees that the NNPC inaugurated recently, and charged with returning the refineries to their installed capacities latest by 2019, to deploy out-of-box solutions to ensure that they fulfill this mandate. Nothing less will do.