The Minister of Petroleum, Mrs. Diezani Alison-Madueke, recently intimated the Senate Committee on Petroleum (Downstream) with the plan of the Federal Government to spend N251 billion (about one billion British pounds) on the repair of three refineries in the country.
The three facilities scheduled for the Turn Around Maintenance (TAM) are the Kaduna, Port Harcourt and Warri refineries in Kaduna, Rivers and Delta states, respectively. The refineries have total production capacity of 445,000 barrels per day (bpd) but they are currently running below 25 percent of that capacity as a result of their poor management. However, in spite of the fact Nigeria needs to refine more fuel to meet local demand, the projected cost of this planned repair is too high.
It is more than enough to build two new modular refineries, going by the government’s disclosure, in June, that it had signed a Memorandum of Understanding (MoU) with a consortium of American investors and the Nigerian Venture Group, Vulcan Petroleum Resource, for the building of six high-tech modular refineries at a cost of N697.5 billion, with installed capacity of 180,000 barrels per day.
At that time, the modular refineries were touted as a better option to endless repairs of existing refineries that are largely believed to be obsolete. Under the agreement, two of the modular refineries ought to be completed within one year, each with capacity to refine 30,000 bpd. At that time, we commended the government for the initiative.
The Minister has, however, now submitted that the N251 billion TAM of the old refineries is the ultimate solution to the recurring problem of scarcity of petroleum products in the country. Beyond the wisdom or otherwise of the planned repair, however, is the huge cost of the TAM. The amount is scandalous, and may serve the nation better if committed to the construction of two or three more modular refineries.
If we will allow history to be our guide, Nigerians will recognise that over the years, Turn Around Maintenance of our refineries has always been characterised by colossal fraud. This is largely so because the nation’s oil industry under the management of the Nigerian National Petroleum Corporation (NNPC) oftentimes breeds corruption. It is doubtful that the proposed TAM will be the magic wand to end the continuing scarcity of petroleum products in the country.
Previous TAM of the existing refineries in the country did not yield the expected results, in spite of the huge capital sunk into them. The Ministry of Petroleum has also not convinced Nigerians that the current plan will make any difference. In the past, such repairs ended up creating a cartel of fuel importers, which feasted on the money voted for the exercise.
This has resulted in loss of confidence of many Nigerians in the ability of the NNPC to keep the refineries in good shape to meet its installed production capacity. Nigerians have been fooled too many times under the guise of maintenance of refineries. There is also the fear that the planned repair may be a smokescreen by government towards complete removal of subsidy on petroleum products, which government failed to actualize in January due to the nationwide strike that trailed partial withdrawal of the subsidy. This fear may not be unfounded because the Minister of Information, Mr. Labaran Maku, had hinted late last year that the repair of the old refineries and the establishment of three additional ones in Bayelsa, Lagos and Kogi states, would be part of the measures to address the lingering problems in the production and supply of petroleum products across the country, and possibly a prelude to a total deregulation of the downstream petroleum sector.
The proposed TAM is likely to be part of the plan to actualize that script. Although we are not totally opposed to the maintenance of existing refineries, the proposed budget for the TAM is questionable. It makes more economic and logistic sense to put the plan on hold until the modular refineries are constructed and brought on stream. There is also need for government to seriously consider viability of this initiative before its implementation. As attractive as the revamp of existing refineries may seem, government should not gloss over the systemic factors that led to the failure of previous TAMs to achieve the desired objectives.
In this regard, it is better to channel the funds earmarked for the repair of old refineries into building new ones that are based on the latest technology. Nigeria’s oil sector needs faster, result-oriented refinery platforms. When that is achieved, government can give attention to fixing the old ones as back up or complementary refineries. That, we think, is the way to go. Let government work assiduously with the foreign partners to ensure speedy completion of the modular refineries.