A Review of the Nigerian Energy Industry

Why refineries are not performing – NNPC

Port Harcourt refinery
Port Harcourt refinery

*As labour renews opposition to sale of refineries

Oscarline Onwuemenyi

07 March 2015, Sweetcrude, Abuja –
The Nigerian National Petroleum Corporation, NNPC, has blamed it’s inability to pay the high cost of maintenance proposed by original builders of the four refineries for their current poor optimisation state.

The corporation however, assured that the refineries would roar back to life early next year.

This position was disclosed on Friday when officials of the Corporation, who appeared before the Senate Committee on Petroleum (Downstream) investigating some events in the oil and gas industry, stated that the corporation could not afford the outrageous bills for their maintenance from the builders.

Giving account of the state of the refineries before the Senate Committee on Petroleum (Downstream), the NNPC’s Coordinator, Corporate Planning and Strategy, Dr. Tim Okon, said when the corporation invited the builders from Japan and Italy for turn around maintenance, they refused to come. Instead, he said they recommended SAIPEM, a foreign firm operating in Nigeria to carry out the turn around maintenance on their behalf.

While the Port Harcourt and Kaduna refineries were built by two Japanese firms – Chioda and JGC, the Warri Refinery was built by Snapcogetti of Italy.

According to him, when SAIPEM eventually came, it offered to maintain Port Harcourt Refineries at $550 million, Kaduna Refineries at $600 million and Warri Refinery at $180 million.

Okon said the bills were unacceptable to them because they were too high despite the fact that the figures were eventually reviewed downwards.

Okon explained that the high bills prompted NNPC to send some of their engineers to the builders abroad to learn the repair processes with a view to saving costs.

Following this move, Okon said NNPC began to spend as low as N10 million to maintain the refineries every month as from October 2014. Following this development, he said the four refineries would roar back to life and produce in optimum capacity from the first quarter of 2016.

According to him, whereas the refineries had the capacity to process 445,000 barrels of crude oil per day, they could currently process only 60,000 barrels per day as a result of maintenance problem and movement of crude through the pipelines.

He also said losses recorded from the use of the refineries had been attributed to lack of recovery mechanism for what has been done adding that after processing only 60,000 barrels of crude per day, the remaining barrels are sold in the international market.

He explained that the NNPC paid international price for its crude everyday but the retail was low, observing that the situation would have been better if the National Assembly had passed the Petroleum Industry Bill (PIB).

Also speaking at the hearing, NNPC’s Group Managing Director, Mr. Joseph Dawha, said the refineries would work in full capacity next year as a result of the new strategy that has been adopted by the corporation.

Fresh reports have indicated that the Federal Government may have slowed down the process of selling the nation’s refineries following its failure to secure the support of the labour unions.

The government had in 2013 announced plans to sell the nation’s four refineries. The refineries are the Port Harcourt Refining Company Limited I and II; Kaduna Refining and Petrochemical Company Limited; and Warri Refining and Petrochemical Company Limited.

Although labour opposed the move, President Goodluck Jonathan had in December 2013 approved the constitution of a steering committee for the privatisation process.

The terms of reference of the steering committee included advising the NCP on the best way to privatise the refineries in a manner that would enhance the gains of the privatisation programme; reviewing the diagnostic reports and recommendations of the transaction advisors; and make recommendations to the NCP on labour matters to ensure the successful privatisation of the refineries among others.

Although the BPE had listed the sale of the four refineries in its work list for 2014 after securing the approval of the National Council on Privatisation, the agency said the deal would only happen when the government secured a buy-in from the organised labour.

However, the General Secretary, Nigeria Labour Congress, Dr. Peter Ozon-Eson, said that as at 2015, organised labour remained opposed to the sale of the refineries and indicated the failure of the government to obtain its support. He also insisted that Labour’s position on the matter was that the refineries should be made to work and that the Government should also open up the downstream sector of the petroleum industry so that private investors would be able to build their own refineries.

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