Will Nigeria’s refineries ever come back life and be able to perform at full capacity? The Nigerian National Petroleum Corporation (NNPC) says it is a dream that will come to fruition in a few years. ROBERT EGBE examines the state of the refineries on which over $396 million was spent between 2013 and 2015 with nothing to show for it and the shape of what is to come.
Before 2006, the Eleme Petrochemical Limited in Rivers State was in a bad state. This company, then a subsidiary of the Nigerian National Petroleum Corporation (NNPC), had not witnessed Turn Around Maintenance (TAM) for 11 years. Not for one day was the plant, which was started in 1995, shut down for maintenance. It was a victim of bureaucracy.
Its state proved the globally- accepted norm that that government has no business in business. The place was run more as a government organisation and efficiency was on permanent break.
For petrochemicals and refineries where day-to-day decisions have to be made, bureaucracy is an enemy and it badly affected the Eleme Petrochemical Limited. The firm changed name in 2006 and became the Indorama Eleme Petrochemicals Company Limited (IEPL), after Indorama as the core investors acquired it in 2006 from the NNPC during the privatisation programme.
Its fortune changed and the complex, which is located at Eleme, Rivers State, now has no less than 22,000 tonnes per annum (TPA) Butene-1, 270,000 TPA Polyethylene, and 80,000 TPA Polypropylene plants that process natural gas liquids (NGL) from Nigerian Agip Oil Company (NAOC) and propylene-rich feed from Port Harcourt refinery to produce a range of Polyethylene and Polypropylene products. IEPL rehabilitated the previously under-utilised plant, and through prudent management has over the years stabilised petrochemicals production.
Other NNPC subsidiaries, such as the Warri and Port Harcourt refineries, were not privatised at the time, neither was proper revamping done on them. The beautiful turn-out of the IEPL is a proof of what proper rehabilitation not hampered by bureaucracy can do. The NNPC, going by recent pronouncement, seems to have found a way to breathe life into all the four refineries.
Though they have not been privatised, the corporation is excited about the plans for the refineries. First, it carried out a detailed audit of the government’s ailing refineries and mobilised funds and technical resources to restore them to full operating capacity. This is part of a strategic effort to crash fuel prices and guarantee energy security. Industry experts believe this is the way to go. They are of this opinion given the fact that it holds the promise of ending a situation where Nigeria remains the only major oil without local refining capabilities.
The NNPC is obviously taking this step to breathe life into the refineries since it has become increasingly clear that the much-awaited Dangote Refineries cannot do much in helping to crash fuel price. Minister of Finance Minister of Finance, Budget and National Planning Mrs Zainab Ahmed said when Dangote Refinery kicks off next year, it may not significantly reduce the price of petrol because the refinery will be selling at the international price.
Mrs Ahmed said: “What we are doing is enabling the petroleum sector to actually grow. There have been a number of refineries that have been licensed for several years. None of them was willing to start refining under the regime that we had where fuel was controlled.
“The Dangote refinery is sitting within an Export Processing Zone so they are insulated from that. When we buy fuel from Dangote, we will be buying fuel at the international market price. The only savings that we will be making is the savings of freight which is shipping.
“But we will still have landing cost; labour cost and the marketers will still have to put a margin. These refineries being those that are supposed to have come to operate can now come in because they are assured that when they produce, they can sell at market rate and recover their investments and make some reasonable profits.”
NNPC to the rescue
NNPC Group Managing Director Mele Kyari said the refineries are set for major rehabilitation. The four refineries have a combined capacity of 444,000 barrels per day.
The Port Harcourt refinery, with a capacity for 210,000 barrels per day is made up of two refineries located at Alesa-Eleme, Rivers State. Its oldest plant inaugurated in 1965 has a refining capacity of 60,000 barrels per day; the new plant, which was inaugurated in 1989, has the capacity of 150,000 barrels per day. The plant utilises bonny light crude oil to produce Liquefied petroleum gas (LPG), premium motor spirit (PMS), Dual Purpose Kerosene (DPK), Automotive Gas Oil (AGO), Low Pour Fuel Oil (LPFO) and High Pour Fuel Oil (HPFO).
The Warri refinery, which was established in 1978, has a refining capacity of 100,000 barrels per stream day plant and was debottlenecked to 125,000 barrels per stream day in 1987.
The Kaduna refinery has a refining capacity of 110,000 barrels per day. It possesses a fuels plant inaugurated in 1983 and the 30,000 MT per year Petrochemical Plant in 1988.
“What you call rehabilitation is different from turnaround maintenance (TAM). TAM is a routine endeavour. When you talk about rehabilitation, that means you have colossal loss of capacity in the refineries. It means you’ve not done TAM properly, you’ve not replaced parts as and when due and it has gotten to a point where you’re not able to operate the refineries in the full installed capacities.
“Every refinery is expected to operate at least 90% of installed capacity. With all the TAM down, it was impossible to run any of these refineries at 90 per cent capacity. Our estimate was that we could run at 60 per cent capacity but if we do that, it’s simply value destruction. You take a $100 crude and bring out $70 product, it doesn’t make sense.
“We want to make them work and that’s why we’re doing full rehabilitation. Refineries are like aircraft. I’ve visited refineries that are over 100 years old that are still functioning. Refineries don’t die like cars or other assets,” he said.
The rehabilitation is to be carried out largely by its engineering subsidiary, National Engineering and Technical Company, NETCO/KBR as Owners Engineer (OE) for the Port Harcourt and Warri refineries in May. This will help save cost.
The management invited to tender for the repair of Port Harcourt refinery and signed a $1.5 billion prepayment deal. The financing package, called Project Eagle, was backed by the African Export Import Bank (Afreximbank).
The engineering, procurement and construction (EPC) contract to boost the country’s liquefied natural gas output by more than 30 per cent has also been sealed, with construction beginning in the first quarter of 2021.
The financing of Warri and Kaduna refineries is to be handled by Luke Oil and other commercial banks. The Bureau of Public Procurement (BPP) has okayed the issuing of tenders for EPC contract to list EPC contractors for the refineries.
Public tenders have been done to partners on build, operate and transfer for the associated pipelines for crude and produce transportation. The completion target is before 2023.
Detailed technical inspection of PHRC was carried out by the Technimont SpA (the representative of the Original Refinery Builder) was completed in October 2019. NETCO and KBR were appointed as Owners Engineer and Project Management Consultants in May. A shortlist of bidders for the EPC project was approved in June, while approval of financing of the project to progress with Afrexim Bank to raise $1b billion by NNPC BoD was in July.
Prequalification of bidders was done in August, while a Certificate of No Objection from the Bureau of Public Procurement (BPP) for the provision of EPC services to progress to the next phase was also issued in August. In December 2019, the award of EPC to best globally reputable EPC Contractor took place.
The contractors are expected to move to site on the first quarter of 2021 and the pre-commissioning is expected to be in the first quarter of 2023.
The Federal Government has in the last 25 years spent billions of dollars on TAM for the refineries, the latest being over $396 million spent between 2013 and 2015 with nothing to show for it. The refineries were instead shut because of the difficulties in feeding them with crude oil via the pipelines, which were compromised by vandals.
Kyari said: “That means you’re not able to deliver crude oil to them to operate to the maximum of their capacity. That is not what we want. So, our target is that when they come back to life, they’ll run over 90% capacity. We’re also working with the private sector to establish condensate refineries.”
The Kyari-led NNPC has been suing for peace and mending broken relationships among petroleum stakeholders and host communities to ensure hitch free operations. The management has carried out a detailed scoping of Port Harcourt and Warri refineries to determine its needs.
Earlier this year, the Senate mandated its Committee on Downstream Petroleum Sector to carry out a holistic investigation on the turnaround maintenance. It also mandated the committee to convene a stakeholder’s conference on the best way to revamp ailing refineries.