Oil & Gas Summiteer

June 20, 2015

NNPC: So Refineries Can Work?

Senate probes poor state of refineries

By Sonny Atumah

Call it facing the realities of change that seemed impossible before now and you may not be wrong. Let us again remind the NNPC that refineries are national assets that should be guarded jealously. With potentials for up to 6000 investment opportunities when we refine a barrel of crude, our refineries are strategic for energy, technology, employment, skills, increased GDP and government revenue.

Alas! For over three months Nigerians in bewilderment groped and constituted themselves into search parties for fuel from any benevolent marketer, to purchase available drops of premium motor spirit (PMS), dual purpose kerosene (DPK) or automotive gas oil (AGO). It became a national emergency when banks, airlines and telecommunication operators threatened withdrawal of services.

We were over a barrel as our petroleum managers tried to justify scarcity artificialisation, as unique selling point to orchestrate deregulation of the downstream sector. They reduced activities of the National Oil Company downstream sector to import of refined products and spurious ‘subsidy’ claims, which the immediate past Minister of Finance Dr. Ngozi Okonjo-Iweala engaged marketers in arm’s – length transactions.

The Group Managing Director (GMD)of NNPC, Dr. Joseph Dawha last week inspected retail outlets in Abuja, saying that Port Harcourt Refinery would commence production in July 2015 and would process about five million litres per day would. And this week Warri Refinery was given a production nod in a fortnight.

One had wished he told Nigerians what had become of the empire he superintended that refineries could not function for years. He failed to address how fairly new process plants became aged infrastructure, which subsequent disruptions hamstring operations and impede 6000 investment opportunities for vertical economic diversification. This issue is not about Dawha and his former co-travellers on NNPC saddle, but about Nigeria and the system that perpetuates degeneracy and inefficiency.

The second Port Harcourt Refinery which Dawha said would come on stream in July 2015 is 150,000 barrels per day capacity was constructed in 1989. At optimum level it can process over 11million litres of PMS, over 2.3 million litres of household kerosene (HHK), over 5.4million litres of automotive gas oil (AGO) and other byproducts per stream day. These three give 80 percent of 105 percent when we refine a barrel of crude oil. The GMD did not tell us that.

Also, 450,000 barrels per day of crude are allocated to the four refineries (when actual capacity of the four refineries is 445,000 barrels per day) that were dead. Did we hear they swap 450,000 barrels of crude per day with foreign traders in what they call Offshore Processing Agreements (OPAs)? A swap contract is an agreement to reciprocal exchange.

With the crude oil swap of 13,950,000 barrels monthly (450,000 barrels daily), we should get in return about 1,040,909,940litres of PMS, 221,470,200 litres of DPK and 509,381,460 litres of AGO in one month. These three make up 80 percent of byproducts. There are other byproducts. Our four refineries (if allowed to function at optimal capacity) can process PMS of 209,150 barrels (about 33.2 million litres) per day. Nigeria imports about one million tonnes (1111320000litres)) of PMS monthly (31 days); and that translates to (about 35.8million litres) per day consumption. The difference between what we consume and what the four refineries can process is about 2.3 million litres (is less than 15,000 barrels that we may import) daily.

What does the NNPC mean when in another breathe they employ local marketers who import and claim subsidy on products like PMS, DPK and the AGO? The government pays a subsidy on the imports, which is the difference between the landing cost of the fuel and the officially regulated pump price.

According to Dawha, the NNPC is carrying out a phased implementation of the rehabilitation of the refineries (which was almost going for a rummage sale but for the labour unions). He said they took a conscious decision that if the refineries are not in good state, to process crude for maximum gains, then there was no point in sending crude to the refineries. What we do is to try and fix it, so that by the time it starts processing the crude, then we get real value for the crude we have sent to the refineries.

Winston Churchill said ‘’I am an optimist. It does not seem too much use being anything else’’ That quote had encouraged one to constantly challenge our petroleum resources managers on why refining is the best option; a call they consistently ignored. That the NNPC would be talking of processing crude for a maximum gain is what one has been advocating. One is surprised at this turnaround from the NNPC which had initially prepared for the sale of the refineries.

Dawha did not tell us the real state of the refineries and why for about two decades now could not process crude. Nigerians demand explanation on why they go through these harrowing experiences. The refineries have been idle with the full complement of staff members. Wages and salaries with accompanying overheads are paid monthly. In economics, they have been operating at shutdown points for about two decades.

Could we equally assume some quantities of crude meant for the refineries (swapped 450,000 barrels of crude per day) and other barrels from export terminal pipelines might have been stolen, sold in the Togo triangle and ending in western refineries? Our refined products are mostly from Northwest Europe. One hopes that President Muhammadu Buhari presented the matter of oil theft by the west to the G7 Summit of industrialised nations on June 8, 2015 in Bavaria, Germany.

Was President Buhari in this honeymoon period able to convince the leaders of the G7 to assist in repatriating Nigeria’s stolen crude oil money stashed away in their banks and elsewhere? The G7 needed to be told that fund recovered could be the fulcrum for Nigeria’s social-economic development.

The President can provide good governance without recourse to G7 assistance if he recovers these funds. Foreign Direct Investment that the President requested for could have been in the area of partnerships in constructing refineries, petrochemical plants and power plants.

We are now facing the reality of a new government that may change what was ordinarily perceived to be impossible. Let the NNPC be reminded that our oil refineries are national assets that should be guarded jealously. That is what it is with other OPEC members and else where. With potentials for up to 6000 investment opportunities when we refine a barrel of crude, our refineries are strategic for energy, technology, skills, investment, employment, increased GDP and government revenue which we earnestly desire.