Stakeholders seek privatisation
By Obas Esiedesa
THE Nigerian National Petroleum Corporation, NNPC, has cut down losses by 53 per cent in the first 10 months of 2020, due to none production in the nation’s four refineries, according to data obtained from its October 2020 Monthly Financial and Operations Report, MFOR.
The data, obtained by Energy Vanguard, showed that the Operational Expenses, OPEX, stood at N85.75 billion in the first 10 months, thus indicating a drop of 53 per cent, compared to N122.96 billion recorded in the corresponding period of 2019.
The refineries are Warri Refining and Petrochemical Company, WRPC, located in Warri, Delta State, Kaduna Refining and Petrochemical Company, KRPC, located in Kaduna, Kaduna State, and Port Harcourt Refining and Petrochemical Company (old and new), located in Port Harcourt, Rivers State.
A closer look at data from NNPC’s report showed that in October 2020, the refineries recorded N5.49 billion deficits, a drop of 53.13 per cent, compared to N11.715 billion recorded in October, 2019.
For September, 2020, the total loss was N5.398 billion, down 23.69 per cent, from the N7.074 billion recorded in September, 2019.
In August 2020, the refineries recorded N7.087 billion losses, compared to N13.208 billion losses reported for August, 2019, a fall of 46.54 per cent.
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Data for July, 2020 showed that the refineries recorded a total losses of N9.051 billion, down by 34.57 per cent, when compared to N13.834 billion in July, 2019.
In June 2020, the losses were 10.231 billion, down 41.26 per cent, compared to N17.419 billion recorded in June 2019. In May 2020, the losses were N9.545 billion, a drop of 29.93 per cent, from N13.623 billion losses recorded in May 2019.
Also, a combined loss of N9.686 billion was reported for April 2020, a 15.31 per cent drop from the N11.438 billion loss recorded in the corresponding month of 2019.
In March 2020, the total losses were N10.302 billion, compared to N16.034 billion losses recorded in March 2019, down 35.74 per cent. For February 2020, the three refineries recorded a total loss of N9.362 billion, down 8.73 per cent from the N10.258 billion loss recorded in February, 2021.
In January 2020, NNPC reported that the three refineries recorded N9.6 billion losses, up 14.83 per cent from N8.36 billion reported for January, 2019.
State of refineries
With a combined refining capacity of 445,000 barrels per day, the refineries have been in a state of disrepair for years and, because of this, they have not refined any crude for commercial use since September 2018.
Attempts in the past to fix them did not yield any tangible result but, in the past two years, government has considered engaging the Original Equipment Manufacturers, OEM, to fix the refineries.Last year, the management of the NNPC, led by its Group Managing Director, Mallam Mele Kyari, commenced process to have the refineries fixed and operational. It called for bids for the rehabilitation of the Port Harcourt Refinery complex, consisting of two plants with a combined capacity of 210,000 bpd.
For the refinery, the corporation has sought to secure about $1 billion facility from Afrieximbank to fund the rehabilitation.
The loan facility, a prepayment with trading firms, would be repaid over seven years through deliveries of Nigerian crude and products from the refinery, once the refurbishment is complete.
A report by Reuters quoted a spokesman at the bank as saying: “Afreximbank is looking into a facility for the refurbishment of the Port Harcourt Refinery. However, the borrower is yet to be determined.”
Last December, NNPC, in a detailed explanation on the plan to rehabilitate the refinery, set a January 7, 2021 deadline for the re-tender of the project to all the prequalified seven engineering procurement and construction companies, EPC.
It explained then that the shift in deadline for the submission was to enable it have a competitive commercial offer. The bid process, which ought to have been concluded last year, was delayed, following the decline of selected EPC companies to continue with the tender process.
NNPC explained further that a total of four companies declined further participation, arising from their inability to submit competitive tenders, due to a variety of reasons, including challenges with their sub-contractors, the COVID-19 and the tight bid submission period.
“Following clarification meetings held with the bidders, the bid closing deadline was extended to November 30, 2020. Along the tendering process, 12 clarification requests were received from the bidders and responded to accordingly.
“However, due to requests from them for submission of alternative bids, the ITT document was amended to accommodate alternative bids and communicated to the bidders. Furthermore, the PHRC Technical Audit Report was shared to all the 7 EPC companies as well. And at the bid submission deadline, only one company, Messrs Technimont, submitted a proposal for the refineries rehabilitation.
“The submission of a proposal by just one company was considered not satisfactory”, the corporation added.
Expert and stakeholders react
However, in a telephone interview with Energy Vanguard, the immediate past NNPC’s Chief Operating Officer, Engr. Henry Nkem Obih, expressed optimism that the plan on ground to have the Port Harcourt refinery fixed and operational would yield the needed result.
According to him: “They invited the original assets builders to do some assessments and went into discussions on partnering, so that the refineries are fixed into the original state and then NNPC would, through what is called ‘Asset Management Model’, get experts to come and jointly operate the new refurbished refineries with NNPC staff — the best of the employees.
The plan started under Dr. Baru and Mele Kyari has continued on that path.”
He noted that the challenge is to find the finance for the refurbishment, explaining that: “Between the Federal Government and the private sector initiative that NNPC has been driving through banks and through other forms of JVs, they are now close to closing out on all the capital requirements needed.”
Also speaking in a telephone chat, the National President of the Independent Petroleum Marketers Association of Nigeria, IPMAN, Elder Chinedu Okoronkwo, said the present state of the refineries was of a great concern to the industry players.
He stressed that having the refineries working would ease the pressure of sourcing dollars for petroleum products importation.
“It is a serious matter that the whole nation must be worried about, because the pressure on the dollar is really affecting everybody.
A situation where four refineries are not working should be a serious concern for the economy and the people. We are highly concerned, especially now that the crude is going up. It means whatever gain we would have made in the crude will also be used for importing, and this does make good economic sense.”
While acknowledging that getting refineries working won’t be a quick fix, given the lack of funds, he urged the government to encourage setting up of modular refineries to bridge the gap created by the absence of the refineries.
Okoronkwo, who backed the call for the refineries to be privatised or concessioned, said: “Privatisation or giving out shares to people to come in, I think, is the panacea for injecting new ideas and the zeal to make the refineries work. We, in IPMAN, are advocating for such. We are even interested. If they open up, we will bring in our investors. They are ready to come in.”
On his part, the Executive Secretary of Major Oil Marketers Association of Nigeria, MOMAN, Mr. Clement Isong, said: “I understand the challenges that price regulation has created over the years. The problem is because we have kept the prices artificially low for such a long time and we have not achieved what is called ‘price recovery’ in order to maintain a lot of the infrastructure in the downstream. That is what the challenge is.”