By Victor Ahiuma-Young

In this chat, President of Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, Festus Osifo, speaks on local refining of crude, refineries, pipelines vandalism, among others.

Local refiningFor us, one of the things that we feel that government must do is to get the refineries to work. But I must warn that our refineries working is not a panacea for us to buy a very cheap Premium Motor Spirit, PMS (Petrol). It is not. We need to understand that. If our refineries are working today, crude oil is going to be sold to our refineries at international market price. Let us assume that Total and ExonMobil have their terminals close to one refinery, ExonMobil and Total are going to sell crude to such refinery at international market price. If they do that, it means if you refine these products, you are going to have the price similar to what is obtainable abroad. But the only difference is the cost of transportation. If you refine the products in Nigeria, you may not need those big mother vessels to transport the products.

So, that may reduce the price. But 80 per cent, if not more, of the cost of PMS is reflected on the crude oil price. The greatest problem is our exchange rate. If you refine the PMS in Nigeria, let’s assume at 0.5 cent per litre, you want to sell in Nigeria, you have to convert it to our local currency and that is the naira. Because the input is sold in dollars, you will have to convert that dollar to naira and in the process of converting dollar to naira, you will use applicable exchange rate. So, even if you use CBN exchange rate, say N400, when you multiply it by 0.5 cent it is quite high. Local refining is good and it has a lot of positive effects.

When you refine locally, lots of jobs will be created directly or indirectly. If you refine locally, there are also secondary derivative companies that will spring up. Fertiliser companies need the byproducts from the refineries, urea companies, ceramics; plastics and so on, need the byproducts from these companies. 

If you recall, Eleme Petrochemicals now Indorama, was built in Port Harcourt because of Port Harcourt refinery. So, if we have functional refineries, there are other companies that will spring up. When you add the aggregate jobs that will be created, it will be high. If you also look at the contribution to our national Gross Domestic Product, GDP, it is going to be massive as well. So, it is good for us to refine beyond what the pump price of PMS is. 

State of refineries

On the issues of the refineries, one of the things that we did from the side of the Trade Unions, PENGASSAN and Nigeria Union of Petroleum and Natural Gas Workers, NUPENG, was to be part of the steering committee. We insisted that we should be on the Steering committee for us to have an idea of what is being done. Before now, when we say refineries were being maintained and so, so amount of monies were being released, Nigerians including myself, were always skeptical. The question was “are we sure that this money is going to be used for what it is earmarked? Part of what we did was to ensure that no money is released to politicians.

So, when the Port Harcourt refinery was sanctioned, that they should go ahead with the rehabilitation, since 2004 there has been none.  I state this in our honour as an association, no single turn around maintenance in Port Harcourt refinery for example. You have big announcement over the media but at the end of the day, how much was released to maintain these refineries?This particular maintenance, Nigeria is borrowing $1billon from Afreximbank.

We advised that Nigeria should not collect this money and pay into federation account or the CBN that the politicians will have access to. We advised that the best way to go was to open an escrow account, while the bank pays into the escrow account; the bank, NNPC and contractors will be signatory. At the end of the day, you will release money to the contractors per milestone. If you have committed 10 per cent of the work breakdown structure, that is the amount that will be released so that the money would be utilised for its purpose. That was what was approved. With our advice, they created the escrow account with the signatories, while Afreximbank will release trunk of it depending on the verifiable milestones. That is one of the things that we ensured was done.

That is the template we are using today because we did that in anticipation that government will change tomorrow. So if government changes tomorrow and you have given this money to politicians, during elections, at the end of the day, the money will disappear.  But as I speak with you today, Afrieximbank has not released a kobo to CBN or a kobo to the Ministry of Finance.

The money as we speak, the initial sum that has been released is in an escrow account. So, they task Nigerian Government to give 15 per cent of the contractual cost to the contractor and when they see that the contractor has delivered on the 15 per cent, they will now give additional to keep it rolling. So that was the input that came from labour. As we speak today, if you are familiar with the Port Harcourt refinery, you will see that activities are going on there.

Over 20-30 contractors have been mobilised and sub-contractors have also been mobilised to site. I advise the management to do a media tour where they bring media and civil society to move round the facility and see the level of work that is going on.

Today, there is some level of concentration in the phase 5 areas and phase 5 is the old Port Harcourt refinery. Their expectations before are the end of the year. That could be a political statement. But the reality is that if the level of work is sustained the way it is today before election next year, we could see it coming on stream. But there are bigger challenges. It is not just sufficient for us to say the refinery should work.

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The question now is; how do you deliver crude to the refinery when we have issues of pipeline vandalism? If you pump crude from any of these fields in Port Harcourt or in Bayelsa to any of these refineries from the terminals, if you send in 50,000 barrels and they get just 20 or 30 thousand barrels at the end of the day, if you are the person that is selling the crude, what will you do? It is better you look for a vessel, pump the crude into the vessel and you take abroad. As we try to fix the refineries, we must also look at how to deliver crude to these refineries so that we will not have a situation where our refineries are good, but products will not get to the refineries. These are some issues that must be solved before even the old Port Harcourt refinery comes on stream. 

Modular Refineries

On the modular refineries, most of us make assumptions and mistakes. Modular refineries as it is today in Nigeria, cannot produce PMS. In fact, I was listening to somebody few days ago on the radio; he was saying government should license more modular refineries in the Niger-Delta for them to refine PMS. Modular refineries cannot produce PMS.

The best they can produce is AGO (diesel). When you take your crude oil, put your crude oil in a bowl and heat it up, after sufficient heating, what you will get is close to AGO. For you to produce PMS, you need a refinery of about 50,000-barrel capacity because there is what is known as fluid catalytic cracker. There is no manufacturer in the world that will manufacture a fluid catalytic cracker for 5,000 barrels. Most of these modular refineries produce about 5,000 barrels per day like the water Smith for example, like the one they are building in Edo State that is about 5,000 barrels per day. They don’t have a capacity to produce PMS. Abroad, they produce AGO. So even if we have multiplicity modular refineries, they cannot produce PMS because they don’t have the requisite unit to do so. For you to produce PMS, you need a capacity of close to if not more than 50,000 barrels per day. 

Crude oil theft

It is very easy for these products to be stolen. Most of our pipelines are laid just about two or three feet from the surface. There is no state- of-the-art technology to track or monitor because of the illegal refining taking place in most places in the Niger-Delta. It is a cartel. It is a total collusion, a stakeholders’ collusion. They can easily tap it because the pipeline is close to the surface and there is no technology to monitor it. Crude theft is very lucrative. They make a lot of money from it, so everybody colludes. There is some information that is available to us but we need to substantiate them much more on the aspect of collusion even by security personnel.

I mean nobody has been convicted, so it may not be safe for us to make that allusion. But we know clearly that there is a total collusion. Our pipelines are placed in areas where people could easily tap into it. Our pipelines at times pass through communities, farmlands of individuals, and within their neighborhoods. Let me state for example, there is a particular type of pipeline, the TMP pipeline, that was discovered close to 200 tapping. It is there in the statement they issued. That means it is being tapped for 200 places.  When these were fixed sometime in February, less than two weeks after, there was drop again in production. When they checked, they saw 233 tapping.

These pipelines have standing army guarding them. The one that crosses the riverine area, you have standing Navy guarding it. So, what more can the oil companies do? These Army and Navy are not provided by the government but the oil companies pay for their services on a daily basis. If we continue this way, nobody will want to invest and that is one of the reasons you see International Oil Companies, IOCs are divesting from the land and shallow water. They are moving into offshore locations.

Implementation of PIA

The Petroleum Industry Act, PIA is being implemented and there is no longer Department of Petroleum Resources, DPR and there is no Petroleum Equalisation Fund, PEF. So if we are not implementing PIA, it means those agencies would have still been there. But they are gone with most of their management. We now have the Nigeria Mid and Downstream Petroleum Regulatory Authority as well as the Nigeria Upstream Petroleum Regulatory Commission.

These are the two agencies and they have appointed most members of the board and they have also appointed their Chief Executive Officers, CEOs. That is a pointer to implementation of the PIA. And again, there are also other aspects of the PIA that are not implemented. For example, the NNPC today is no longer a corporation but, a limited liability company. It is on its way to becoming a public quoted company. What that shows is that the process of PIA implementation is on.

Today, the Group Managing Director, GMD, is no longer referred to as GMD but as CEO because that is what is prescribed in the PIA. Gradually, we are moving there but the pace of its implementation for us is a bit slow and we have also tried to push them as much as we can to increase the pace of implementation.

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