The Federal Executive Council (FEC) on Wednesday approved $1.5 billion for the rehabilitation of the country’s largest refining company, the Port Harcourt Refinery.
Minister of State for Petroleum Resources Chief Timipre Sylva announced the government’s decison to State House Correspondents after the weekly virtual FEC meeting, presided over by President Muhammadu Buhari at the Aso Rock Presidential Villa, Abuja.
Industry watchers had been expecting the move for months. This is because the federal government, for some years, had been desperate to fix its refineries, which have been shut down for repairs since April 2020, pending rehabilitation.
In the process, the refineries lost some 167 billion naira a year.
The Nigerian National Petroleum Corporation (NNPC) said last year that it expected them to operate at around 90 per cent of capacity when repairs are completed and they resume production by 2023.
In the meantime, the refineries operated sporadically due to years of neglect, forcing Nigeria to rely heavily on imports to meets its domestic fuel needs.
Nigeria, Africa’s leading crude exporter, imports around 1 million-1.25 million mt/month of petrol to meet national demand estimated at around 50 million-60 million litres/day.
The government’s haste to revamp the refineries also followed a report last June that three of Nigeria’s four refineries gulped N1.64 trillion in cumulative losses recorded in their operations since 2014.
This was revealed in the first-ever audited accounts and financial statements of the companies published by the NNPC.
Two of these refineries are the 210,000 barrels per day capacity Port Harcourt Refining and Petrochemical Company Limited and 110,000 barrels per day Kaduna Refining and Petrochemical Company Limited.
The audit reports showed that combined losses from the two refineries were N208.6 billion in 2014; N252.8 billion in 2015; N290.6 billion in 2016; N412 billion in 2017, and N475 billion in 2018.
The five-year audited account details for 125,000 barrels per day Warri Refining and Petrochemical Company Limited were, however, removed from the published details by the NNPC.
Recent attempts to rehabilitate the refineries were abandoned after the NNPC failed to secure the necessary funding.
The Nation gathered that desperate to halt the loses, the government began talks on securing the needed loan last year.
On December 1, 2020, NNPC announced that it received seven bids from submitted by local and international companies for EPC contract award for the repairs.
The successful negotiations of the funding arrangement, led by African Export-Import Bank, or Afreximbank, paved way for the NNPC to move to the commercial stage of pre-qualifying bids submitted by local and international companies for the engineering, procurement and construction (EPC) contract award for the rehabilitation of 210,000 b/d Port Harcourt refinery.
According to Sylva, the rehabilitation will be done in three phases of 18, 24 and 44 months, adding that the contract was awarded to an Italian company, Tecnimont S.p.A, a global leader in refinery maintenance.
He said the funding has three components from Nigerian National Petroleum Corporation (NNPC) Internally Generated Revenue (IGR), budgetary allocations provisions and Afreximbank.
The minister also assured that local content is fully involved in the job.
“The Ministry of Petroleum Resources presented a memo on the rehabilitation of Port Harcourt refinery for the sum of 1.5 billion, and that memo was $1.5 billion and it was approved by council today.
“So we are happy to announce that the rehabilitation of productivity refinery will commence in three phases. The first phase is to be completed in 18 months, which will take the refinery to a production of 90 percent of its nameplate capacity.
“The second phase is to be completed in 24 months and all the final stages will be completed in 44 months and consultations are approved and I believe that this is good news for Nigeria,” he said.
Addressing the problem of refineries maintenance, which has dogged the nation’s four refineries over the years, Sylva said the refineries would be handed over to operations and maintenance firms to manage for the country.
He added that the management aspect for the refurbished refineries was part of the conditions given by lenders of the funds for the maintenance project, adding that the condition had been embedded in the agreement.
“On the other very germane question about operations and maintenance. That has been a big problem for our refineries, as we all know, that was also exhaustively discussed in Council and the agreement is that we’re going to put a professional Operations and Maintenance company to manage the refinery when it has been rehabilitated.
“In any case, it is actually one of the conditions presented by the lenders, because the lenders say they can only give us the money if we have a professional operations and maintenance company, and that already is embedded in our discussions with the lenders and we cannot go back on that.
He said the issue of funding for the project had been sorted out, explaining that “I want to answer that the funds are all in place and work will commence forthwith.
“There are components various components to the funding: there is funding from NNPC internally generated revenue, there is funding from the budget and there is also debt funding. For the lenders, we are dealing with AFREXIM and they are very committed to us, we have actually concluded discussions with AFREXIM,” he said.
On how the country settled for an Italian company, instead of the original builders, he said “we found out from the original refinery builders that they are not in the business of rehabilitating refineries, they are in the business of building refineries. So they actually pointed us to a rehabilitation company that we’re dealing with now.”
He also said the interest of local contractors has been covered in the maintenance project, saying “NCDMB is fully part of the contracting process and has safeguarded the interest, adequately, of our local contractors, so our local people will be fully involved with the Tecnimont S.p.A.”
He assured that the other refineries in Kaduna and Warri would also be rehabilitated, explaining that their works would commence before the end of the current administration.
“On the last question, which is when the other refineries will also be rehabilitated? Discussions are ongoing. We want to take one at a time and I want to assure you that before the lifetime of this administration expires, work on all the refineries would have at least commenced,” he said.
Port Harcourt refinery complex
The Port Harcourt refinery, which began operation in 1989, is the largest refining company in Nigeria, pending when the Dangote refinery in Lagos will be activated.
At inception, the Port Harcourt refinery had a capacity to process 150,000 barrels of crude a day and was later upgraded to 210,000 barrels per day.
The refinery has been repaired innumerable times, under various Turn Around Maintenance (TAM) contracts that had gulped huge amounts.
Rehabilitation gets nods
The Petroleum and Natural Gas Workers Senior Staff Association of Nigeria (PENGASSAN) and key players in the oil sector backed the Federal Government’s rehabilitation plan.
PENGASSAN President Festus Usifo said: “I am one of the two Labour representatives on the steering committee of refinery rehabilitation. PENGASSAN welcomes the award of contract for Port Harcourt refinery rehabilitation.
“We will press all stakeholders to ensure that this time around, all our four refineries will be functioning in full capacities.
Independent Petroleum Marketers Association of Nigeria (IPMAN) National Vice President, Alhaji Abubakar Maigandi, also described the approval as a welcome development, saying it will bring supply of petroleum products from the refinery.
He said the amount earmarked for the rehabilitation is in order since it is a professional company that is undertaking it.
“It is a very good and welcome development. It will bring back the supply of petroleum products. The Italian company that is given the job is a professional organisation,” Maigandi added.
But the Chairman, Major Marketers Association of Nigeria (MOMAN), Tunji Oyebanji, said the government ought to have explored other options to revamp the ailing refineries.
According to him, the privatisation option would have been better because of the past experiences with the refineries.
He said: “If the new management of the NNPC revamps the refineries, it will be fine because it will boost domestic refining capacity, adding that the refinery along with the Dangote Refinery, would take care of domestic fuel consumption and free others for the export market.”