FG woos financiers for refineries repair
Our reporter examines options that government can explore to fix the country’s three ailing refineries after the purported plans to concession the refineries hit the rocks.
Efforts by the federal government to revamp the country’s ailing refineries through private investors funding of the repairs and operations of the facilities recently encountered rancorous opposition by Nigerians. Speculations suggesting that the government might have already concessioned the Port Harcourt refinery to Agip and Oando, provoked oil workers’ unions, activist groups and federal lawmakers to urge the government to halt the process over perceived concerns that it lacked clarity and transparency.
Previous bids by the government to fix the refineries, including options of selling them also met strong opposition.
The Nigerian National Petroleum Corporation (NNPC) had on April 19, 2016, issued tender seeking investors to jointly fund the repairs and operations of the facilities, but the corporation’s plan ran into a hitch after the House of Representatives called for a halt to the process on the ground that privatization agency, the Bureau of Public Enterprise (BPE), was not involved.
The April tender also ignited protest by labour unions in the oil sector, which said the move was a form of privatization through the backdoor.
These concerns were said to have been thrashed out and an understanding reached. Following that understanding, a presidential approval was granted the NNPC in October 2016, to engage credible financiers to rehabilitate and improve the performance of the three refineries.
But while the process was underway, the Chief Executive Officer of Oando Plc, on May 11, 2017, on the floor of the Nigeria Stock Exchange (NSE) disclosed that the group had received approval from the federal government to repair, operate and maintain (ROM) the Port Harcourt refinery with its partner, Agip.
Mr. Wale Tinubu’s announcement came two days before Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, declared that the Nigerian Agip Oil Company (NAOC), a subsidiary of Italian oil firm, Eni, had committed to repairing the Port Harcourt refinery, as part of a $15 billion investment that includes building a 150 thousand barrel per day refinery and a power plant.
Just like last year, the criticism that trailed these recent announcements forced the Senate to ask the ministry to halt the process, pending the outcome of its investigation.
“The Senate is aware that in such transactions, the best practice is to select partners through open and competitive bids. Any exclusive arrangement without the knowledge and participation of relevant stakeholders, such as the BPE and labour unions tends to lead to sub-optimal outcomes for the seller; in this case, federal government,” the lawmakers said.
From the foregoing, it became clear that the legislators, stakeholders and indeed the masses were not yet clear on whether the new arrangement was a concession, sale or an agreement to build a new refinery.
Kachikwu later countered that the Port Harcourt refinery had neither been concessioned to Oando nor Agip, explaining that efforts were still on by the government to engage a pool of financiers to fund repairs of the refineries.
Why repair, operate and maintain?
The most pertinent question that followed the minister’s explanation was, why is the government opting for the ROM option and also seeking private investment capital.
Estimates firmed up by the government so far indicate that it will cost about $1.2 billion to repair and bring the three refineries in Port Harcourt, Warri, and Kaduna, up to 100 per cent production level.
The NNPC, in a document made available to investors at a road show in China said around $1.4 billion to $1.8 billion is required to rehabilitate the refineries.
The Kaduna refinery, according to the NNPC, will require $500 million to rehabilitate its water treatment plant, power generation system and revamp its control system.
The Port Harcourt refinery needs fresh $400m for its overhaul. The $400m investment will be for the procurement and installation of boiler system and crude/ product storage evacuation.
For the Warri refinery, $700 million is required for the rehabilitation of the refinery’s waste water treatment plant; to upgrade the jetty, dredge channel, and provide power and water in the refinery.
According to the NNPC document, $200 million will be required for additional capacity of 50,000 barrel per day to be located within the Port Harcourt refinery.
Kachikwu, in his clarification said that since government doesn’t have that kind of money, it was looking for financiers to take the task and was not concessioning the refineries as previously reported, adding that the technical committee set up by the government to undertake the review and selection process was yet to submit its report.
He noted that what the committee had been able to do was to come up with a holistic investment figure that would be enough to fix the three refineries.
The government also indicated that it would invite the Original Refineries Builders (ORB) to undertake the repairs of the three refineries.
It has become a matter of national urgency for Nigeria to fix her refining landscape. Africa’s top oil producing nation imports more than 90 per cent of its petroleum requirement.
Statistics showed that Nigeria spent an estimated $28 billion (N3.4 trillion) on petroleum products last year and the logistic costs of that importation was about N1.34 trillion.
Experts say dealing decisively with issues surrounding the existing refineries is key to overcoming the plague of the continuous import cycle.
Board/Membership Coordinator of the Modular Refiners Association of Nigeria (MRAN) Mrs. Dolapo Kotun said on the sidelines of a two-day modular refineries forum that selling off the refineries is the best way to go.
Chairman of the Board of the Nigerian Economic Summit Group (NESG) Mr. Kyari A. Bukar said the group in principle supports privatization of government assets.
“It does not have to be wholesale privatization; it could be the NLNG example where government would also benefit from the successes. And if there is failure, government will be part of that failure,” Kyari said.