FG spends N264bn on refinery repairs in 16 years
Since the return of democracy in 1999, the federal government has spent more than N264 billion for the maintenance of its refineries, yet they have not performed up to the expectation of Nigerians despite claims by government officials, findings by Daily Trust on Sunday have shown.
Built to refine 445,000 barrels of crude per day, Nigeria’s three refineries, located in Port Harcourt, Warri and Kaduna have, over the years, suffered what one analyst described as “total disrepair and comprehensive paralysis in the past three decades.”
Whenever the refineries manage to resume production after a lengthy repair work, they hardly work for up to 90 days before they are shut down, and the purported maintenance cycle continues.
An analysis of documents the NNPC submitted to several hearings by legislative committees on the subject matter, press statements and clarifications by past oil ministers, heads of the corporation and media reports, showed that the federal government had spent at least N264bn on the refineries in the last 16 years. This is different from about $308 million reportedly spent for the same purpose by the military governments of the late General Sani Abacha ($216 million) and retired General Abdusalami Abubakar ($92 million).
Soon after the late President Musa Yar’Adua stopped the sale of the refineries in 2007, the NNPC reportedly announced that it had awarded a contract to a Nigerian firm to carry out a comprehensive turnaround maintenance on all the refineries. The contract sum was said to be $57m.
In 2009, the then Group Managing Director (GMD) of the NNPC, Alhaji Mohammed Sanusi Barkindo, also announced that the corporation spent $200m on the maintenance of the Kaduna refinery.
A former group executive director, corporate strategy of the NNPC, Dr. Tim Okon, told a Senate committee in 2015 that when the corporation invited the original builders from Japan and Italy for the turnaround maintenance, they declined and recommended Saipem, a foreign firm operating in Nigeria, to carry out the maintenance on their behalf.
Our reporter attempted unsuccessfully to obtain responses from Chiyoda Eng. & Construction Company, Japan, the original builders of Port Harcourt (old) and Kaduna refineries, as well as JGC Corporation, the Japanese builders of Port Harcourt (new) refinery.
In February 2015, the NNPC announced that local engineers repaired the refineries at a cost of N99b following the refusal of the original builders of the refineries to handle the maintenance contracts.
The refineries only functioned for less than three months before they were shut down.
While reeling out figures compiled for the repairs of all the three refineries, the assistant director, Emerald Energy Institute for Petroleum and Energy Economics, Policy and Strategic Studies, Prof Chijioke Nwaozuzu, said “The required investment for full rehabilitation of the refineries will cost at least $1.6bn.”
The NNPC, in a document made available to investors at a recent road show in China, said it would require between $1.4b and $1.8bn to rehabilitate the refineries.
The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, on one of his visits to the refineries, agreed that their non-performance was due to fraud. “It got to a point where I started wondering whether as we repaired, somebody was going out there to destroy them so that there would be contracts,” he said.
A Nigerian engineer who participated in all the stages of the refineries, Alexander Ogedegbe, wrote that in early 1990s they produced enough petroleum products to satisfy national demand and export. But after that period, a lot of things went wrong.
According to the World Bank, Nigeria is the world’s 12th largest oil producer, with an estimated 37.2 billion barrels of crude deposit and 187 trillion feet of gas, ranking 7th in world’s largest gas reserves, but it is not among the top three countries in Africa in terms of refining capacity.
In 2012, the National Refineries Special Task Force (NRSTF), set up by the former minister, discovered that Nigerian refineries had the worst performance record in Africa, with an average capacity utilisation of only 18 per cent, compared to 81 per cent and 85 per cent respectively for Egypt and South Africa between 2006 and 2009.
In a June 2016 report, the NNPC said the refineries recorded heavy losses in their operations in 2015 as a result of low refining capacity due to prolonged maintenance issues and pipeline vandalism.
In a media interview, the managing director of the Port Harcourt refinery, Bafred Enjugu, said the last time there was a routine intervention on the facility was in 2000.
“That’s quite a long while. The components have reached the point where they have to be replaced, as opposed to what we call turnaround maintenance, which is basically servicing. It is such an old plant and we are having difficulties getting some of the components. We can’t find some of the old manufacturing companies again,” he said.
In multiple interviews, industry experts disclosed that over the years, the stumbling block to the refineries were public officials who award or monitor contracts for maintenance. According to them, these officials benefit from the crisis in the sector.
In a policy report titled, The Changing Role of National Oil Companies in International Markets, Ugo Nwokeji wrote, “First, funds for maintaining the refineries go into private pockets, guaranteeing low capacity utilisation or complete breakdown. Secondly, heavily inflated supply term contracts and import licenses are awarded to cronies for the importation of refined products from abroad.”
Also, a US-based professor of Energy Law, Emeka Duruigbo, stated in an emailed interview that Nigeria’s private petrol importers were a group of profiteers who had prevented the refineries from working optimally.
“Another group that benefits from the current quagmire are private contractors and politicallyconnected persons who get the contract awards but fail to deliver because they are unqualified, incompetent and complicit in the corruption of public officials,” Prof Duruigbo, who lectures at the Thurgood Marshall School of Law, Texas Southern University, said.
“When you do the study you don’t see the ordinary people benefiting from it. It is a few people, those who placed themselves between the supply and consumption and make great profit in terms of subsidy,” Engr. Mansur Ahmed, the director, Stakeholder Relations of the Dangote Group said recently.
A parliamentary inquiry led by a former lawmaker, Farouk Lawan, gave an example of two persons who were not oil marketers but got government allocation of 15,000mt and eventually paid N1.9bn as subsidy for products not supplied.
Furthermore, according to a Nigerian Extractive Transparency Initiative (NEITI) 2012 audit report, Nigeria spent about N4.5 trillion in seven years as subsidy on petroleum products imported into the country.
“This amount is more than enough to repair our refineries or build new ones,” it said in one of its 2015 statements.
Another NEITI audit of the refineries between 1999 and 2004 reported that, “The importation process, including the tendering, contracting and procurement practices, fall short of current good practice standards, and it is questionable whether they fully protect interests in many areas of the process. There was lack of written procedures.”
The Chrome Oil Services and Maire Technimont are two major contractors that have handled key rehabilitation of the refineries, especially in Port Harcourt. The repair contracts to these companies were valued at hundreds of thousands of dollars.
Announcing that the firm successfully completed a turnaround maintenance of the Port Harcourt refinery last year, the executive chairman of the Chrome Group, Mr. Emeka Offor, added that they did some intervention jobs in the Kaduna refinery. But in less than five months after the announcement, the refineries were shut down again.
In an interview with Premium Times, published on Monday, August 3, 2015, former President Olusegun Obasanjo said, “I explained that what I met were refineries that were not working, refineries that were given to an amateur for repairs and maintenance. The refineries were not working.”
In a response to a letter our reporter wrote to Chrome Oil Services Ltd, asking for information on the scope of turnaround maintenance it carried out on Nigeria’s refineries, the company’s project manager, Engr. Bombey Adigbara stated, “I wish to suggest that this information being requested should be directed to the Port Harcourt Refining Company (PHRC). They are in the best position to avail all the needed response.”