Old Refineries as Monuments To Waste

It is time to get rid of the old refineries. It will pay the nation better to encourage the private sector to invest in building new ones

If any more evidence was needed to show how Nigeria has been badly managed, it is in the sorry state of the country’s four petroleum refineries. Despite earlier claims of robust performance, the refineries in Port Harcourt, Warri and Kaduna have actually recorded an average capacity utilisation of 10 per cent in the first eight months of this year, according to the Nigerian National Petroleum Corporation (NNPC). The NNPC report indicates that between January and August 2015, the three refineries operated at a total loss of N31.682 billion, with Kaduna refinery accounting for the highest loss of N26.183 billion while Warri and Port Harcourt refineries made losses of N8.496 billion and N8.057 billion respectively. It is doubtful if many Nigerians were surprised by the report. Over the years, the refineries have continued to fail in terms of satisfying the essence of their establishment, given that the importation of petroleum products has become a major and running routine in the economic management of the country. The reason, as often adduced by the industry experts, is that the refineries have either all broken down due to poor maintenance culture or that the installed production capacity cannot meet the ever-growing local demand for petroleum products.

The refineries, many argue, are already too old to respond to any Turn Around Maintenance ( TAM) as is being championed by the new leadership of the NNPC. The Warri refinery being the oldest of the four is 37 years old with installed capacity to produce 125,000 barrel per day ( bpd) while the two in Port Harcourt are 26 years old with installed capacity to produce 210,000 bpd whereas the Kaduna refinery which is 35 years old has an installed capacity for 110,000bpd. But the production units of the refineries have practically gone obsolete and have more or less become huge drains on scarce resources.

Indeed, expending huge funds, often in hard currency, in the maintenance of the old, worn and ill-maintained refineries is tantamount to wasteful spending. Therefore, we believe that not only should the old refineries be done away with, the private sector should be motivated to invest in the building of new and modern refineries across the country.

However, there is a challenge. President Muhammadu Buhari seems to be an advocate of state intervention (which is not in itself necessarily a bad idea) and distrustful of the private sector. That perhaps explains why the new NNPC management which had initially toyed with the idea of selling off the refineries had to rescind the decision and has since begun retooling them for increased production. Yes, some results are being recorded but we fear that the efforts are unsustainable because the end is not likely to justify the means.

We note that about 15 years ago, licences for private refineries were issued by the federal government. But for several reasons ranging from “inappropriate” product pricing to complex bureaucratic processes, none of the investors built any private refinery, apart from the Dangote Group and a small firm that refines diesel. We are convinced that some deliberate incentives from the government can change the narrative, what with the huge and ready market for the products not only in Nigeria but across the West African sub-region. But the issue of pricing which is tied to the regime of subsidy would also have to be resolved.

While it makes no sense that Nigeria continues to import finished petroleum products at huge cost to the national economy, experience has also shown that the government is not adept in the efficient management of businesses. If anything, the tales of corruption, ineptitude, sabotage and other sharp practices in the oil and gas industry have continued to confirm this widely held opinion. That is why we believe that with proper structure and incentives for the private sector, the local refining of petroleum products can become a major income earner for the country as well as a more effective and cheaper way to guarantee supply of refined petroleum products. But something would have to give with regards to the obsolete refineries that have become bottomless pits gulping billions of Naira on a monthly basis.

We believe that with proper structure and incentives for the private sector, the local refining of petroleum products can become a major income earner for the country as well as a more effective and cheaper way to guarantee supply of refined petroleum products