- FG shops for $1.2bn to revamp refineries
Chineme Okafor in Abuja
The Group Chief Executive Officer of Oando PLC, Wale Tinubu, appeared before the Senate Joint Committee on Petroleum Resources thursday, to correct allegations regarding Oando’s supposed role in the privatisation of the Port Harcourt refinery.
“As indicated in the rejoinder statement we published, I must explicitly state that no mandate for the concession, sale, equity transfer or privatiSation of the Port Harcourt refinery or any of the nation’s refineries has been signed with Oando. As a crude exporter and supplier of refined products to the country, it is intuitive and patriotic for us to be interested in the refurbishment and upgrade of the refineries.
“Our proposed participation as a local partner in this effort is an opportunity to drive the country forward and accelerate the process to see product security realised in this dispensation. We share the vision of the Nigerian Government to become a petroleum product self-sufficient country in the short to medium term, and ultimately be a net exporter. The Port Harcourt refinery remains a national asset, under the full control of the NNPC as far as we are aware,” Tinubu said in a statement to the Committee Chairman Senator Kabir Garba Marafa of Zamfara state.
Nigeria’s refineries have continued to lie in a perpetual state of disrepair and encounter capacity utilisation challenges due to sporadic crude supply, lack of funding, challenged maintenance execution, and bureaucracy.
Also, the Federal Government said it would need about $1.2 billion to repair and bring the three refineries of the Nigerian National Petroleum Corporation (NNPC) in Port Harcourt, Warri, and Kaduna, up to 100 per cent production level.
It said that in this regard, it was looking for financiers to take this up and not concessioning the refineries as previously reported.
The Senate initiated a hearing following reports which indicated that the Port Harcourt refinery was due to be sold via a privatisation or concession exercise with Oando and Eni as the preferred consortium.
Initial findings from the Upper Legislative Chamber show that the NNPC is still at a preliminary stage of information gathering regarding the proposed refurbishmen. Aniebor Kragha’s, the NNPC’s Chief Operating Officer, Refineries, indicated that President Muhammadu Buhari’s directive has always been a non-privatisation of the country’s refineries.
However, President Buhari has always supported the potential engagement of strategic investors with refining experience and funding capacity to collaborate with local players who understand Nigeria’s downstream oil market to revamp the refineries.
In a bid to strengthen international relations, ENI (an Italian oil and gas company), committed to supporting the rehabilitation of the country’s refineries, specifically the Port Harcourt refinery in which it has a long history of technical involvement.
Earlier this year, the Minister of State for Petroleum Resources and Chairman of the Board of the NNPC, Dr. Emmanuel Ibe Kachikwu met with ENI CEO, Claudio Descalzi, to discuss further cooperation between ENI and the Nigerian government within the energy sector.
The NNPC and ENI, through its local subsidiaries, Nigerian Agip Oil Company (NAOC) and Nigerian Agip Exploration (NAE), signed a Memorandum of Understanding (MoU) to promote new activities which would significantly boost Nigeria’s social and economic development.
In the upstream sector, oil and gas production operations would increase with an increased focus on development and exploration activities in the onshore, offshore and Ultra Deep Water operated areas. The parties also agreed to explore a potential collaboration on refined product security via technical services for the rehabilitation and enhancement of Port Harcourt refinery, while power generation and access to energy would be further enhanced by doubling the power generation capacity in Okpai IPP through the fast track development of its Phase II, making it one of the largest combined cycle power plants in Africa.
The MoU also set the basis for the assessment of the electricity national grid reliability alongside efficient renewable energy projects, to secure energy accessibility in Nigeria’s most remote areas.
ENI/NAOC’s decision to partner with Oando to explore technical and funding options to support the government’s refinery rehabilitation efforts is understandable taking into consideration the long standing working relationship going as far back as 2002 when Oando acquired acquired ENI’s downstream business in Nigeria (Agip Nigeria Plc) and more recently via upstream and DSDP Joint Venture (JV) contracts.
At the Senate hearing, the Honorable Minister of State for Petroleum Resources and Mineral Affairs, Dr. Ibe Kachikwu commended Oando’s willingness to participate in the rehabilitation process saying “We are very grateful for any company or companies that has shown an interest in the refinery rehabilitation efforts.”
With the refinery privatisation scheme proven untrue, the Senate has been widely applauded for its oversight of the NNPC, reinforcing the long-running mandate of the Buhari administration regarding transparency and accountability by all arms of Government and within the private sector. The hearing is also testament to the Federal Government’s efforts to implement pertinent and active reforms to develop a more stable and enabling oil and gas landscape within the downstream sector to tackle capital flight, negatively impacting jobs, infrastructure growth, public service provision, and ultimately the country’s GDP.
“We acknowledge that Oando was quoted out of context and we hope that they understand that this committee was set up as a matter of oversight and in the interest of Nigerians because we represent Nigerians. When the time comes, we will instruct the NNPC to carry out this rehabilitation process in the most transparent manner. We advise Oando as a responsible company and good corporate citizen to guard its future statements in public, but applaud the fact that the minute they were misquoted by the media, they put out a statement to correct the facts,” said Senator Kabir Garba Marfa, the Chairman of the Joint Committee.
The crude processing nameplate capacity for the nation’s refineries stands at Port Harcourt – 210,000 bpd, Kaduna – 110,000bpd, and Warri – 125,000 bpd. However, all three refineries supply a fraction circa 19% (2,009kt) of the nation’s Premium Motor Spirit (PMS) requirement (10,800kt) on an annual basis. This equates to an import burden on the Federal Government in excess of $7bn annually and annual export refining margins of ~$768m.
A long-winded privatisation exercise under the auspices of the Bureau of Private Enterprises (BPE) was held from 2003-2007 for the Port Harcourt refinery with Blue Star Oil Services Limited emerging the preferred bidder with a successful bid of $561 million. Almost immediately Blue Star opted out of the investment, and was fully refunded by the Nigerian Government. The premise for refinery privatisation was subsequently shelved.
In light of the current financial and technical deficiencies of the NNPC and avid interest from private companies to spur the sector, the current administration publicly called on private partners, local and international, to support the reformation program and get the refineries back up and running to full capacity.
This reinforced a commitment made by President Buhari and Kragha in March 2017 proposing a new approach to the rehabilitation of the refineries via private-public partnerships (PPPs).
Via its midstream vehicle, Oando Gas Power, Oando has often taken up the mantle of supporting the government in economic advancement through PPPs. Its first mover role in the gas sector has seen the development of almost 300km of pipeline infrastructure in the South-West and South-East regions of the country, providing innovative energy solutions to key industrial hubs and over 23 million people.
ENI/NAOC has substantial expertise and local knowledge as a refiner of international standing, and has successfully built and run five refineries in Italy and Germany. The company built the the Sannazzaro refinery, similar in complexity to PHC refinery with a capacity of 200kbbl/d, and owns the proprietary technology that delivers Europe’s most efficient refinery. Eni also produces 4 million boepd, a stark contrast to Nigeria’s estimated 2 million boepd.
“As a company, we have always consistently worked together with the Government in creating solutions for the oil and gas industry and the country at large. We are not new to working hand-in-hand with the Government in creating infrastructure to be able to utilise a common carrier for the entire industry to benefit from. What has been agreed upon at this stage is the opportunity to try and establish a framework for the rehabilitation of Port Harcourt refinery, which will then go through appropriate regulatory approvals, where necessary,” Tinubu said.
In the meantime, the Federal Government yesterday said it would need about $1.2 billion to repair and bring the three refineries of the Nigerian National Petroleum Corporation (NNPC) in Port Harcourt, Warri, and Kaduna, up to 100 per cent production level.
It said that in this regard, it was looking for financiers to take this up and not concessioning the refineries as previously reported.
The government also indicated that it would invite the Original Refineries Builders (ORB) for the three refineries to undertake the repairs, adding that up till now, it had not selected any financier for the repairs.
The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, stated this at a press briefing in Abuja, where he said the government was still fine-tuning its strategy for the refineries’ revamp programme.
Kachikwu, explained that recent reports that the Port Harcourt refinery had been concessioned to Oando and Agip were untrue because according to him, the technical committee set up by the government to undertake the review and selection process was yet to submit its report to it.
He noted that at best, what had been accomplished by the committee was to come up with a holistic investment figure that would be enough to fix the three refineries, but not selected any firm yet even though some firms had shown interests.
The minister also stated that there was a consensus within the government that the refineries ORBs which are Saipem in Warri; JGC in Port Harcourt; and Chiyoda in Kaduna, would be invited to undertake the repairs considering that they have a better knowledge of the refineries.
“Internally, we have been able to determine the sort of amount that would be required to do this work, in terms of what work is really required to be done. The total cumulative amount is in the $1.1 billion and $1.2 billion category between all the refineries. And that of course does not include the pipelines. You have got to address the pipelines and that is something else that is being done,” said Kachikwu.
He equally stated that within the last one year, Nigeria spent about N4.74 trillion on importation of petrol, adding that such cost took about 30 per cent of the total foreign exchange outlay of the Central Bank of Nigeria (CBN).
According to him, such cost on importation necessitated the urgency to get Nigeria to stop importing petroleum products.
“The importation of petroleum products between January and December of last year amounted to about 20 million metric tonnes. A total amount of N3.4 trillion was spent, the consumption of FX from CBN was approximately 30 per cent of CBN total FX outlay, and the logistic costs of that importation was about N1.34 trillion within the same one year period,” said Kachikwu.
According to him: “The domestic refining capacity as of today is six million litres out of a total consumption of about 35 million litres, averaging less than 25 per cent. In the midst of this sort of statistics, it was absolutely critical that we move in to try to end importation of products, improve our refineries and get them up to 100 per cent name plate.”
He further stated on the refineries repairs framework: “We are looking for financing of the repair and upgrade of the refineries. We are not concessioning refineries, it is simply a financing package.”
“Once we identify those individuals and see how we can make contacts with those who built the refineries – Saipem in Warri; JGC in Port Harcourt; and Chiyoda in Kaduna, to ensure that we go back to them because they have the designs, engineering outlay and upgrade capabilities, and in some cases, they have the access to spare part. If we are going to achieve this within the timeframe we gave, we are going to meet them and I think we have largely decided that those are the people we should use,” he stated.
The minister explained that the government would have to consider the overall capabilities of those who are interested in the process. He also added that their business model would have to be tied into the current Direct Sales Direct Purchase (DSDP) of the NNPC to be able to make profit especially with consideration to the country’s downstream sector which has not been deregulated.
“We haven’t reached there, and so anybody indicating that contracts have been given is wrong. In terms of who wins the financing awards, that is still work in progress. We have not received from the technical committee their final report on this, we need to review and accept and go to FEC for approval and the National Assembly before we proceed.
“There is an urgency in this sector that we need to address. We have begun engagements with the National Assembly and the process continues, but we need speed in all these,” he added.