The hurdles in NNPC’s new model to revive refineries

No Comments » May 3rd, 2016 posted by // Categories: Oil and Gas



The hurdles in NNPC’s new model to revive refineries

By Mohammed Shosanya, Lagos | Publish Date: May 3 2016 5:47AM

The hurdles in NNPC’s new model to revive refineries

When the federal government recently unveiled plans to enter into a Joint Venture (JV) arrangement with investors to fund, rehabilitate and jointly operate Nigerian refineries, views of Nigerians became divided. Some view the development as proactive while others see it as another way of privatising the plants by the Buhari-led administration. Our reporter analyse the view points.

The Nigerian National Petroleum Corporation (NNPC) recently said the Turn Around Maintenance (TAM) for the Nigeria’s four refineries gulped about $22 million, saving taxpayers $1.57 billion from the $1.6 billion earlier voted for the projects.

The NNPC said $10 million, about 48 per cent of the total expenditure, was spent on the two refineries in Port Harcourt. The $22 million expenditure was a huge reduction from the $216 million, which the Sani Abacha-led regime spent for the same purpose.
The federal government  is said to have  spent over $2.036 billion on the TAM of the country’s refineries in the last 13 years.
The administration of former president Olusegun Obasanjo had set aside $369 million for the TAM of the nation’s four refineries, while the Abdulsalami Abubakar and Sani Abacha regimes spent $92 million and $216 million, respectively for the same purpose. In 2007, the NNPC claimed it awarded the contract for a comprehensive TAM on all the refineries to a Nigerian firm.
The sum of  $1.6 billion was voted for TAM of the four refineries across the country by the end of 2014. The 150,000 bpd Port Harcourt refinery was built in 1989. TAM operations were carried out in 1991, 1994 and 2000.
The Kalu Idika Kalu Committee had, in May 2013 during a visit to the Port Harcourt Refinery, discovered its four boilers were not operative. Two out of the four power plants were dysfunctional.
Besides, the committee found that there was evidence of poor maintenance with serious corrosion of major key units, just as morale of the workers was low and management was dysfunctional with little or no financial authority.
The inoperative state of the refineries, for a long time, threw the nation into crisis, making the importation of oil into the country became an all-comers affair and fraudulent.
 In his argument, the president of the Nigeria Labour Congress (NLC), Comrade Ayuba Wabba,  at this year’s May Day celebration in Abuja, urged the federal government to effectively fight corruption in the nation’s oil and gas sector.
He  said if corruption is arrested in the sector,  the huge amount used in importing refined petroleum products could go into other productive ventures in the economy.
No doubt, it is regrettable that maintenance of the nation’s refineries by previous governments were carried out at high costs. Yet, despite the questionable amounts spent on the maintenance, the refineries have remained unproductive, leaving Nigerians to wonder whether  the assets were actually rehabilitated or used as avenues of siphoning resources.
But the NNPC  said the  current  JV deal on the  three refineries,   namely, 210,000 barrels per stream day (BPSD) Port Harcourt Refinery, Warri and Kaduna refineries with combined refining capacity of 445,000 bpsd, will also include, but not limited to, off-take of refined products for sale primarily in the Nigerian market. The corporation  said the refineries will be jointly operated by NNPC and the selected investors for a defined period, until investments are fully recovered.
The Nigerian Union of Petroleum and Natural Gas Workers (NUPENG),  however, picked holes in the arrangement and   warned  the NNPC of the dangers of  partnering investors as joint technical partners for the rehabilitation and operation of the refineries.
NUPENG also expressed its reservation over  NNPC’s  invitation of  pre-qualification for rehabilitation, upgrade, operatorship, management, maintenance and security of NNPC jetties, storage depots and pipeline infrastructure on joint venture partnership basis.
The union said: “NUPENG believes that the current move by the NNPC is a form of privatisation, through the backdoor, of our national assets which is doomed to fail and bring about more hardship to the citizens, just the way the Power Holding Company of Nigeria (PHCN) privatisation failed to bring the desired results but darkness all over the country.
It stated that for security reasons and in the interest of protecting the jobs of oil and gas workers, the planned partnership will be resisted by NUPENG.
It added  that no investor will want to put his money in the joint venture partnership arrangement without having a say in the running of the refineries, storage depots and jetties.
Similarly, a leader in the  nation’s oil sector has faulted the modality  employed by the authorities to refurbish the  refineries, saying it smells of government’s desire to sell the refineries under the guise of joint venture.
An oil and gas  expert, Bola Andrew, however, said there is nothing wrong with the arrangement the government intends to employ to rehabilitate the refineries and efficiently run the facilities.
He said: I believe there is nothing wrong with the joint venture  between the federal government and partners to run the refineries. So, there is no cause for alarm over the implementation of the deal. For me, the joint agreement will be a clear departure from the  previous manner of turning around the nation’s refineries for efficiency and profitability.” Stakeholders  in the oil and gas sector are, therefore, waiting to see whether or not the intended model to refurbish the nation’s refineries would work, buoys the country’s refining capacity and minimise oil products importation.

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