Retooling Port Harcourt Refinery, Another Avoidable Waste

By Muiz Banire, SAN

This plea is now compelling and timely in view of the latest
development around the refurbishment of the Port Harcourt refinery.
In the recent past, several issues have been bedevilling the
Nigerian National Petroleum Corporation (NNPC), these include lack
of accountability in terms of the crude produced and the sums
accruable from the sale. This is a recurring decimal in the life of
the NNPC. Till date, nobody can assertively inform us of the volume
of crude produced nor the accurate volume sold. Again, not until of
recent were we treated to a celebrated audit report in the life of
the NNPC. It is the same NNPC that appears confused about its
policy direction on the deregulation of the industry, as multiple
policy summersaults are released from time to time.

I can continue to multiply these aberrations but for the fact
that this is not meant to be our pre-occupation in this column. In
my last intervention on Twitter, I had hinted that I would be
interrogating the wisdom or otherwise in the decision of NNPC to
rehabilitate the Port Harcourt refinery for the sum of $1.5
billion. Prior to this, I had in my last column berated the same
NNPC for being the exclusive importer of the refined product in
Nigeria. In the said write-up, I remember insinuating the high
probability of multiple compromises in the supply and distribution
chain of the refined product to the independent marketers.

The news this time is on the award of the rehabilitation of the
Port Harcourt refinery for a whopping $1.5 billion. It is a news
item that is of interest to a larger percentage of Nigerians,
including my humble self. As rightly suggested by Mr. Atedo
Peterside in his tweet, it is one decision that requires national
debate.

Besides his counsel, I have followed some public discussions on
the subject. In all, it will seem that the preponderance of opinion
gravitates towards the inappropriateness of the decision. I share
in this conclusion also. The bases of my opposition to the decision
are multiple. To start with, the said refinery is about 32 years
old with outdated technology. The implication of this is that some
of the parts would have to be recalibrated or newly manufactured to
fit into the overhaul. Due to the age, there is no way it can be as
efficient as any modern refinery. On this score, therefore, it
might not be reasonable to embark on such rehabilitation.

Recently, a higher capacity refinery, including inventory, by
name Martinez Refinery in California was sold by Royal Dutch Shell
Plc to PBF Energy for $1,2 billion.

Although there is insinuation that the sold refinery is equally
challenged, the fact is that it is still functioning. This diaspora
refinery could have been acquired by Nigeria and managed, not only
for our consumption but for the international market. The argument
against this suggestion might be that we will be generating
employment for another country. As seemingly attractive as this
reasoning is, it is certainly arguable if that contention is
sustainable.

With the existing refineries, over time, how many jobs have we
created? The story around those refineries has always been that of
redundancy and consequential laying off of workers. My suspicion
and the likely reality is that if such refinery abroad is acquired,
some Nigerians will end up gaining employment there, either by way
of local recruitment or international absorption of Nigerians in
diaspora. The probability of collapse of such investment is less
outside than if within the country itself. This view cannot be
faulted in the face of the moribund state of the existing
facilities. The combined capacity of all the corporation’s
refineries is in the region of 450,000 barrel per day but, from
2019 till date, not a single litre has been produced.

The further contention is that even if it must be refurbished,
why doesn’t the NNPC invite the private sector to take it over and
carry out the rehabilitation and manage same? A concession can
address the challenge. The ready answer of the protagonists of the
retooling will be lack of funding by the private sector. Let me
assume, without conceding, that it is an arguable point, but why
can’t the government give a guarantee with the said sum in favour
of the private entities rather than moving in directly?

The NNPC, in this instance, ought to limit its intervention to
supervision rather than being the operator of the refineries. No
country progresses where government abdicates governance for
businesses. NNPC ought to confine itself to its regulatory role.
Furthermore, what stops the refineries, including the one under
consideration, from being offered for sale to private entities? It
could be disposed of in that state with private entities acquiring
and engaging in the turnaround.

The point being made is that, by the deregulation policy, the
NNPC should not be seen as an operator of a refinery, a role that
should be reserved for the private sector. Again, I know the goons
of the NNPC might react that the cost of the refined product might
be unaffordable to an average Nigerian, if there is total
deregulation. That argument will not fly in the face of the
fluctuating prices of the refined products currently existing under
the import monopoly of the NNPC. If nothing, all the logistics
cost, including that of the crude, will instantly be eliminated,
thereby reducing the output cost.

In addition, from experience, it is usually lack of transparency
in the processes leading to the concession that breeds inefficiency
and, by extension, the astronomical cost of the product. Should we
use power as a narrative, it was lack of transparency that led to
non-foreign investors participating, thereby depriving the
successful bidders of foreign inflow. This is responsible for both
the inefficiency and the prohibitive cost of sustenance of their
operations. This could be compared with the telecommunications
sector where some degree of transparency applied.

I have read the reaction of the group managing director of the
NNPC that it will basically cost the country a sum ranging between
$7 billion and $10 billion to build a new refinery, an amount the
country cannot afford currently. I suspect that there is a
misconception here. Nigerians are not advocating for the
construction of a new refinery but only by comparative cost
analysis, suggesting that, if the cost of replacement of an
outdated facility is that huge, why can’t we directly acquire a new
one?

The further suggestion of the public is that it is an investment
that the private sector can undertake, where the NNPC provides a
conducive atmosphere for its operation. I have equally noted the
porous reasoning that the present cost of importation vis-à-vis the
consumption of the country’s foreign exchange is frightening. To
this, I plead that the management of the NNPC should stop insulting
our collective intelligence. Currently, is the crude we are
exchanging not presently in substitution for foreign exchange? When
we eventually produce locally, is it not the same accrued foreign
exchange from the present swap we will be stopping? It is a
situation of a bottle that is half full and half empty; a Catch-22
situation.

Strangely, the group managing director of the NNPC has indicted
past regimes in the corporation for poor maintenance and truncation
of the operations of the refineries. My worry, however, is that he
failed to mention names of culprits so that we can make them
scapegoats that will send signals to the potential operators of the
refurbished facility, if ultimately executed.

Also, I am aware of the signing of co-location agreements in
respect of some new refineries by the corporation within the
existing facilities. The Port Harcourt refinery, in this respect,
by virtue of the private co-location investment, is expected to add
about 100,000 barrels per day to the country’s refined product. I
am also aware of the Dangote refinery that the country can equally
leverage on. Should it, however, be compulsory, which I know it is
not, that the NNPC must operate a refinery, let the corporation
acquire shares in the private entities that will be players in the
field.

Besides the above, if the pronouncement of the Vice-President,
Prof. Yemi Osinbajo, SAN, is something to go by, it seems the
policy direction is in favour of modular refineries; two are
already running and several, hopefully, are in the pipeline.

I am also aware, while being the chairman of Asset Management
Corporation of Nigeria (AMCON), that one of such modular refineries
belongs to the Federal Government abroad, courtesy of AMCON.

This has continued to incur cost in Texas, where it is lying
without the NNPC indicating interest in the acquisition. This is
just characteristic of the NNPC as I am equally aware of the
resistance to take over several tank farms in possession of AMCON
but will rather prefer rentals for whatever reason. Little drops of
water make an ocean: the more modular refineries we have, the less
the nation’s headache and increase in convenience.

Now, my take on all the above is simply that the route being
taken by the NNPC and, by extension, the country, is a perilous
one. I say this because, beyond all the arguments canvassed above
against the government spending the said sum on the refurbishment
of the Port Harcourt refinery, I am of the strong view that, in the
light of global warming and the challenge of climate change,
Nigeria must be tagging along other nations in the curtailment of
the use of fossil fuels. Is it not an absurdity to spend such a sum
on a facility meant to be generating fossil fuel when the entire
world is drifting towards clean energy, largely by the year 2030?
Britain already placed ban on the sale of new petrol and diesel
cars and vans by 2030. By 2035, California will ban the sale of new
gasoline-powered passenger cars. In Canada, the Quebec province
equally announced the ban by the year 2035.

The European Union Environment Ministers struck a deal recently
to make a bloc 2050 net-zero emissions target legally binding, but
left a decision on a 2030 emissions-cutting target for leaders to
discuss in December. My thought, therefore, would have been that,
rather than spending such a huge sum on repairing a facility whose
relevance would soon be challenged, would it not be wise to start
investing in the clean energy by way of gas production technology
and electricity? Most vehicle and equipment producers are now
focusing on the use of clean energy, where will Nigeria be then?
Can’t we be proactive for once?

Recall that even the President of Nigeria made a pronouncement
on the movement to gas utilization in vehicles and equipment. The
reality is that, by the year 2030, the prices of refined products
globally will drop as the use declines. The production cost in
Nigeria will become unsustainable. Hence, the country might have to
resort to importation again. This will be the country’s irony.

On this note, I am in tandem with the proponents of the
government shelving the idea of investing the said sum in the
rehabilitation of the Port Harcourt refinery. Rather, such should
be left to the private sector, while diverting the funds into
production of clean energy.

By Muiz Banire, SAN

This plea is now compelling and timely in view of the latest
development around the refurbishment of the Port Harcourt refinery.
In the recent past, several issues have been bedevilling the
Nigerian National Petroleum Corporation (NNPC), these include lack
of accountability in terms of the crude produced and the sums
accruable from the sale. This is a recurring decimal in the life of
the NNPC. Till date, nobody can assertively inform us of the volume
of crude produced nor the accurate volume sold. Again, not until of
recent were we treated to a celebrated audit report in the life of
the NNPC. It is the same NNPC that appears confused about its
policy direction on the deregulation of the industry, as multiple
policy summersaults are released from time to time.

I can continue to multiply these aberrations but for the fact
that this is not meant to be our pre-occupation in this column. In
my last intervention on Twitter, I had hinted that I would be
interrogating the wisdom or otherwise in the decision of NNPC to
rehabilitate the Port Harcourt refinery for the sum of $1.5
billion. Prior to this, I had in my last column berated the same
NNPC for being the exclusive importer of the refined product in
Nigeria. In the said write-up, I remember insinuating the high
probability of multiple compromises in the supply and distribution
chain of the refined product to the independent marketers.

The news this time is on the award of the rehabilitation of the
Port Harcourt refinery for a whopping $1.5 billion. It is a news
item that is of interest to a larger percentage of Nigerians,
including my humble self. As rightly suggested by Mr. Atedo
Peterside in his tweet, it is one decision that requires national
debate.

Besides his counsel, I have followed some public discussions on
the subject. In all, it will seem that the preponderance of opinion
gravitates towards the inappropriateness of the decision. I share
in this conclusion also. The bases of my opposition to the decision
are multiple. To start with, the said refinery is about 32 years
old with outdated technology. The implication of this is that some
of the parts would have to be recalibrated or newly manufactured to
fit into the overhaul. Due to the age, there is no way it can be as
efficient as any modern refinery. On this score, therefore, it
might not be reasonable to embark on such rehabilitation.

Recently, a higher capacity refinery, including inventory, by
name Martinez Refinery in California was sold by Royal Dutch Shell
Plc to PBF Energy for $1,2 billion.

Although there is insinuation that the sold refinery is equally
challenged, the fact is that it is still functioning. This diaspora
refinery could have been acquired by Nigeria and managed, not only
for our consumption but for the international market. The argument
against this suggestion might be that we will be generating
employment for another country. As seemingly attractive as this
reasoning is, it is certainly arguable if that contention is
sustainable.

With the existing refineries, over time, how many jobs have we
created? The story around those refineries has always been that of
redundancy and consequential laying off of workers. My suspicion
and the likely reality is that if such refinery abroad is acquired,
some Nigerians will end up gaining employment there, either by way
of local recruitment or international absorption of Nigerians in
diaspora. The probability of collapse of such investment is less
outside than if within the country itself. This view cannot be
faulted in the face of the moribund state of the existing
facilities. The combined capacity of all the corporation’s
refineries is in the region of 450,000 barrel per day but, from
2019 till date, not a single litre has been produced.

The further contention is that even if it must be refurbished,
why doesn’t the NNPC invite the private sector to take it over and
carry out the rehabilitation and manage same? A concession can
address the challenge. The ready answer of the protagonists of the
retooling will be lack of funding by the private sector. Let me
assume, without conceding, that it is an arguable point, but why
can’t the government give a guarantee with the said sum in favour
of the private entities rather than moving in directly?

The NNPC, in this instance, ought to limit its intervention to
supervision rather than being the operator of the refineries. No
country progresses where government abdicates governance for
businesses. NNPC ought to confine itself to its regulatory role.
Furthermore, what stops the refineries, including the one under
consideration, from being offered for sale to private entities? It
could be disposed of in that state with private entities acquiring
and engaging in the turnaround.

The point being made is that, by the deregulation policy, the
NNPC should not be seen as an operator of a refinery, a role that
should be reserved for the private sector. Again, I know the goons
of the NNPC might react that the cost of the refined product might
be unaffordable to an average Nigerian, if there is total
deregulation. That argument will not fly in the face of the
fluctuating prices of the refined products currently existing under
the import monopoly of the NNPC. If nothing, all the logistics
cost, including that of the crude, will instantly be eliminated,
thereby reducing the output cost.

In addition, from experience, it is usually lack of transparency
in the processes leading to the concession that breeds inefficiency
and, by extension, the astronomical cost of the product. Should we
use power as a narrative, it was lack of transparency that led to
non-foreign investors participating, thereby depriving the
successful bidders of foreign inflow. This is responsible for both
the inefficiency and the prohibitive cost of sustenance of their
operations. This could be compared with the telecommunications
sector where some degree of transparency applied.

I have read the reaction of the group managing director of the
NNPC that it will basically cost the country a sum ranging between
$7 billion and $10 billion to build a new refinery, an amount the
country cannot afford currently. I suspect that there is a
misconception here. Nigerians are not advocating for the
construction of a new refinery but only by comparative cost
analysis, suggesting that, if the cost of replacement of an
outdated facility is that huge, why can’t we directly acquire a new
one?

The further suggestion of the public is that it is an investment
that the private sector can undertake, where the NNPC provides a
conducive atmosphere for its operation. I have equally noted the
porous reasoning that the present cost of importation vis-à-vis the
consumption of the country’s foreign exchange is frightening. To
this, I plead that the management of the NNPC should stop insulting
our collective intelligence. Currently, is the crude we are
exchanging not presently in substitution for foreign exchange? When
we eventually produce locally, is it not the same accrued foreign
exchange from the present swap we will be stopping? It is a
situation of a bottle that is half full and half empty; a Catch-22
situation.

Strangely, the group managing director of the NNPC has indicted
past regimes in the corporation for poor maintenance and truncation
of the operations of the refineries. My worry, however, is that he
failed to mention names of culprits so that we can make them
scapegoats that will send signals to the potential operators of the
refurbished facility, if ultimately executed.

Also, I am aware of the signing of co-location agreements in
respect of some new refineries by the corporation within the
existing facilities. The Port Harcourt refinery, in this respect,
by virtue of the private co-location investment, is expected to add
about 100,000 barrels per day to the country’s refined product. I
am also aware of the Dangote refinery that the country can equally
leverage on. Should it, however, be compulsory, which I know it is
not, that the NNPC must operate a refinery, let the corporation
acquire shares in the private entities that will be players in the
field.

Besides the above, if the pronouncement of the Vice-President,
Prof. Yemi Osinbajo, SAN, is something to go by, it seems the
policy direction is in favour of modular refineries; two are
already running and several, hopefully, are in the pipeline.

I am also aware, while being the chairman of Asset Management
Corporation of Nigeria (AMCON), that one of such modular refineries
belongs to the Federal Government abroad, courtesy of AMCON.

This has continued to incur cost in Texas, where it is lying
without the NNPC indicating interest in the acquisition. This is
just characteristic of the NNPC as I am equally aware of the
resistance to take over several tank farms in possession of AMCON
but will rather prefer rentals for whatever reason. Little drops of
water make an ocean: the more modular refineries we have, the less
the nation’s headache and increase in convenience.

Now, my take on all the above is simply that the route being
taken by the NNPC and, by extension, the country, is a perilous
one. I say this because, beyond all the arguments canvassed above
against the government spending the said sum on the refurbishment
of the Port Harcourt refinery, I am of the strong view that, in the
light of global warming and the challenge of climate change,
Nigeria must be tagging along other nations in the curtailment of
the use of fossil fuels. Is it not an absurdity to spend such a sum
on a facility meant to be generating fossil fuel when the entire
world is drifting towards clean energy, largely by the year 2030?
Britain already placed ban on the sale of new petrol and diesel
cars and vans by 2030. By 2035, California will ban the sale of new
gasoline-powered passenger cars. In Canada, the Quebec province
equally announced the ban by the year 2035.

The European Union Environment Ministers struck a deal recently
to make a bloc 2050 net-zero emissions target legally binding, but
left a decision on a 2030 emissions-cutting target for leaders to
discuss in December. My thought, therefore, would have been that,
rather than spending such a huge sum on repairing a facility whose
relevance would soon be challenged, would it not be wise to start
investing in the clean energy by way of gas production technology
and electricity? Most vehicle and equipment producers are now
focusing on the use of clean energy, where will Nigeria be then?
Can’t we be proactive for once?

Recall that even the President of Nigeria made a pronouncement
on the movement to gas utilization in vehicles and equipment. The
reality is that, by the year 2030, the prices of refined products
globally will drop as the use declines. The production cost in
Nigeria will become unsustainable. Hence, the country might have to
resort to importation again. This will be the country’s irony.

On this note, I am in tandem with the proponents of the
government shelving the idea of investing the said sum in the
rehabilitation of the Port Harcourt refinery. Rather, such should
be left to the private sector, while diverting the funds into
production of clean energy.