Business Features

NNPC and its endless maintenance of refineries

By Oladeinde Olawoyin

Last month, the Nigerian National Petroleum Corporation (NNPC) declared that Nigerian refineries are damaged beyond the regular Turn Around Maintenance (TAM).

The national oil firm also attributed the prolonged neglect of rehabilitating the refineries to the delay in making them functional.

Speaking on the third day of the virtual Oil Trading and Logistics (OTL) Africa Downstream Expo 2020 themed “Petroleum Refining Trends and Outlook for Tomorrow’s Energy Supply,” the Managing Director of the Kaduna Refining and Petrochemical Company (KRPC), Ezekiel Osarolube, said the NNPC had yet again begun the rehabilitation of all the facilities.

“There’s a difference between turnaround maintenance and what we are doing now. The traditional TAM, which the whole world knows is usually statutory, which is done two to three years, is to open and clean the system,” a ThisDay report quoted him as saying.

“But because of the long neglect, we have gone beyond that level of turnaround. What we are talking about now is comprehensive rehabilitation, which will involve replacing very obsolete equipment that can bring the plants back to optimum performance.”

Mr Osarolube’s remarks bring to the fore yet again debates on the poor state of Nigeria’s refineries and its effect on the nation’s oil industry.

For decades, the refineries have performed below optimal levels despite the huge resources earmarked for their rehabilitation. This has resulted in importation of petroleum products for domestic use for many years, with the nation recording loss of huge resources in the process.

Moribund Refineries

Nigeria has four refineries linked by a network of pipelines and depots located across the country. The four are located in Kaduna, Delta and Rivers states.

The Port Harcourt Refining Company (PHRC) is made up of two refineries located at Alesa-Eleme, Rivers State, commissioned in 1965 and 1989. While the older refinery has a refining nameplate capacity of 60,000 barrels per day, the other has refining capacity of 150, 000 barrels per day.

The Kaduna Refinery and Petrochemical Company (KRPC) is located in Kaduna state, with a nameplate refining capacity of 110, 000. The Warri Refinery and Petrochemical Company (WRPC) is located in Warri, Delta State.

Earlier in the year, the Nigerian National Petroleum Corporation (NNPC) released the March edition of its monthly operational data which showed that the nation’s four refineries were performing at 5.55 percent of their combined nameplate capacity of 445,000 barrels per daily (bpd).

A breakdown of the data showed that the refineries continued to record deficit, with losses rising to N16.03b. Details showed that in March, the Kaduna Refinery recorded a deficit of N5.09b; Port Harcourt, N5.37b; and Warri, N5.56b.

Meanwhile, the combined revenue projection for the refineries was N7.7b.

Last June, the NNPC published its first audited financial statements after 43 years of its operation, with damning revelations.

The annual reports and financial statements for the year ended December 31, 2018, were for 20 of the state-owned national oil company’s subsidiary companies operating within and outside the country.

The companies covered in the reports published in the corporation’s website last Friday included the Nigerian Petroleum Development Company (NPDC), Warri Refining & Petrochemical Company Limited (WRPC), Port Harcourt Refining Company Limited (PHRC), Kaduna Refining & Petrochemical Company (KRPC), and Integrated Data Services Limited (IDSL), Nigerian Products and Marketing Company Limited (NPMC), Nigerian Pipelines and Storage Company (NPSC).

The financial statement showed, for instance, that Kaduna Refining and Petrochemical Company Limited (KRPC) generated no revenue in 2018, even as it incurred an operating loss of N64.5 billion, throwing up concerns over the continued operation of refineries by the corporation.

Details showed that Kaduna refinery spent N24 billion in direct costs to record zero revenue and an operating loss of N64 billion for 2018, as against N2 billion naira revenue and N112 billion losses in 2017.

A breakdown of the direct costs and administrative expenses showed that it incurred N447.7 million in Training Expenses, Security expenses of N230 million, Communication expenses of N37.3 million, and Consultancy fees of N843 million.

For the Warri Refining Company, the audited financial statement showed that the company earned N1.98 billion as revenue while it incurred N12.74 billion as cost of sales, resulting in a gross loss of N10.57 billion and an operating loss of N45.39 billion.

The Port Harcourt Refining Company recorded total revenue of N1.45 billion in 2018 with expenses of N24.04 billion, resulting in a gross loss of N22.58 billion.

At the Kaduna Refinery, a breakdown of the payments made to directors showed that total employee cost was put at N23 billion in 2018, compared to N27 billion in 2017. These payments include salaries and wages, death benefit, administrative expenses, etc.

With regard to directors’ remuneration for 2018, excluding pension contributions and certain other benefits, the figure was put at N109 million, as against N249 million in 2017.

Similarly, in 2018, the highest-paid director earned N33 million.

Multi-million dollar TAM exercises wasteful?

Revelations from the NNPC’s annual report questioned the rationality of sustaining the running of the refineries with huge resources without commensurate value in oil refining.

Although figures on the actual amount Nigeria has expended on Turn Around Maintenance of the refineries have been a subject of controversies, the nation may have spent about $25bn on the refineries in 25 years, according to a report in BusinessDay.

In January, the Nigerian Senate agreed to probe the NNPC over the $396m expended on Turn-Around Maintenance of refineries in the country between 2013 and 2015.

The senate also mandated the committees on Petroleum Downstream, Upstream, and Gas to carry out investigation on the expenditure incurred by the nation within the period.

The decision to investigate spendings on the maintenance of refineries by the NNPC was reached after consideration of a motion brought to the floor by Yusuf Yusuf, a senator.

Mr Yusuf had noted that the refineries were established to adequately supply and serve the needs of Liquefied Petroleum Gas, Premium Motor Spirit, Dual Purpose Kerosene, Automotive Gas Oil, Low Pour Fuel Oil, High Pour Fuel Oil and Aviation Turbine Kerosene for both local consumption and exports.

However, he said the refineries had not served the purposes for which they were built and being run.

“The country through the NNPC has in the past 25 years, spent billions of US dollars in Turn-Around Maintenance of the refineries, the latest being over $396m spent between 2013 and 2015 without meaningful result,” he said.

“The refineries have remained in the moribund state in the last 15-20 years and is almost reaching total collapse due to lack of proposer maintenance of the facilities with a poor average capacity utilization hovering between fifteen percent and twenty-five percent per annum.

“Despite the huge spending on turn-around Maintenance of refineries, NNPC recently announced a cumulative loss of N123.25 bn in 10 months (January to October 2019). This has put the total revenue of facilities at N68.82 bn, while total expenses incurred were N192.1bn within the same period.

“Such huge wastage and slippages amidst the nation’s tight economy, if not addressed, may lead the country back to recession.”

In January, the immediate past GMD of NNPC, Maikanti Baru, alleged that the country’s refineries have not undergone any TAM for an aggregate of 42 years. By implication, funds allegedly approved for the maintenance of the refineries may have ended up in private pockets.

The position of the committees mandated by the red chamber remains unclear as of press time but the recent declaration by the corporation seems to show that the nation has a long way to go in fixing the refineries.

In July 2019, while speaking at a valedictory session for the former Group Managing Director of NNPC, Mr Baru, the Group Managing Director (GMD), Mele Kyari, said he would fix the four refineries before the end of May 2023.

Stakeholders in the industry have, however, expressed reservations over the promise, as similar promises have been made by officials in the past, which they failed to fulfill.

But Mr Osarolube explained in October that there is a private-public arrangement in the revamping of the refineries that would ensure that they are back on stream.

“The first phase of this project is to raise capacity and second phase is to upgrade and modernise to meet current trends; so, we need time to get there,” he said.

This report is part of the fulfillment for the ATUPA fellowship by Civic Hive in collaboration with the U.S Embassy.

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