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Fuel scarcity: The refinery challenge

Experts say fuel scarcity will continue until the nation has the capacity to refine its crude oil domestically. While efforts are being made in this direction, it may still be a long wait for Godot, given the volume of refined crude needed, the available capacity and other factor.

For the second time this year, the fuel scarcity returned to some parts of the country this week. Known to be a 100 per cent importer of refined petroleum products, the country is not immuned to scarcity of the commodities at the slightest dislocation in the chain of importation and distribution.

This is why stakeholders and experts in the sector are calling for a return to the pre-early 1990s, when the country had the refining capacity to produce enough petroleum products to cater to its domestic needs and exported the excess, earning foreign exchange in the process. Sadly, this is a sharp contrast from what obtains now, as the country now imports all its petroleum products needs even though she exports large volumes of crude oil.

For instance, a foreign trade data published by the National Bureau of Statistics (NBS),  in 2021, the country spent a total of N4.56 trillion on the importation of Premium Motor Spirit (PMS), or petrol, connoting a 128 percent increase over the N2 trillion spent on fuel importation in 2020. Total spend on fuels and lubricants imports  last year stood at N6.3 trillion, surpassing the N2.83 trillion, N2.5 trillion, and N3.8 trillion spent on same in 2020, 2019, and 2018.

Nigeria has five refineries – four of which are owned by government. In its prime, these four refineries owned by government- two in Port Harcourt, one in Kaduna and one in Warri, had a combined capacity to process 445,000 barrels of crude oil daily. But unfortunately, for several years they operated at less than half of their capacity before the NNPC shut them down, saying this was no longer sustainable. The fifth refinery is managed by the Niger Delta Petroleum Resources, a subsidiary of Niger Delta Exploration and Production Plc

Last Tuesday, the Group Managing Director, Nigeria National Petroleum Company (NNPC) Limited, Mallam Mele Kyari, did not mince words in his assessment of how the country’s refineries descended to their present comatose state.

“We recognise that today, none of our refineries is operating for the very obvious reason. It is needless to say that the refineries were essentially not properly managed overtime. Not just today, but in the last 25 years. The Turn Around Maintenance (TAM) were mismanaged overtime. Those TAM were not properly done in the past, leading to where we are. Bad management of the nation’s refineries for the past 25 years was responsible for the state of the refineries,” Kyari said at the House of Representatives Adhoc Committee set up to investigate the state of the refineries last Tuesday.

He explained that “the situation of the refineries was so appalling such that when they take $100 crude, they will produce $70 and it did not make business to continue like that because of the rate of degradation they had gone through. There is no refinery anywhere that works this way.” But for stakeholders in the industry, such disclosure is no news. For several years, the country’s refineries have constituted a drainpipe on the finances of government. According to a report published by AfricaCheck, N276 billion was spent on the refineries repairs from 2015 to 2018.

Still, it noted that despite not processing any crude oil, some $211 million was used to operate the refineries for nine months in 2020, NNPC data showed. In 2019, $486.7 million was spent  on wage settlement.

In March, last year, the National Assembly moved to probe the alleged $25 billion the NNPC claimed it had spent on maintenance of the refineries over 25 years; a venture that has not had any corresponding effect.

Efforts

Not many Nigerians are convinced that the government, through the NNPC, has made any concerted effort to reverse the fortunes of the refineries and by extension, importation of fuel. On March 18, last year, the Federal Executive Council (FEC) okayed $1.5 billion of spending on the modernisation of the Port Harcourt oil refinery and awarded the contract to Italy’s Tecnimont. The project is to be completed in three phases- the first within 18 months taking the refinery to 90 percent production capacity; second and final phases carried out between 24 months and 44 months.

In considering the option of rehabilitation of the Port Harcourt refinery, Kyari explained that proceeding with further TAM of the facilities would amount a waste of public resources. This perhaps explains why in April 2020, they were all shut pending rehabilitation and the refineries lost some N167 billion a year earlier.

The GMD said further that the rehabilitation of the refineries is to be carried out purely as a business venture to be financed by the banks, adding that to get funds from the banks, an operation and management agreement has to be out in place to which will guarantee proper management of the facilities.

He disclosed that work is currently ongoing in the Port Harcourt Refinery, while Warri and Kaduna Refineries will follow later, assuring that at the end of the exercise, Nigerians will be assured of steady supply of PMS as the refineries will be able to operate at a minimum of 90 percent installed capacity.

Will importation stop?

But does the rehabilitation of the refineries guarantee the stoppage of fuel importation? Certainly not given the production capacity and the volume of the products required in the country. While no exact figure has been put on the daily petrol consumption in the country, it is, however, estimated to be in the region of between 50 and 70 million litres daily.

Still, there will be the need to equally rehabilitate the network of pipelines across the country. Clement Isong, Executive Secretary, Major Oil Marketers Association of Nigeria (MOMAN), at the peak of last February’s fuel scarcity, said the state of the country’s oil pipelines needed rehabilitation as most had been damaged by vandals. And Kyari agreed on this.

“The pipeline that carries crude from Escravos to Warri and from Warri to Kaduna cannot carry crude at the moment. The pipeline network has to be replaced before the refineries can fully come on stream,” he said.

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