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Zik Gbemre: ON HOW TO REVAMP NIGERIA’S UPSTREAM AND DOWNSTREAM OIL & GAS SECTOR

Zik Gbemre: ON HOW TO REVAMP NIGERIA’S UPSTREAM AND DOWNSTREAM OIL & GAS SECTOR

3 APRIL 2021

With recent reports that the President Muhammadu Buhari-led Federal Executive Council (FEC) had approved a whopping $1.5 billion to rehabilitate the epileptic Port Harcourt refinery, I consider it a national tragedy and a shame of a nation that Nigeria, despite its over fifty decades of oil and gas exploration and production activities, has been exporting its hugely produced crude oil and natural gas at commercial quantity and then import ‘refined petroleum products’ at higher costs to satisfy domestic demands. The said move, according to the government, is to ensure that the obsolete Port-Harcourt refinery, which last benefitted from a Turn-Around Maintenance (TAM) work in 2000, comes back to life, while also supposedly contributing to the development of Nigeria’s oil sector.

As expected, the mind-boggling contract awarded to an Italian company, Tecnimont SPA, for the rehabilitation, was greeted with mixed reactions. In some quarters, the debate was on how the Federal Government intends to raise the large sum of money to finance the project, especially at this critical period of the nation’s economy. For a country whose national debt has grown from ?12 trillion in 2015 to ?32.9 trillion today, the option of loans, which has been at the expense of our future generations, is out of the question. But according to the Minister of State for Petroleum, Timipre Sylva, he said the rehabilitation will be done in three phases of 18, 24 and 44 months. He said NNPC is going to spend about $200 million from its internally generated revenue sources, while the federal appropriation will put in about $800 million, and it is already broken down into three parts.

“The 2020 appropriation will give $350 million, 2021 appropriation will give another $350 million, and 2022 appropriation will give another $100 million, making it all $800 million from appropriation, and then the rest of it will now come from Afreximbank,” he added.

The question is, why should the country be made to go through all that stress and strain on the economy, just to rehabilitate the practically dead refinery? It is no news that the three refineries in Nigeria are outdated and obsolete. And we really do not need those facilities /plants that will occupy space without functioning properly. The only thing that will occupy space are just their tanks. These refineries are not automated as modern plants are built with sophisticated control rooms.

Let us take a brief look on the three refineries that we have. The first, Port Harcourt Refinery was built in 1965 under the then Prime Minister, Alhaji Abubakar Tafawa Balewa. It was commissioned, operated and managed by SHELL BP. The capacity was 35,000 barrel per day. However, ownership passed to the Central Government in 1970 under General Yakubu Gowon. The Refinery was upgraded in 1971 to 60,000 barrel per day. The second Port Harcourt Refinery, a deep conversion facility, with an installed capacity of 150,000 barrel per day was built and commissioned on November 25, 1989 under General Ibrahim Babangida, bringing the combined capacity of the refinery to 210,000 barrel per day. The refinery in 2000 under President Olusegun Obasanjo, operated at about 47 per cent of the total installed capacity. The turn Around Maintenance (TAM), was last carried out in 1994 under General Sani Abacha. The old refinery was shut down because internally generated power is not enough to run the two refineries and public power was unreliable.

Warri Refinery was commissioned in 1979 under General Olusegun Obasanjo with an initial capacity of 100,000 barrel per day. It was de-bottle-necked to a capacity of 125,000 barrel per day in 1988. It was further expanded in 1988 with the addition of a petrochemical plant with a capacity to produce 35,000 metric tonnes and 18,000 metric tonnes per annum of polypropylene and carbon black respectively. The last TAM was carried out in 1994. The Refinery operated from January to February 2000 at about 10.3 per cent of the installed capacity and was shut down because the main heater blew up. In 2000, four capital projects were identified for optimising the performance of the refinery at a total cost of $220.7 million dollars and N351.15 million.

The Kaduna Refinery was commissioned in 1980 by President Shehu Usman Aliyu Shagari, with an initial capacity of100,000 barrel per day. In 1985, under Major General Muhammadu Buhari (rtd), it was de-bottle-necked to 110,000 barrel per day. The refinery was integrated with a petrochemical plant in 1988 with a capacity for the production of 30,000 metric tonnes of linear alkyl benzene. It was shut down in August 2000 partly to allow rehabilitation of the heaters and because the TAM which started in 1998 was yet to be completed. The last TAM carried out before then was in 1992 which means that two consecutive TAM (1994 and 1996) were not carried out. Eighteen capital projects were identified for optimizing the performance of the refinery at a total cost of two billion naira.

It is really a pity that they are still wasting money to maintain them. These refineries were established and installed when technology was not as developed as it is today. Shell (SPDC) built new export terminals in forcados, and dismantled the old forcados export terminal. Then the crude oil and condensate will all be gathered in Eruemukohwarien in Ughelli North, known as UQCC (Ughelli QUALITY Control Centre), before delivering through the trunklines to the forcados export terminal for shipping, and then to the refineries. Just as Shell built a modern export terminal, which includes a QUALITY CONTROL plant, they no longer needed the UQCC. So, they converted the UQCC to Ughelli Pump station (UPS). The crude oil and condensate gathered at Eruemukohwarien Town in Ughelli North because all the Shell pipelines in the Western operations are linked to Eruemukohwarien. But with improvements in technology, Shell (SPDC) keeps updating and upgrading their facilities with just little money.

The truth is that these three refineries can’t produce high quality petrol, diesel and kerosene, since they are obsolete, and if they are functioning in the first instance. In the late 90s and down to the early 20s, I suggested to the federal government of Nigeria to upgrade these obsolete refineries/facilities or sell them outrightly to Shell (SPDC), and other IOCs (International Oil Companies) to refine at least 50% of their production in Nigeria. This will provide job opportunities too in the country. But it was as if I was talking to irresponsible military politicians and civilian politicians.

As sad as this may sound, successive federal governments of Nigeria and NNPC/DPR Management Staff don’t want the refineries to function. The politicians and the NNPC/DPR workers are damn too corrupt. Every management staff of the NNPC/DPR staff are allegedly too rotten. They collude with civilian politicians and the military politicians to destroy the entire economy because they make huge money from the award of fake contracts. Agreed, Buhari is not a university graduate, but what about the staff of NNPC/DPR? The problem is not Buhari, but the entire sector. Most of the staff, working as managers/directors in the NNPC/DPR don’t want to live on their salaries. They are well paid, but they just want to steal more money. The problem in the oil and gas sector is just beyond what many people are saying because the moment you promote any NNPC/DPR staff to become Manager/Director, his or her attitude and disposition will change. They are the ones who are even spoiling the politicians. They are just like the Permanent Secretaries in the Ministerial Departments, teaching the politicians how to steal. It is just a sad situation.

In reiterating some of the things I have been hammering on, an event host and moderator in the corporate oil & gas industry, Joyce Daniels, noted how baffled she was at some conversations in some of the events she had moderated. And she wondered, if these things are real. For example, she noted that: “In the last three years, Nigerian refineries all put-together have refined zero crude, nothing! But it has cost us N10billion every month to maintain these same refineries… The Nigerian refineries can be compared to as a beat-down, broken-down, not-serviced, engine-knocked Peugeot 404, leaking oil, rusty, corroded, I mean nothing working. And even if we were to find the parts, to change and upgrade, to make it mobile again; it is going to be extremely expensive, and most of the parts will be difficult to find. And should they work? The quality of refined product from these refineries will be less than desired. The standard will be way less than what is internationally accepted. So, am wondering, what are they doing?

“I might not be an engineer or an expert to talk about these things, but I am a Nigerian, and this concerns me and it concerns all of us. I would not want to just talk about the problem without proffering a solution or two. Solution number one: Can we please lease/sell these refineries to big players in the private sector that know what they are doing, and can bring them back to life, and possibly convert them into income generating facilities as they were built to be? Or number two, we can just shut them down completely. Count our loses and walk away, and possibly use the funds to encourage those who have license for private refineries. At least as a country we can together prosper more. But by all means we have to change something.”

Mind you, Nigeria has spent over $1.6 billion on the Turn-Around Maintenance of the country’s three refineries, without any sign of improvement since 2000. Nigeria is the fifth largest exporter of crude oil in the world, but spends over $16 million per day importing refined petroleum products. This situation has been attributed to the poor refining capacity of the country. The total utilisation capacity of the refineries was estimated at below 40 per cent of the total installed refining capacity, making them the worst performing refineries in Africa. Former Minister of State, Petroleum Resources, Ibe Kachikwu confirmed the poor conditions of the plants during an oil and gas stakeholders’ meeting in Abuja on Tuesday, July 18, 2017. “Our refineries have not been maintained at the same levels that other nearby countries have continued to do theirs. Look at Ghana and Ivory Coast, the same refineries, about the same ages and working at over 90 per cent capacity,” he said.

However, on July 27, 2017, the same Ibe Kachikwu promised to end fuel importation by 2019, or he would resign from his position. He never resigned and fuel importation did not stop until he was dropped by President Muhammadu Buhari in his second term. Also, on November 22, 2019, the House of Representative ordered an investigation into the financial allocations set aside for ‘Turn-Around Maintenance’ of the petroleum refineries in Port Harcourt, Warri and Kaduna, estimated to have cost $396.33 million in four years. The House also called on the Federal Government to consider “divesting a certain percentage of its shareholding in the Port Harcourt, Warri and Kaduna refineries to competent investors under a transparent and fair bidding process.” Also, the House mandated the Committee on Petroleum Resources (Downstream) to conduct an investigative hearing into the maintenance expenses made from 2015 to date while the committee was to submit its findings within eight weeks. Till today sadly, the report of the so-called investigation by the House of Representatives has not surfaced.

In other words, Abracadabra, which is commonly used as an incantation in the performance of magic and literally used as: the more you look, the less you know or see – is the best word to describe what is going on in the nation’s Refinery sector. And it is only when we are honest and serious as a people that we would see the desired change in this vital sector.

The fact still remains that, if the Federal Government of Nigeria should hand over the refineries to the International Oil Companies (IOCs) like Shell (SPDC), Chevron, Exon Mobile, to refine 50% of their production, you will see that this problem will be over. I once again suggest that the President Buhari-led Federal Government should handover the refineries, as well those divested oil and gas assets in the Niger Delta region back to Shell (SPDC) to run/operate them without the interference of the NNPC/DPR, or any of their subsidiaries. The Nigerianization of the oil and gas sector has brought Nigeria backward. The Federal Government should allow the competent private sector operators with the right staff, to take over the country’s upstream and downstream sectors because the Nigerian politicians and corrupt Nigerians in the sector have been benefitting from the corrupt-ridden system, hence they have not allowed this sort of change to take place.

The only hope and solution is for the Federal Government to completely withdraw the interference of the NNPC/DPR and their subsidiaries from running/operating the country’s upstream and downstream oil and gas sectors. The NNLG is doing better because it enjoys the same level of stake by Shell (SPDC). So, in my opinion, they should hand over all oil and gas operations to the multinationals and identified capable indigenous Nigerian oil companies with the needed capacity and capability to run. It will solve all the Abracadabra going on in the nation’s oil refining sector.

Zik Gbemre.
April 3, 2021

We Mobilize Others To Fight For Individual Causes As If Those Were Our Causes

https://ndpc-zik.org/publications/on-who-to-revamp-nigeria-upstream-and-downstream-oil-and-gas-sector

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