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 To start with, the said refinery is about 32 years old with outdated technology.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.

(thenigerialawyer)