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Worry Over Non-performing Refineries



The Nigerian National Petroleum Corporation (NNPC) in its latest Monthly Financial and Operations Report revealed that the nation’s three refineries incurred an operational deficit of N10.79 billion in August. This makes them one of the largest loss-making subsidiaries of the corporation, FESTUS OKOROMADU writes.

The downstream sector of the Nigerian petroleum continues to draw attention due to its primary of energising the economy. Most analysts of the industry agreed that the emancipation of the economic wellbeing of the country would depend largely on how soon the sector’s performance can be perfected.

This is why it becomes worrisome when the foremost driver of the sector, the Nigerian National Petroleum Corporation (NNPC) continues to exhibit poor performance in such a vital aspect of its operations.

It is no longer news that but the management of the NNPC and the ministry of petroleum resources has at various times, assured Nigerians of the frantic efforts being made to rehabilitate the nation’s refineries. However, the reports emanating from them continue to cast aspersions on the authenticity of such proclamations.


Unproductive Refineries

According to the NNPC Monthly Financial and Operations Report August 2018, the nation’s three refineries incurred an operation loss of N10.79 billion in August. Indicating the refineries remains a huge challenge despite proffered solutions.

The performance analysis reports presented in the monthly report showed that the refineries’ production capacity dwindled during the period to 21.51 million litres of petroleum products as against the 38.64 million litres produced in July 2018.

Interestingly, the report explained that only the Warri and Port Harcourt refineries were operational during the period, stating that they produced 53,881 metric tons (MT) of finished petroleum products and 8,017MT of intermediate products out of the 56,804MT of crude processed at a combined capacity utilisation of 3.02 per cent compared to 4.83 per cent combined capacity utilisation achieved in the month of July 2018.

In its usual characteristics, NNPC attributed the lower operational performance recorded  to the ongoing revamping of the refineries, adding that when completed it was expected to further enhance capacity utilisation.


Kaduna Refinery Remains Idle

Meanwhile, performance analysis of the three refineries located at Port Harcourt, Warri and Kaduna showed that the later has been idle since February this year leading to its reporting a cumulative loss of N18.67 billion at the end of August 2018.

According to the NNPC report, the Kaduna refinery posted a lost of N 3.81 billion  in February, N2.63 billion in March, N4.22 billion in May, N2.98 billion in June, N2.35 billion in July, and N2.68 billion in August. However, the company was said to have made a profit of N2.96 billion in April, even when production did not take place.

Trading Crude Instead Of Refining

One of the biggest irony of the NNPC refineries and why they they may possibly not work until further notice is the fact that they have been converted to crude trading agents instead of the original purpose of refining.

The NNPC said, “The Corporation has been adopting a Merchant Plant Refineries Business Model since January 2017. The model takes cognisance of the products worth and crude costs.”

Expatiating further, the report said, “The combined value of output by the three refineries (at import parity price) for the month of August 2018 amounted to ₦8.67billion while the associated Crude plus freight costs and operational expenses were ₦9.78billion and ₦9.68billion respectively. This resulted to an operating deficit of ₦10.79billion by the refineries.”

Keeping Hope Alive

Meanwhile, both the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu and the group managing director of NNPC, Dr. Maikanti Baru, have continued to assure Nigerians of their determination to resuscitate the ailing refineries as well as initial new ones.

Baru while speaking at the 7th International Seminar of the Organisation of the Petroleum Exporting Countries (OPEC) in Vienna, Austria in June this year, said, “NNPC’s goal to become a net exporter of refined products by year 2019 was on course as there are ongoing discussions to revamp all the four existing local refineries through utilizing private capital in form of a contractor financing model.”

This was a confirmation to an earlier statement issued on January 23, 2018, by the corporation’s spokesman, Ndu Ughamadu.The statement  quoted the GMD as saying that it was inching closer to arriving at the choice of financiers for the refineries. Baru explained that the agreements on the potential financiers for the refineries were being fine-tuned.

However, in another statement issued on August 14, 2018, Ndu said as part of NNPC’s refinery collocation initiative designed to boost local refining capacity to end the era of petroleum products importation, the Corporation (NNPC) was  planning to establish a 100,000-barrels-per-day brownfield refinery each in Port-Harcourt and Warri.

Baru, who was said to have described the move as efforts being made to achieve self-sufficiency in local refining besides the rehabilitation of the refineries, explained that a group of investors had commenced the process of relocating a refinery that used to be owned by BP from Turkey to Nigeria to be installed near the Port Harcourt Refinery under the NNPC refinery collocation initiative.

“Our collocation initiative aimed at getting private sector investors to bring in brownfield refineries so that they can share facilities is also yielding results.

“For example, there is one that is going to be brought in from Turkey to be located near the Port-Harcourt Refinery. It’s not a modular refinery; it’s a normal refinery with about 100,00bpd capacity. It was owned by BP, but it has been sold off now to the companies that want to bring it over from Turkey to install it here,” he stated.

Baru was said to have further explained that a similar plan to establish a brownfield refinery near the Warri Refinery was also in the offing.

“There is another one of about the same size being looked at to be sited near the Warri Refinery. But the one for Port-Harcourt is at a more advanced stage. Our drive at the NNPC, as a leader in the industry, is to expand our local refining capacity and make Nigeria a global refining hub,” he said.

Similarly, Dr. Kachikwu, was quoted by S&P Global Platts earlier this month as saying in an interview on the sidelines of the Africa Oil Week conference in Cape Town that he was hopeful the government would pin down details on the overhaul of the country’s refineries by the end of this year

While Nigerians continue to hope that these assurances coming from these key managers of the sector are not mere political statements, the current reality shows that the country’s economy is seriously hampered by the absence of local refineries.