Squander!! As another $1.5 billion to “rehabilitate” the Port Harcourt Refinery is simply preposterous – Viral9ja

DESPITE spirited official attempts to justify it, the recent decision to squander another $1.5 billion to “rehabilitate” the Port Harcourt Refinery is simply preposterous. Against a groundswell of local and international preference for privatisation, the Federal Government said it had awarded a contract to an Italian firm, Tecnimont SPA, to repair the refinery complex and bring it back to production. Viewed against the cumulative huge financial losses, the age of the plants, developments in the downstream oil sector and the demonstrated failure of the Nigerian National Petroleum Corporation to run them efficiently, this expenditure is unwise and counter-productive.

Since the shock announcement, explanations by the Minister of State for Petroleum Resources, Timipre Silva, and the Group Managing Director of the NNPC, Mele Kyari, have failed to assuage widespread outrage. According to Sylva, the contract, worth roughly N570 billion at official exchange rate, would be funded from the NNPC’s internally generated revenue, budgetary allocations and a loan from Afreximbank. The three-phased project would last 44 months — 18 months to achieve 90 per cent capacity utilisation, 24 months in the second phase and completion in 44 months. According to Kyari, this is not Turnaround Maintenance or repair but “rehabilitation.”

To criticism that $1.5 billion would be better utilised building a new refinery, Kyari said it would require between $7 billion and $12 billion or more to build one with the combined nameplate capacity of Port Harcourt’s 210,000 barrels of crude per day. Lacking such resources at this time, the President, Major General Muhammadu Buhari (retd.), opted for a programme of refurbishing the refineries, as plans are underway to also rehabilitate the Warri and Kaduna refineries.

Stripped of the obfuscation, the contract is economically unwise, its success in the light of past experience, is doubtful and the government’s actions disingenuous. First, it retains the refineries in government hands, a scenario that has fostered inefficiency and frequent shortages for over three decades and shut out private players, investment and job creation. Consequently, the country is almost wholly dependent on imports for refined petroleum products. Petrol imports alone cost N2.11 trillion in 2020, N1.71 trillion in 2019 and N2.95 trillion in 2018, the National Bureau of Statistics disclosed.

Moreover, with its record of prohibitive losses, waste and failed repairs, it makes much more sense to sell the state-owned refineries as they are to reputable investors. Such investors will raise their own funds, especially the sorely-needed Foreign Direct Investment, and relieve the cash-strapped Nigerian government of spending scarce resources and borrowing to fund loss-making ventures.

One report calculated that the four refineries (PH is actually two) with combined 445,000bpd installed capacity have gulped over $25 billion in over three decades. What the country got in return is beyond scandalous: the NNPC figures show that in the five years to 2018, the PH and Kaduna refineries recorded cumulative losses of N1.64 trillion; Port Harcourt generated N10.33 billion 2015 to 2019 against losses of N229.14 billion within the same period. Average capacity utilisation over the past two decades have not risen beyond 20 per cent combined, for over a year, it has been zero, yet in June 2020 for instance, the NNPC said it spent N10.27 billion running the refineries. In the 12 months to June 2020, they incurred N142.1 billion in expenses but processed no crude. Besides, as the first refinery was inaugurated in 1965 and second in 1989 and ill-maintained since then, experts say the PH refineries’ technology is likely obsolete, requiring massive investor funding to upgrade with modern machinery techniques.

A further statement by the NNPC that Afreximbank insists on professional managers to run the refineries thereafter is doublespeak, an excuse to retain control. Decidedly, the NNPC has reneged on its earlier promise to sell stakes in the refineries.

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