Nigeria’s Sick Refineries…

Before the botched sale of the refineries to Bluestar Consortium, Sani Abacha, late head of state, approved the establishment of ‘two-export oriented’ private refineries in June 19, 1996. Both of them, Brass Oil Refinery, located in Rivers State and Qua Petroleum Refinery, in Ibino Akwa-Ibom State, were granted licenses with the expectation that they would complement the existing 445,000 bpd of the four other refineries. The private refineries were expected to refine an additional 100,000 bpd. This raised a lot of hope that at last, the pressure on government refineries would reduce, and reduce the huge amounts of foreign exchange government and private individuals to import refined petroleum products. Dan Etete, then minister of petroleum resources said that the government had put in place incentives in the oil and gas sector to encourage the investors to commence operation.

However, that expectation, with its high hopes, remained dim. The private refineries did not take off as expected, and neither did the 18 others that later got provisional licenses from the Department of Petroleum Resources, DPR. Ayorinde Adedoyin, managing director of Peacegate Group of Companies cites the huge capital requirement needed for a macro-economic initiative as a refinery. ‘To get into a refinery, you need about $650 million to build one. That amount is about N85billion. How many banks in Nigeria can finance it? Some of my foreign partners assured me that they could bring the money, but the only institution that could guarantee it and they would feel comfortable with would have to be the Federal government’, he said recently. That apart, some of the would-be proprietors said that they did not receive any incentive from government. For instance, officials of the Qua Petroleum Refinery that did not take-off said that after one year they got their license, they could not resume work because government was not really interested in granting the incentives and tax holidays it promised. In addition, that ‘incentive’ turned out to be that the potential private refineries wanted a constant and regular supply of crude oil to ‘service’ their refineries. TELL found out that government was no longer keen to release the 200,000 bpd, initially allocated to these private refineries because they abused the ‘privilege’. Most of the licensees actually got a percentage of crude but instead of using the proceeds to ‘service’ their proposed refineries, they lifted oil, pocketed the proceeds and abandoned the idea of establishing the refineries. Not everyone knows what the Directorate for Petroleum Resources, DPR, means by ‘new guidelines for setting up of private refineries’, in its recent approval of Amakpe Refinery, Resource Petroleum Refinery and Rehoboth Refinery, all billed to commence refining in 2009. Nevertheless, some analysts who spoke with the magazine said that government must let these private refineries lift a certain quota of crude at very subsidized rates. ‘It would amount to the failure of government if it cannot regulate the activities of those who want to abuse the guidelines set and agreed to by all’, the source said.

Bayo Olowoshile, secretary general, Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, who revealed to TELL that all four refineries are ‘working’, said they operated at extremely low levels of capacity utilization. Adamson Momoh, his counterpart at the Trade Union Congress, TUC, agrees with him in that respect that the nation needs as much as four to seven private refineries of a minimum of 150, 000 bpd to complement the existing ones. Momoh said that the refineries are not working ‘optimally’ because of problems in the Niger Delta and for lack of TAM. ‘In fact, I make bold to say that billionaires were created overnight by the past administration of Olusegun Obasanjo. They daily benefit from lifting crude and importing Premium Motor Spirit, PMS. They will do anything to ensure that the refineries never work’, he said. That may the case but importation of refined petroleum products and the making of millionaires from that exercise did not begin with the civilian government of Olusegun Obasanjo from 1999 to 2007. Apparently because of Nigeria’s inability to meet daily consumption of about 30,000 litres per day, successive governments spent huge amounts importing refined products, with the NNPC, having sole monopoly of the importation of kerosene. There was also the notorious case in 1997, where contaminated and polluted was imported into the country. According to Momoh, the massive importation of fuel into the country by private individuals spells doom for the economy. ‘The law establishing the NNPC should be reviewed to make it more functional. Otherwise, the body should be scrapped altogether’, he said.

By 1987, the value of Nigeria’s imports of refined petroleum products was just a little over $5million. However in 2007, the figure had quadrupled to $40 million annually. Recently, 44 ships bearing a wide-range of petroleum products including kerosene, PMS, AGO at the Nigerian Ports Authority, NPA, waited to berth. Thirty-five other vessels were also being expected at the Ports. There was a lot of going out and coming in of vessels, contrary to the dormant state of the refineries in the country. Officials were mum about the countries that export crude oil to Nigeria, or the frequency of their export to Lagos, Nigeria. The Organization of Petroleum Exporting Countries, OPEC, Annual Statistical Bulletin, ASB, however revealed that the United States, US, the United Kingdom, UK and the Netherlands and Russia, mostly accounted for about 70 percent of refined crude worldwide, entering the country. TELL investigations also reveal that most of the vessels are from Asia and some are new on jetty, NOJ. What this implies is that these countries import crude from Nigeria and elsewhere, and export the refined product back to Nigeria at what Olowoshile describes as ‘the international or global market rates’. ‘If the price of crude in the international market is $100 per litre, the price of AGO gets just a bit higher’. However, while refined oil importation business is brisk at the Apapa Port, it is alleged to be brisker in the Niger Delta, where vandals are alleged to be having a field day with their own ‘refineries’. Wuyep Rimtip, a brigadier general and commander, Joint Task Force, JTF, reportedly claimed that 65 percent of the Niger Delta coastal communities host illegal refineries. ‘We have destroyed 291 local refineries and what we have are more, as more people are getting into it and we are not relenting in our efforts to put an end to the menace’, Rimtip said recently. Rabe Abubakar, coordinator of the Joint Media Campaign Centre, JMCC, said that JTF arrested 14 barges, 89 wooden boats, 4 tug boats and surface fuel tankers filled with ‘condensate and crude oil adding up to 270,000 metric tonnes with a monetized value of N6billion’. There are allegations that many Nigerians, including former governors and a former head of state have refineries operating at full operating capacity utilization outside the country. The story is that most of them chose to build these refineries outside their country because of fear of another kind of vandal – the Economic and Financial Crimes, EFCC, the anti-corruption agency. Nigerians are also worried at the claims and counter-claims by inside sources at the WRPC and Odein Ajumogobia, minister of petroleum resources. While Ajumogobia claims that he needs $700 million to fix the vandalized Chanomi creek pipelines that were allegedly vandalized by the Niger Delta militants, inside sources at the WRPC who spoke with the magazine insist that the plant still gets its regular supply of crude from Chanomi, and is ‘working’, to full capacity.

Some Nigerians who spoke with the magazine said that individuals and government officials must stop heaping the blame of the problems of the nation’s refineries on vandals in the Niger Delta. Olowoshile cites problems with the work force. He said that when Yar’Adua assumed duty as the new NNPC boss, he had to recall quite a number of NNPC staff who were either sacked or retired but still relevant to key functions within the NNPC, to work as contract staff. ‘Government has also not followed the operational procedures and manuals subsisting in the processes involving TAM. In many instances, when they make a show of following the TAM operational manual, they give these key functions to their political cronies who do not know much about the refineries’, he said. Johnson Mudiaga (not real name) who retired some years ago after working with the WRPC for more than 30 years told the magazine that before he retired, WRPC won several NNPC awards among the nation’s refineries for its high level of efficiency.

Moshood Fashola, senior lecturer in Economics and presently acting head of department, HOD, University of Lagos, Akoka, said that Nigeria’s inability to get her refineries working is a signal of ‘anti-development’. ‘Development consists of industrialization. What that means is that there are processes involved in converting raw materials to finished products. If we are to develop as a nation, nothing should stop us being able to get our refineries up and running. It is only under-developed countries that export their raw materials instead of processing them for export’, he said. Fashola also added that fuel importation spoils the chances of local entrepreneurs who may be interested in building refineries to meet local needs. ‘It is also a drain on our reserves and an environmental hazard’.

Today in the civilized world, people see refineries as dirty pieces of expensive pipes and an environmental nuisance. They cost as much as a billion dollars to build, and overhead and maintenance costs are very high. The United States, US, has over a hundred of them, and the government has not hesitated to shut any down following incidences of water and land pollution. Across West Africa, even though petroleum-refining capacity is concentrated in Nigeria, with most refineries from ECOWAS countries getting their crude from Nigeria, an online magazine, Oil and Gas articles.com said that sabotage, fire, poor management and a lack of regular maintenance contribute to the current operating capacity of only 214,000bpd. The online magazine also reported that Ghana’s Tema Oil Refinery, TOR, which operates at only 45,000 bpd, meets about 80-85 percent of Ghana’s demand for petroleum products. OPEC figures in 2007 indicate that as Nigeria is the sixth in the world in crude oil exports, she is also sixth world consumer of refined petroleum products. The world oil prospecting and regulatory body also said that output of refined products in Nigeria has enjoyed a steady decline citing instances of a 1987 135,000bpd that rose to 220,000 bpd in 1993 but which fell to 88,000 at the turn of the millennium.

The pipes that make up the four refineries in Kaduna, Warri and Port Harcourt are like arteries that connect to the heart of the economy. Nevertheless, unlike normal arteries to conduct blood to the heart, the refineries are a drain on the economy.