Why Nigerian refineries can't be sold

Feb 28, 2004 01:00 AM

The race to acquire Nigeria's four refineries by private investors is heating up with the privatisation implementation agency, the Bureau of Public Enterprises (BPE) putting the stakes before prospective buyers.
The agency had in October last year advertised for expression of interests for the acquisition of 51 % equity stake in each of the refineries in Port Harcourt (two-old and new) as well as Kaduna and Warri. But while hundreds of firms jostle to grab at the respective refinery(ies) they have declared interest in, indications are that the bids may be marred by intrigues, politics and sentiments, even if the privatisation exercise would be concluded at all.

Nigeria, believed to be the eighth-largest oil producer in the world, with huge untapped offshore oil deposits, hopes to increase its export capacity by 50 % or more within the next few years. According to an American intelligence council forecast, Africa's share of the United States oil imports will rise from 15 to 25 %. And alongside African countries like Angola, Gabon, Equatorial Guinea, Sao Tome, Sudan, and more recently Chad, Nigeria has become a crucial player in the world's hydrocarbon stakes.
However, despite its abundant energy reserves, oil has become something of a curse to the nation's populace, as the country today depends largely on importation of refined petroleum products.

The nation's four refineries, with a name-plate capacity of refining 445,000 bpd of crude, were established about 27 years ago. But the barrage of corruption, poor management, sabotage and lack of the mandatory turn around maintenance (TAM) every two years, has made all the four refineries inefficient, thereby operating at about 40 % of full capacity, at the best of times.
And placed against this inefficiency of the four refineries in the country is the daily petrol (Premium Motor Spirit) PMS consumption of 30 mm litres, besides about 18 and 22 mm litres requirement for desire (Automotive Gas Oil- AGO) and kerosene (Dual Purpose Kerosene -- DPK) respectively, every day. A consequence of the failure of the refineries therefore, is the ceaselessly strangulating fuel price hikes, with the attendant effect on prices of goods, services as well as the country's economy in general.

For instance, in the four and half years of the Obasanjo administration, Nigerians had to contend with several hikes in petroleum products. From N 17 the administration met a litre of petrol selling, it has jerked it up to a whooping N 42 in a few places like Abuja and Lagos, and twice as much in many others. And even after this, the government topped it all with a N 1.50 kobo tax misnamed "fuel levy."
Apart from the billions frittered away in obviously haphazard TAM of the four refineries years back, the Obasanjo administration had between November 1999 to March last year -- expended $ 700 mm (about N 83 bn) on turn around maintenance of the same refineries. This figure was confirmed by chairman of the Petroleum Products Pricing and Regulatory Agency (PPPRA).

Yet in spite of this colossal expenditure, the refineries could arguably be said to be worse off today. The Port-Harcourt Refinery Company (PHRC) which is regarded as the biggest refining company in Nigeria has two complexes -- the old and new refineries. The old Port Harcourt refinery which is the premier refinery in the country was commissioned in 1965 with a capacity to refine 60,000 bpd, and has the crude distillation, platform and LPG units, as well as a utilities section.
The new Port-Harcourt oil refinery, which is situated close to the old one was commissioned in 1989 with a production capacity of 150,000 bpd. The two, therefore, process 210,000 bpd of crude oil which represents 47 % of the total oil being refined locally.

The lull in the two complexes has adversely affected them, resulting in the production of only about 125,000 bpd as against the 210,000. This, sources said, has also taken its toll on the workforce, even before the recent re-organisation in the Nigerian National petroleum Corporation (NNPC).
Same thing with the Warri and Kaduna refineries whose conditions are worse than those of Port-Harcourt, particularly that of the former which is said to be no more than a shadow of its former self. The two refineries in Kaduna and Warri process 25 and 28 % respectively of Nigeria's total crude oil refined locally.

Investigations in the Kaduna Refinery and Petrochemical Company (KRPC), revealed that though it has never operated at full capacity from inception, it was refining about 300 mm litres of different products per day, and that between 150 to 250 trucks move out of its depot to various destinations. Thus, the KRPC was serving not just its immediate environment, but several states, particularly those within the North.
But as it is with all the other refineries, findings at the KRPC showed that the major impediment to the successful operations of the Kaduna refinery are corruption, poor management, lack of TAM and their concomitant effects.

A retired top management staff of the KRPC, Mr Abel H. Zama Madakiya told that: "The problem with the Kaduna refinery is not different from others and can be checkmated by the government." He listed the problems as "corruption within and outside the system, political and ethnic sentiments while considering appointments, and lack of dedication and commitment on the part of those entrusted with the maintenance and survival of the refinery."
Apparently worried by the embarrassing failures of the refineries as well as the huge amounts spent on TAMs, the Obasanjo administration resolved in April 2000 that all four be privatised. Other subsidiaries of the NNPC also listed in the privatisation schedule include the Eleme Petrochemicals Company Limited (EPCL), the Nigerian Petroleum Development Company (NPDC), the partially-owned oil marketing company, Hyson Nigeria, the Nigeria Gas Company (NGC) and the West African Refinery Company.

Naturally however, as the nation's cash cow, whose main resource base is the refineries, top bureaucrats in the NNPC, were apprehensive about the bid by government to divest in the companies. The controversies generated by the corporation's opposition to the privatisation bid set the former NNPC group managing director, Mr Jackson Gaius-Obaseki on a collision course with the former director-general of the BPE, Malam Nasir Ahmad el-Rufai, now minister of the Federal Capital Territory (FCT).
This even degenerated to personal acrimonies between them that it only took the intervention of President Obasanjo who insisted that privatisation was a key element of his government's economic reform programme, for the process of the 51 % equity divestment in the refineries to commence.

Although both elements (Obaseki and el-Rufai) are now out of the way, the renewed effort to privatise the refineries is still beset with numerous problems. First, while the BPE had advertised the refineries and its new helmsman, Dr Julius Jibril Bala had affirmed that the process for the sale of at least one of the refineries will start by December last year, virtually nothing has so far been achieved in that direction.
Dr Bala stated, during his maiden media briefing in August last year, that the BPE will commence the bid process for at least the Port Harcourt refineries in December 2003, while sale of others would be undertaken early this year. The BPE boss, apparently alluding to the series of controversies that trailed his predecessor's (el Rufai's) tenure, vouched at the same media briefing that he will avoid confrontations with government establishments and other stakeholders. Shortly afterwards, however, it became obvious that the BPE and the NNPC are locked in a dispute over the procedure for the privatisation of the refineries.

When it became evident that the BPE could not go into full scale the privatisation of any of the refineries before the end of last year, Dr Bala told that his agency had shifted grounds to March for the sale of the Port-Harcourt refineries, while Kaduna and Warri would follow later.
One thing the BPE boss pointedly stressed at the forum was that the four refineries "would be sold as they are", without any turn around maintenance. Contrary to Bala's position however, the group managing director of the NNPC, Mr Funsho Kupolokun told a bewildered nation late last month that they were carrying out TAM at the refineries, and that all of them would be efficiently run as from May this year when the maintenance work is expected to be completed.

But Kupolokun's avowal is not better than what had been said severally by past managers, and yet, the refineries appear to be getting worse by the day. This, no doubt, points to the new round of debacle between the privatisation implementation agency and the oil corporation. And this dispute, has the propensity to stall the sale of the refineries, probably till the end of Dr Bala's tenure in the BPE, given the experiences of his predecessor.
Besides, another twist to the controversies in the refineries, privatisation is the desperate moves to checkmate topmost contenders in the bid to buy the refining companies. While Libya has expressed interest in taking up the Kaduna Refinery and Petrochemical Company and is widely believed to be the most favoured bidder, it was reportedly advised by the presidency to bid for the Port Harcourt Refinery Company (PHRC). Meanwhile, the Rivers State government, along with its technical team of core investors had already expressed interest in acquiring the PHRC.

From sources close to the embassy we gathered that the presidency's advise that Libya should bid for Port-Harcourt instead of Kaduna did not go down with the Tripoli authorities. And sources said the decision to divert Libya's attention may not be unconnected with subterranean moves to checkmate efforts to make northern Nigeria an economically viable region in the country, independent of the chequered oil supply from the Niger-Delta.
Pundits say, apart from agriculture and solid minerals, it (oil) could be an important resource base of the North if efforts in the search for oil in the Benue Trough and Lake Chad Basin are sustained. That politics apart, this is an important and worth while venture which could usher in a period of admirable stability and considerable prosperity to the entire nation, if the search for oil in the North is successful.

Libya's long term plan for the Kaduna refinery was to link it with pipelines through the Trans-Saharan superhighway which links Ndjamena in Chad Republic to parts of Sudan. This superhighway, if further extended through Maiduguri, in Borno State, North-east of Nigeria, will give the northern region an alternative access to the sea within 48 hours.
And so, with these pipelines routed, through the superhighway, Libya hopes to send crude oil directly to Kaduna refinery. And this could open a stable source of oil, which may be free from vandalisation, for northern Nigeria. Following this frustration and seeming lack of transparency in the privatisation of the refineries, however, sources close to its embassy in Nigeria noted that Libya has opted out of the bid.

Meanwhile, another source of controversy over the planned privatisation is the opposition by federal lawmakers to the bid to sell 51 % equity stake in the refineries, which they say runs contrary to the provision in the substantive privatisation law. According to the lawmakers, the law provides that only 40 % of such enterprises be sold.
The difference between members of the National Assembly and the BPE portends great danger to the entire privatisation programme, because it could send away potential investors. Added to this is the bid to review the privatisation law which has already caused serious disaffection, not just between lawmakers and top bureaucrats in the presidency, but also amongst the lawmakers themselves.

The group executive director (GED) in charge of refineries, Engineer Abubakar Lawal Yar'Adua who responded to the questions, said that contrary to reports that $ 700 mm were spent on the TAM of the refineries between 1999 to 2003, only $ 550 mm was spent on both TAM and rehabilitation projects within the four years. But as stated earlier, the chairman of the PPPRA, Chief Rasheed Gbadamosi was the one who reportedly said $ 700 mm was spent within the four years.
Similarly, Engineer Yar'Adua said that contrary to insinuations, "there is close cooperation between the BPE and NNPC to achieve the federal government's objective of privatisation of the refineries."

The NNPC GED said further that the Corporation insists on TAM of the refineries "to keep the plants running safely/efficiently and at high throughputs in order to get good value from an investor during privatisation (partnering)".
And with the ongoing controversies trailing the privatisation of the refining companies it is doubtful if Dr Bala's dream of selling off the nation's four refineries before the end of his four-year term in the BPE may not really be a mirage.

Source: Weekly Trust
Alexander's Commentary

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