You might expect news that Nigeria had signed a billion-dollar deal to revamp a major refinery to be widely hailed, more so when you consider Africa’s largest oil producer imports almost all of its fuel.
The country’s chronically underperforming refineries have been shut down for more than a year now as authorities figure out how to fix them.
In March 2021, junior petroleum minister Timipre Sylva announced that the government would spend US$1.5 billion to rehabilitate the 210,000-barrel-a-day Port Harcourt refinery, located in Rivers state in southern Nigeria.
But opposition lawmakers criticised the deal as inflated, even as campaign groups in the main Niger Delta producing region welcomed it. Some prominent Nigerians said the money would have been better spent on other needs such as improving healthcare.
Why all the fuss about repairing run-down refineries that would on the surface help ease the domestic supply headache? This fact-sheet gives context and answers questions about the refineries.
First, how many refineries does Nigeria have?
Nigeria has five refineries. The federal government owns four through its controlling stake in the Nigerian National Petroleum Corporation. The NNPC is responsible for regulating and developing the oil and gas sector.
Of the government-owned refineries, three are in the Niger Delta region – two in Port Harcourt and one in Warri – and one is in Kaduna.
The Port Harcourt refineries have a combined refining capacity of 210,000 barrels a day, comprising a 60,000-barrels-a-day plant commissioned in 1965, and a 150,000-barrels-a-day plant commissioned in 1989.
The Warri refinery was commissioned in 1978 with a refining capacity of 100,000 barrels a day. This was later upgraded to 125,000 barrels.
The Kaduna refinery, in the north west, was commissioned in 1983 with a daily refining capacity of 110,000 barrels. In 1988 it was fitted with a 30,000 tonnes-per-year capacity petrochemical plant that makes chemicals used in detergents.
The permits include modular refineries – smaller plants that require less capital than full-scale refineries. In November 2020, president Muhammadu Buhari commissioned a 5,000-barrels-a-day plant, which he said was the largest modular refinery in the country.
Billionaire businessman Aliko Dangote is also building a private refinery in Lagos, the country’s economic capital. It is expected to be operational in early 2022 and to refine 650,000 barrels of crude oil daily.
What is the refineries’ total capacity?
Together, the four refineries can process 445,000 barrels of crude oil daily. However, they operated for years at less than half of their capacity before the NNPC shut them down, saying this was no longer sustainable.
The state oil firm is now investigating how to restart them at capacity, a process that could stretch to 2022 if not beyond. The deal to modernise the Port Harcourt refinery was the first step.
In 2012, an official task force ranked Nigeria’s refineries “bottom of the ladder” in Africa, saying that from 2006 to 2009 they had operated at an average capacity of 18%. During the early 1990s, the team noted, the country produced enough petroleum products to meet national demand and exported what was left over.
From 2009 to 2012 their capacity rarely exceeded 28%, according to the Nigeria Natural Resource Charter, which implements the natural resource charter in Nigeria. The charter is a global initiative that aims to help countries benefit from their natural resources.
Recent capacity has also fluctuated. In January 2017 it was at 36.7%, before falling to a low of 5.8% later in the year. In April 2019 it fell to zero, where it has stayed since July of the same year.
How much petroleum does Nigeria consume?
Households and businesses in Nigeria rely on petroleum products for various uses, from running generators for lighting and powering machines due to poor and unreliable grid power, to fuelling vehicles.
According to a research paper by former NNPC executive Anthony Ogbuigwe, the total demand for petroleum products in Nigeria was 750,000 barrels per day as of 2017, against the refineries’ 445,000 barrels capacity.
The most recent consumption statistics by Nigeria’s statistics bureau cover the first three months of 2020. They show that 5.36 billion litres (an average of 58.9 million litres per day) of petrol was consumed over that period.
The cost of running refineries
The country now imports almost all the fuel it consumes, after exporting large volumes of crude oil to external refineries. Several attempts at reversing this trend have been made, with little to show for them.
What has been the cost to the taxpayer? A report by a national newspaper claimed that N276 billion was spent on repairs from 2015 to 2018.
A year earlier, former NNPC chief operating officer Anibo Kraga was quoted as saying that $396.3 million was spent from 1998 to 2008 on turnaround maintenance at the four refineries. A report from the Nigeria Natural Resource Charter gave a similar figure, but for 2013 to 2017.
In March 2021, federal lawmakers announced a probe into the $25 billion (about N9.5 trillion at current rates) the NNPC claimed it had spent on maintenance over 25 years but which they said had not reduced imports of refined petroleum products.
According to the 2012 report by the national refineries task force, a refinery should run for at least two years before having to carry out full maintenance, which usually lasted 30 to 40 days.
The NNPC said the $1.5 billion would go to rehabilitating the Port Harcourt refinery and not turnaround maintenance. Part of the deal it had with the firm doing the repairs included an exchange of crude oil for cash.
Routine maintenance is different from rehabilitation, Ezekiel Osarolube, the managing director of the Kaduna Refining and Petrochemical Company, said in an October 2020 conference.
The Kaduna refinery company is a subsidiary of the state oil firm NNPC. Maintenance involves “opening and cleaning” the system while rehabilitation involves overhauling obsolete equipment, Osalorube said.
The NNPC said it would contract a private company to manage the Port Harcourt refinery after rehabilitation.
What difference would revamping refineries it make?
Experts said even if the overhaul was done, it still wouldn’t end petrol imports. With the government remaining as the owner, the Port Harcourt refinery was still unlikely to be efficient enough to meet the country’s needs, they said.
“The inefficiency we have in the current system is going to be transferred to the new managers rather than the radical shift that would occur if it is privatised,” said Adeola Adenikinju. He is professor of energy economics and director of the centre for petroleum, energy economics and law at the University of Ibadan in southwestern Nigeria.
Ekpen Omonbude, a petroleum, energy, and mineral resources economist, said the rehabilitation might not be a good use of public funds given Nigeria’s healthcare, education and power needs. "History does not fill me with confidence,” he told Africa Check, echoing a view that the country is not getting value for the money it has spent on repairs so far.
While he understood the argument for bringing the equipment up to standard before trying to sell it, Omonbude said he did not agree with the approach.
While there was a debate about their viability, the refineries as assets still had commercial value. “It would, in my view, have been more prudent to invite private bids for concessioning them out or selling them outright,” Omonbude said.
A concession would give a company the right to operate the refinery under specific terms.
In March 2021, NNPC head Kyari said in an interview that the government was considering becoming a minority shareholder in the refineries.
As the debate continues, long-suffering Nigerians can only hope for a solution to the dysfunction of the refineries which continues to gulp public funds.
Why Nigeria’s refineries have struggled
Ekpen Omonbude, a petroleum and energy economist, offered his insights as to why the country’s refineries had struggled.
“The incentive structure for their commercial viability was never right,” he told Africa Check. “Petroleum refining is a margins game. Operational efficiency is absolutely critical. You must, as a refiner, be able to pass your costs competitively to the market.”
Omonbude is also a former economic adviser on natural resources at the Commonwealth secretariat’s Oceans and Natural Resources Advisory division.
“This means you have to efficiently manage the cost of your crude oil feedstock, produce as much of the more valuable products as possible, such as petrol, gas, and other petrochemicals, and keep your operating costs down. All the refineries failed to do this because the incentive structure was broken.”
"The critical factors I outline can only create pressure to remain operational and efficient if there is a direct signal from the market telling you what to do,” Omonbude said.
“This direct feedback loop was blocked by subsidies, as one example of the incentives’ failure. Knowing that whatever you produced would be compensated for by the government meant there was little incentive to ensure there was little or zero downtime if a refining unit failed.”
Photo: PIUS UTOMI EKPEI / AFP