Nigerian
Refineries Need a Commonsense Solution
By
Zayyad I.
Muhammad
zaymohd@yahoo.com
Recently, the Nigerian
National
Petroleum
Corporation
(NNPC) announced that it had commenced discussions with the original
builders to carry out a major overhaul of the refineries. NNPC said,
Chiyoda would be contracted to handle the rehabilitation of the
110,000 barrel per day Kaduna refinery, Italian firm Saipem would
handled the repairs of the 125,000 bpd Warri Refinery, while Japan’s
JGC Group, which built the 150,000 bpd New Port Harcourt refinery in
1988, had nominated Tecnimont to take charge of repairs of one of the
two refineries in Port Harcourt.
The
resolve of
the government to heed the age-old suggestion of inviting the original
builders to handle the Turn Around Maintenance (TAM) of the refineries
is a very good and a well-thought
out decision. The hope is,
the refineries would witness a genuine Turn Around Maintenance (TAM),
and
not the usual ones they have been
witnessing which has not brought
any improvement on their ‘health’. The general consensus among experts
in the oil and gas industry is that the
fastest and cheapest way to get more volumes of refined
petroleum products into the growing Nigerian market at lower cost is
to rehabilitate these existing refineries.
However, the big question is, after rehabilitating the refineries,
what’s next?
In
addition to the proposed Turn Around Maintenance by the original
builders, which should also include optimization of the refineries to
achieve a high
Nelson Complexity Index -
any refinery with a Nelson
Complexity Index of 10 or above is considered a complex refinery with
potential in value addition and high value products.
When that is achieved, a 4-way approach is also needed to position the
refineries and tackle the continuing
difficulty of establishing
private refineries in Nigeria. Before the
completion of the Turn Around Maintenance, with the hope it would be
sincerely done as promised, government should
consider these four
well-known
commonsense approaches: grant full autonomy to the refineries, but
they still remain government-owned; lease
the refineries to oil companies/investors/communities/etc;
outright privatization of the refineries
with
highly attractive incentives,
which should be extended to genuine
investors willing to establish private refineries.
Being the oldest, Warri Refining & Petrochemical Company Limited can
be retained
by the government, but should be
granted full autonomy to cater for
itself- pay its bills and
dividend to the government. Kaduna Refining & Petrochemical Company
can be leased
to any oil company or group of investors with interest in the
petroleum products refining. The
Port Harcourt Refining Company Limited should be fully privatized. The
old complex should be sold to oil producing communities, while the new
complex to interested buyers with technical and
financial
capacity.
This 4-way
approach will take care of all the interests and schools
of thought on how to revive Nigeria’s
state-owned refineries.
Nigerians would know which method best suites
the running of the refineries. In addition, it will trigger investors’
interests
in the refining sector of the Nigeria oil and gas industry.
However,
implementation has to be systematic as well as systemic. i. e. experts
from various disciplines should sit-down to develop win-win modalities
for the approach to be acceptable to all stakeholders, especially
ordinary Nigerians.
With the
right approach, coupled with the available cheap and easily accessible
crude oil; competent manpower and funds, Nigeria’s refineries
would
operate at near 100
per cent utilization with minimal
downtime. Moreover, a speedy and sustainable
increase in Nigeria’s refining capacity that achieves
Gross Refining Margins (GRMs) that are consistently at par with Asian
benchmark of ‘Singapore Complex Margins’ will generate thousands of
jobs and
boost the potential of the economy.
This way,
Nigerian refineries can
compete with any refinery in the world including the world biggest
refinery with Nelson Complexity Index of nearly 14 - the 1.3 million
barrels per day (bpd) Jamnagar Refinery in India.
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