THE GAINS AND PAINS AS REFINERIES RESUME OPERATION

Since the inauguration of President Muhammadu Buhari on May 29, 2015, Nigerians have been anxiously expecting him to take decisive steps to tackle the rot in the system, most especially in the petroleum sector believed to be the main stay of the economy.

Like the excitement that greets a bride while walking down the aisle, Nigerians were elated when the Nigeria National Petroleum Corporation (NNPC) announced in June, 2015, that the four refineries – two in Port Harcourt, one in Kaduna and the other one in Warri will resume production this month( July).

Ohi Alegbe, NNPC spokesperson said the refineries will resume after a successful turn-around-maintenance (overhaul) of their facilities ‘’the turn-around-maintenance has been on for some time. We did not just want to make any noise about it. The refineries will start production as soon as they have delivery of crude oil for refining,” he told AFP.

According to Alegbe, the turnaround maintenance of the refineries which began in November 2014 was being undertaken by NNPC’s in-house engineers due to the scary bills presented by the initial builders.

He explained that operations at the Port Harcourt refineries are being stalled by lack of electricity but a mini power plant had been installed to curtail the problem.

Like every other Nigerians, he is enthused that the full operations of the refineries will put an end to fuel importation in the country.

Nigeria’s Petroleum industry is the believed to be the largest in Africa. But the largest producer of crude oil in the continent has been engaging in importation. Presently, Nigeria has four major refineries and are being managed by the NNPC and Niger Delta Petroleum Resources (NDPR).

Port Harcourt refinery’s production capacity is 210,000 barrels per day and operated by the Port Harcourt Refining Company (PHRC) Limited, is made up of two refineries located at Alesa-Eleme.

The Warri refinery located at Ekpan, Warri, Delta State, was established in 1978. It has a refining name plate capacity of 100,000 barrels per stream day plant and was increased to 125,000 barrels per stream day in 1987. The Kaduna refinery has a name plate refining capacity of 110,000 barrels per day.

The refineries have a combined installed capacity of 445,000 bpd. A comprehensive network of pipelines and depots strategically located throughout Nigeria link these refineries. But in recent times, the refineries operate at less than 20 per cent installed capacity.

Specifically, the NNPC put the respective average capacity utilisation of the refineries in December, 2013, as KRPC (Kaduna) – 32.96 per cent, PHRC (Porthacourt) – 4.48 per cent, and WRPC (Warri) – 40.41 per cent.

Even when the four refineries operate at full capacity, Alegbe disclosed that they would only be able to cumulatively refine 19 million liters of petrol per day.

Nigeria reportedly consumes 40 million litres of petrol per day. Figures released by PPPRA showed that the daily consumption in 2011 was 60.25 million litres. It was reduced to 39.79 million liters per day in 2012 while in 2013 the agency recorded 42.11 million litres per day which was 18.14 million litres per day less than what was recorded in 2011.

Since the four refineries could not produce these volumes, the country is compelled to rely on importation and oil swap to make up for the deficit of about 21 million litres per day. The importation and oil swap arrangement with oil marketers birthed the payment of subsidies by the federal government to reduce the cost paid by an average consumer.

Most experts believe the subsidy racketeering is a means to siphon funds; hence, they have, over the years maintained the policy should be scrapped. There are reports that some marketers connive with some officials to get money for products not supplied; they back-load products to claim subsidies. EFCC’s investigation into some oil swap contracts recently revealed that the value of the crude was more than the value of the refined imported.

Subsidy by the government to keep prices below what they would otherwise be in a free market system. For instance, the Expected Open Market Price of petrol is N104.93 per litre as of December 10, 2015, but the regulated price is N97. The difference is the subsidy.

During a courtesy visit to the NNPC in Abuja by a delegation of the Extractive Industry Transparency Initiative, (EITI), Zainab Ahmed, the Executive Secretary, Nigerian Extractive Industry Transparency Initiative, NEITI, posits that the amount paid as subsidy for petroleum products in Nigeria since 2006 is enough to fix all the country’s refineries or build new ones.

According to her, from the last NEITI Audit Report of 2012, a total of N1.355 trillion was processed for payment as subsidy “Out of this amount N690 billion was actually paid putting a debt burden of N665 billion on the Federal Government,” she noted.

NEITI’s reports shows that the amount of money Nigeria paid so far on subsidy from 2006-2013 stand at N4.5 trillion. The breakdown shows that N816.554 billion was paid between 2006 to 2008, N3 trillion between 2009 and 2011, and N690 billion in 2012.

The Petroleum Products Pricing Regulatory Agency (PPPRA) stated that it paid about N832.06 billion in 2013 as subsidy claims to petroleum products marketers under the Petroleum Support Fund (PSF).

2013 total subsidy payment figure was slightly lower than its 2012 figure of N862.06 billion.

For 2014, the federal government budgeted N971.1 billion for payments of subsidy, keeping it at the same level with 2013.

It is an obvious fact that if the four refineries operate in full capacity, importation of the products will be unnecessary. That also implies subsidy payment and racketeering will face out while trillions of naira expended on subsidy would be saved in government coffers or channeled to other means of developing the country. It will also open up opportunity for massive employments and job contracts.

As much as the gains are obvious if the refineries are fixed, the pains especially at the short run for Nigerians will be unavoidable. Full turnaround maintenance on the refineries or building a new refinery will take at least a year. That means in the meantime, there must be a tentative alternative within the period the refineries will be in good shape. This also implies Nigeria must prepare to bear pains in the short run to have the gains in the long run.

Shedding light on the subsidy policy, Adetunji Adegboyeag, oil and gas expert added that before the refineries are in full shape, it is imperative for the government to try swapping- an interim arrangement before the refineries are fixed. He emphasised that accountability and transparency are needed in the swap arrangement this time to get good results.

”Before any company is given the right to lift oil, you must have an existing letter of credit or banking instrument with the PPMC or NNPC. That helps the value to be rated and if you don’t remit, the corporation or its agency can cash on in on your money because you have funds with them. This checkmates excesses and help accountability’’

The legal practitioner posited that Nigeria should move away from the era of subsidy which will save the country trillions of naira”

"The country needs to focus on swap arrangement tentatively. In doing that, more attention on local contractors through the local content act. But they cannot work without the International Oil Companies (IOCs) because they need to refine outside the country. It should be a conjunctive thing while there must be transparency in the process. All these cannot cater for our absolute need but in the meantime as we focus how the refineries work’’ he said.