Nigeria defends $1.5bn Port Harcourt Refinery rehabilitation amid global backlash
March 23, 20211.7K views0 comments
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Ben Eguzozie, in Port Harcourt
Nigeria, Africa’s top oil producer and the only OPEC member-country that imports all its petroleum products, has come out to defend its planned $1.5 billion spend to rehabilitate its biggest refiner, the Port Harcourt Refining Company (PHRC) amid global criticisms that the venture, which fund would be borrowed, is tantamount to economic wastage for a nation gasping to recover from a second recession in five years.
According to Mele Kyari, group managing director of NNPC, the rehabilitation of the combined refinery with nameplate capacity of 210,000 barrels per day is a “viable endeavour” and “a worthy undertaking embarked upon after diligent consideration and in strict adherence to industry best standards.”
With its headline inflation at 16.47 per cent (year-on-year) in January 2021 as against 15.75 per cent recorded in December 2020, food inflation hitting 20.57 per cent last January, unemployment rate at 33.3 per cent in Q4 2020, amid rising public debt of $84.57 billion as of January 2021, and insecurity in parts of the country, economic analysts strongly opine that Nigeria may be headed to more economic woes.
The Nigerian federal executive council last week approved $1.5 billion for rehabilitation of the PHRC, which like its three other refiners – Warri (125,000 bpd) and Kaduna (110,000) – has been comatose for more than two years. PHRC saw its last turnaround maintenance (TAM) 21 years ago in 2000. The same story goes for Warri and Kaduna.
Kyari said, in arriving at the decision to award the engineering, procurement, and construction (EPC) contract to Tecnimont spA. of Milan, Italy, after a competitive bidding process, the NNPC observed an unprecedented level of transparency and due diligence which consists of a governance structure and tender process that included key independent external stakeholders: ministry of finance, Nigeria Extractive Industry Transparency Initiative (NEITI), Infrastructure Concession Regulatory Commission (ICRC), Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and Nigeria Union of Petroleum and Natural Gas Workers (NUPENG).
He explained that in terms of outlook and job scoping, the rehabilitation project is different from the routine turn-around maintenance which was last carried out on the Port Harcourt Refinery 21 years ago. “Unlike TAM which should normally be executed every two years but was neglected for many years, the rehabilitation project would involve comprehensive repairs of the plant with significant replacement of critical equipment and long lead items, to ensure the integrity of the plant on the long term,” he added.
On the financing for the project, the NNPC helmsman said that African Export-Import Bank (Afreximbank), as a reliable lender, has agreed to raise $1 billion towards the rehabilitation project. He argued that a credible and capable lender like Afreximbank would never agree to put such huge amount of money where there would be no value.
Meanwhile, the national oil company GMD dismissed the contention by critics that the $1.5 billion approved for the Port Harcourt Refinery rehabilitation was enough to build a brand-new refinery.
“A new refinery would cost the nation between $7 billion and $12 billion; such funds were not available now,” Kyari argued.
However, Energymix, an oil and gas report said it costs $1.2 billion to build a new refinery with 100,000 bpd capacity.
Meanwhile, reports said, Royal Anglo Dutch Shell is putting up for sale its two refineries in the US – Mobile and Puget Sound with combined capacity of 224,000 bpd at a price not exceeding $1.2 billion.
Some independent petroleum industry experts told Business A.M. that the best option was for the Muhammadu Buhari administration to privatize (or sell off) the PHRC along with the other three refineries (Warri and Kaduna). Rather than spending so much to repair an old refinery when it could easily be sold off. They argue that for more than 50 years, Nigerian government has proven eminently incompetent to run the refineries. Today, they are all old and unmaintained. The feedstock and products pipelines are above 40 years since they were laid, are equally old.
“The best thing to do with the refineries is to sell them off to the private sector – just like what Nigeria did with Eleme Petrochemicals Ltd in Port Harcourt, to Indorama; which is today the shiniest example of privatization,” said Friday Udoh, gas value-chain expert, chartered economist and chief economist at the South-South chapter of Institute of Chartered Economists of Nigeria (ICEN)
However, Kyari’s only defence is that PHRC is a “strategic national asset” which should not be sold off just like that.”
But the NNPC group managing director, Kyari, said, the NNPC would adopt the operate & maintain (O&M) model as a strategy in the execution of the PHRC rehabilitation project, which is also one of the key requirements by the lender, having learnt from the failure of previous models.
He defended the choice of Tecnimont SpA as contractor to handle the project, explaining that the company is a representative of the original refinery builder (ORB); and is one of the top 10 global engineering, procurement, construction, installation and commissioning (EPCIC) contractors in refineries. “Tecnimont has requisite experience in similar jobs across the globe,” he said.
Kyari said the National Engineering and Technical Company (NETCO) and Kellogg, Brown & Root (KBR) are acting as NNPC’s engineering consultants to the project, with support from Wood Mackenzie to ensure that the project is delivered on schedule, within budget and at the right quality.