The Federal Executive Council on Wednesday approved the plan by the Ministry of Petroleum Resources to rehabilitate the Port Harcourt Refinery with $1.5bn.
The decision was taken at the weekly meeting of the council presided over by the President, Major General Muhammadu Buhari (retd.).
However, some experts in separate interviews with out correspondents faulted the move by the government, describing it as wasteful and senseless.
The Minister of State for Petroleum Resources, Timipre Sylva, disclosed this to State House correspondents at the end of the meeting at the Presidential Villa, Abuja.
He said the contract for the rehabilitation was awarded to an Italian company, Tecnimont spa, which he said won the bid.
Sylva said the firm specialises in maintenance of refineries.
In naira terms, the $15bn repair cost amounts to N568.5bn using the official exchange rate. At the Investors and Exporters window of the foreign exchange market, the dollar exchanged for N379 on Wednesday. The Central Bank of Nigeria also quoted the same on its website. However, it went for N483 on the parallel market.
The Port Harcourt refinery generated total revenue of N10.33bn from 2015 to 2019, according to its 2019 audited financial statements.
The refinery generated zero revenue in 2019; N1.46bn in 2018; N4.82bn in 2017; N3.37bn in 2016, and N683.52m in 2015.
It, however, reported a total loss of N229.14bn in the five-year period. The refinery lost N50.53bn in 2019; N45.59bn in 2018; N53.77bn in 2017; N43.44bn in 2016, and N35.81bn in 2015.
According to the minister, the fund for the rehabilitation would be raised from three sources – the Nigerian National Petroleum Corporation’s Internally Generated Revenue, budgetary allocation and Afreximbank.
The minister said, “The Ministry of Petroleum Resources presented a memo on the rehabilitation of Port Harcourt refinery in the sum of $1.5bn and it was approved by council today.
“So, we are happy to announce that the rehabilitation of the refinery will commence in three phases. The first phase is to be completed in 18 months, which will take the refinery to a production of 90 per cent of its nameplate capacity.
“The second phase is to be completed in 24 months and all the final stage will be completed in 44 months and consultations are approved.
“I believe that this is good news for Nigeria.”
Sylva disclosed that the council resolved that the Federal Government should put a professional operations and maintenance company to manage the refinery when it has been rehabilitated.
He said that was also one of the conditions presented by the lenders and so the government could not go back on it.
The minister added that discussions were ongoing on the rehabilitation of other refineries.
“Discussions are ongoing. We want to take one at a time and I want to assure you that before the lifetime of this administration expires, work on all the refineries would have at least commenced,” he said.
He explained that the original builders of the refinery were not in maintenance business, hence the decision to go for another firm for the rehabilitation.
He said, “We found out from the original refinery builders that they are not in the business of rehabilitating refineries; they are in the business of building refineries.
“So, they actually pointed us to a rehabilitation company that we are dealing with now.”
Specifically, on how to raise the fund for the rehabilitation, the minister said, “There are various components to the funding: there is funding from NNPC internally generated revenue; there is funding from the budget and there is also a debt funding.
“For the lenders, we are dealing with AFREXIM bank and they are very committed to us; we have actually concluded discussions with AFREXIM.”
Sylva assured stakeholders that the rehabilitation would be in line with the provisions of the local content law.
“The Nigerian Content Development and Monitoring Board is fully part of the contracting process and has safeguarded the interest, adequately, of our local contractors. So, our local people will be fully involved with the Tecnimont spa,” the minister said.
On if the rehabilitation of the refinery was as a result of labour unions demand that deregulation of petroleum price should come after refineries rehabilitation, he said: “First, I am not aware of any such agreement that deregulation should only take place after the refineries have been fixed. That was at no time part of our agreement.
“But of course, this government, from the very beginning, has been in the process of fixing and rehabilitating these refineries.
“So, it is not because of our discussion with Labour, but it is actually the desire of the administration to ensure that our refineries work.”
Project wasteful, senseless, govt beating dead horse, say experts
However, an economist with the Lagos Business School, Dr Bongo Adi, said the rehabilitation was not a wise decision considering the current circumstances facing the present administration which was riddled in debt.
He said, “It is not a wise decision because, on the one hand, we have government harping on the budget deficit. There has been discussion on how to plug that deficit. Then on top of that, we have foreign account deficit where our exports are way less than our imports which is part of the reason why the exchange rate is taking a huge knock currently.
“Government is in a very difficult situation to fund budget and provide basic needs for the people, so looking for avenues to do perform another obligation may be costly.
“We see government still trying to use the funds it does not have which is like flogging a dead horse. We have seen so much money going into refineries over the years and all the various turnaround maintenance. None of them has yielded expected benefits. The refineries have been moribund for years.
“There is nothing to show that government can achieve anything by plugging funds into the refineries. It is a waste of time, resources and not a smart thing to do.”
Adi recommended that the government sell the refineries off and use the money to do something else.
He said, “My take is that government should actually privatise the refineries, sell them off and use those funds to invest in job creation opportunities for teeming number of youths.
“As it is right now, embarking on the project is a white elephant one and the money will not be accounted for at the end of the day.
“A few people believe no amount of turnaround would be needed to rehabilitate those refineries because the technology used in its construction is obsolete and it is more expensive to maintain.
“That means no amount of money will bring them back to back to function well. It is not rational. The best thing is to sell it off to the private sector to develop.”
A former Chairman, Petroleum Club, Lagos, Dr Godwin Ihetu, expressed concern that the rehabilitation of the refinery would take almost four years, saying, “It doesn’t make sense; how much does it take to build one new refinery?”
Ihetu, a former managing director/chief executive officer of Nigeria LNG Limited, said, “What I was thinking was that they would privatise the refinery and then allow the new owners to rehabilitate, instead of saying they would rehabilitate and then sell. When? Who will buy it?
“But if they have chosen that the best way is to rehabilitate it themselves, then that is okay since they have awarded the contract. Technimount is a well-known engineering company.”
An energy expert, Mr Bala Zakka, said it was not too late to refine petroleum products in Nigeria.
He said, “What the government is doing now is what they should have done years back.
“There is no economic sense in Nigeria selling raw materials just to go and buy finished goods from the same raw materials.
“If they process internally and they distribute finished goods internally all the exchange rate differentials will be saved. All the issues with landing costs will be saved.”
He added, “We are already on the wrong track and it is not too late to start refining. It is better to be late than never. It is better to be late than be on a trajectory that will take you to your waterloo.”
NUPENG, PETROAN commend govt, seek private sector participation
The President, Petroleum Products Retail Outlets Owners Association of Nigeria, Billy Gillis-Harry, said the move by government to rehabilitate the refinery was in order but stated that private investors should be allowed to participate.
He said, “If the refinery in Port Harcourt can be rehabilitated and it works and comes on stream in a swift manner, that will be a welcome idea.
“But we as an association, because whatever they are refining is for the retail outlets; we want to partner them to ensure that we are on the same page.”
He added, “This is to ensure that there will be some private sector input and suggestions. So we applaud the government for taking that decision, although it is easier said than done.”
Gillis-Harry said petrol retail outlet owners would be happy if invited to invest in the facility.
Also speaking on the development, the General Secretary, National Union of Petroleum and Natural Gas workers, Olawale Afolabi, said the approval was a confirmation of the earlier discussions between government and labour.
He said, “Port Harcourt is going to kick-off as they promised and that is the demonstration they’ve shown with that approval.
“Remember in December last year, the government and labour set up different committees and one of them is the steering committee for the rehabilitation of the four refineries.
“So the approval you are seeing today is one of the steps towards achieving this and ensuring that our refineries are meant to work again. We are in support of the move.”
When told that the government had earlier listed refineries as part of assets to be sold to fund the country’s budget, Afolabi replied, “Don’t go there yet.
“Let us get the refineries back. We don’t want to speculate. Let us wait until the refineries are rehabilitated. When they want to sell it, they will meet us there.”