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Insights: NNPCL spent N4.8 trillion running state-owned refineries between 2010 and 2020
Article summary
- Nigerian National Petroleum Company Limited spent N4.8 trillion running state-owned refineries between 2010 and 2020.
- Product output from the Port Harcourt, Warri, and Kaduna refineries has not exceeded 30% since 2010.
- All the state-owned refineries are currently undergoing rehabilitation and would come onstream by the end of the year, according to Mele Kyari, the Group Chief Executive Officer of the NNPCL.
- Oil and gas stakeholders have called for all local refineries to be active for two reasons – to drastically reduce Nigeria’s reliance on fuel imports and to stem the impact of fuel subsidy removal. But a recent report from PricewaterhouseCoopers (PwC) said that activating local refining is not a silver bullet.
The Nigerian National Petroleum Company Limited spent N4.8 trillion running state-owned refineries between 2010 and 2020.
According to a report from the Federal House of Representatives, output from the Port Harcourt, Warri, and Kaduna refineries had not exceeded 30% since 2010. Bloomberg reports that the report from the House of Representatives stated that the refineries have been dormant for years, however, that amount was spent even though the refineries were operating far below their combined capacity of 445,000 barrels of crude per day.
Problems currently encountered by state-owned refineries
All the state-owned refineries are currently undergoing rehabilitation. Recall that in 2021, Nairametrics reported that the NNPCL had signed an Engineering, Procurement, and Construction (EPC) contract with Maire Tecnimont SPA, an Italian company, for the rehabilitation of the Port Harcourt Refinery Company (PHRC).
The Warri and Kaduna refineries are also undergoing rehabilitation. Currently, Nigeria imports its refined petroleum products due to limited or no domestic refining. According to Blackgold Data Services, Nigeria’s total import for petroleum products is about $28 billion per annum.
Meanwhile, Mele Kyari, the Group Chief Executive Officer of the NNPCL recently told Channels Television in an interview, that the Port Harcourt, Warri, and Kaduna refineries will come onstream by the end of the year. He said the rehabilitation work on the refineries had suffered some delays.
According to him, there were some supply chain issues that are a global problem. He admitted during the interview that there is a crisis in the global marine sector, so getting products to the locations has remained a huge challenge. So, there were some delays in the delivery of some equipment.
Kyari however stated that the ambition is to get all of the country’s refineries working and the net effect is that Nigeria will become an exporter of petroleum products.
So much ado about local refining
Oil and gas stakeholders have called for all local refineries to be active for two reasons – to drastically reduce Nigeria’s reliance on fuel imports and to stem the impact of fuel subsidy removal. But a recent report from PricewaterhouseCoopers (PwC) said that activating local refining is not a silver bullet.
In the report, PwC stated that the general belief is that local refining of crude oil could potentially eliminate the need for petrol subsidies altogether or make the market price affordable.
Fuel imports make Nigeria’s fuel price not only dependent on global oil prices and exchange rates but also on importation and handling charges. The PwC report also stated:
- “Local refining is therefore expected to reduce Nigeria’s dependence on imports and potentially stabilize petrol prices. However, other than the costs of haulage, insurance, and associated cost of importation, the material does not constitute the most significant component of cost across the value chain.
- “This implies that the pump price without subsidy would still be higher than the regulated price unless the international price of crude oil falls below a certain level.”
Question of management
Bloomberg also reports that the report from the House of Representatives suggests that the NNPCL should consider outsourcing the management of the repaired refineries to reputable international firms, who would do a better job of managing the refineries and ensuring they are productive.
Some stakeholders have previously requested the government to play only a regulatory role in Nigeria’s oil and gas sectors and hand the business aspect over to the private sector. This is because the government has shown over the years that it is incapable of running any aspect of the oil and gas sector.
