Decision nears on Nigerian refinery rehab jobs
Thursday, May 31, 2018
Nigerian National Petroleum Corp. (NNPC) has selected consortia for the long-awaited contracts to finance and carry out the rehabilitation of the four chronically underperforming state refineries.

Company executives made the announcement in early May, while similarly much-delayed plans to encourage the development of private and modular refineries were also reported to be gathering pace.

The positive news came as senior officials were forced to appear before a parliamentary panel to justify a request to deploy additional government funds on maintenance at the existing facilities – in light of the apparent failure of previous efforts in this regard.

NNPC managing director Maikanti Baru told a conference in Texas at the start of May that a tendering process initiated two years ago seeking companies to rehabilitate the state refineries at Kaduna, Port Harcourt and Warri was close to being completed and that the winners would be announced imminently. A company spokesman later elaborated that the board expected to reveal the names in June.

Under the repair-operate-maintain (ROM) model unveiled in 2016, companies or consortia would finance and execute the work required to restore the facilities to full combined capacity of 445,000 bpd and recoup the investment from revenues earned from operating the refineries for a period on Abuja’s behalf.

“This model is expected to be a self-sustaining financial model with near zero reliance on the federal government funds,” Baru explained. “For smooth running and implementation, we are also changing the operating and commercial framework of the refineries to make them work efficiently and be commercially viable.”

In February, reports emerged that a consortium comprising the US’ GE, Swiss-based trader Vitol, Italy’s Saipem and local duo Sahara Group and MRS Oil Nigeria had been provisionally chosen to restore the Warri and Kaduna refineries. A team of Spain’s CEPSA, Italy’s Eni, the local Oando and Swiss-based trader Trafigura was said to be in line for the contract covering the two refineries at Port Harcourt.

The first phase of the 125,000 bpd Warri refinery in Delta State was completed by Snamprogetti – now part of Saipem – in 1978. The 110,000 bpd Kaduna plant in the northern state of the same name was commissioned two years later by Japan’s Chiyoda.

The larger of the adjacent Port Harcourt facilities – which have total capacity of 210,000 bpd – was brought on stream by a Japanese team of JGC and Marubeni in 1989.

Eni and Oando have long been the frontrunners for the rehabilitation of the last of these – to the extent of being forced to issue correctives last year to their own statements implying that a deal had already been signed.

Confusion over the status of the prospective contractor-financed rehabilitation agreements has also been created by NNPC statements. The company said that the refineries’ original builders were being asked to restore the four plants to 90% capacity by the end of next year from 10% at present – a seemingly impossible task, the interface between which and the ROM initiative was unclear.

In an interview published in late May, Baru only marginally clarified the situation. He said that the US’ KBR had conducted detailed assessments of the work required and produced cost estimates. After that, the original builders had been approached for further advice on the potential shape of the upgrades, taking into account knowledge of the existing process units at each plant.

The NNPC managing director also told delegates in Texas that 13 investors, out of more than 30 that had submitted expressions of interest (EoIs), had been granted licences to establish modular refineries in the Niger Delta. This came under a flagship initiative launched last year aimed at creating jobs and assuaging popular anger in the oil-rich region while curbing rampant illegal refining.

Momentum has likewise appeared to be building behind some of the dozens of private refinery projects granted ‘licence to establish’ (LTE) shortly after the accession of President Mohamadu Buhari in 2015 – presumed to have been spurred by the permissions’ imminent expiry.

Such schemes have typically suffered from inability to secure finance – as Petroleum Resources Minister Ibe Kachikwu acknowledged in March. He said that talks were under way with various local and international development finance institutions to provide funding support.

The next stage after LTE is ‘licence to construct’ – which, according to an April update from the Department of Petroleum Resources, has been granted to ten projects.

Baru and Kachikwu as well as the finance minister, central bank governor and representatives of the state refineries’ original builders were among those summoned on May 7-8 to appear before an ad-hoc Senate committee established last year to investigate the reasons for the four plants’ current state of disrepair. Its formation came in the wake of a confusing request by the Petroleum Resources Ministry late last year for an additional US$1.8 billion from the state budget for turnaround maintenance (TAM).

MPs demanded detailed information on the refineries’ current condition and on the results of previous TAM work – while also requesting an update on the private refinery licences in light of the apparent lack of progress other than on the flagship 650,000 bpd Dangote Refinery near Lagos, which is scheduled for completion in 2019.

Kachikwu’s original funding request was blocked on the understandable grounds that years of purported spending on maintenance had failed to increase efficiency – leaving Nigeria importing more than 80% of the country’s fuel needs.

A report released in late May put the utilisation rate in January at 10.9%. MPs also complained that several of the companies reported to be in line for the new rehabilitation deals had previously faced allegations of corruption in their Nigerian dealings.

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