Thursday, May 3, 2012

N300bn waste: Dirty details of rot at Nigeria’s refineries

April 29, 2012

• Photo: The Sun Publishing

Until last January when the administration of President Jonathan Goodluck announced the fuel subsidy removal, the parlous state of the country’s refineries was not on the front burner. But the subsidy removal and the subsequent protest have shifted attention to the Nigerian refineries, which are in decrepit situation.

Although the removal of subsidy has been reversed to increment in fuel pump price, the issues its protest raised, among them the ugly situations in the refineries, still resonate. It is on record that exploration of crude oil in Nigeria began in 1908 but it was in 1935 that Shell Darcy Petroleum Company (SPDC) started what could be described as “real operations” in the country. After about two decades, SDPC proclaimed that it had discovered crude oil in commercial quantities in Oloibiri (in present-day Bayelsa State) in 1956.

Investigations revealed that until sometime between 1964 and 1965, all the leading foreign oil companies in Nigeria made importations for the purposes of refining oil overseas and subsequently marketed the refined products locally. Before long, there was the overwhelming need for the establishment of refinery in the country. To make this lofty dream a reality, Shell and the then British Petroleum (BP) now African Petroleum (AP) came together in 1960 in a mutual joint venture that gave birth to Nigerian Petroleum Refining Company ( NPRC). This process led to the construction of the now popular Alesa-Eleme in the outskirts of Port Harcourt with a capacity of a 38,000b/d. The construction started in 1963 and was completed in 1965. As the demand for local consumption increased rapidly, the refinery’s capacity was raised to 60,000b/d.

The administration of General Olusegun Obasanjo (retd), in order to enhance the performances of the oil sector, promulgated Decree 77 of 1978 establishing the Nigerian National Petroleum Corporation (NNPC). The NNPC initially had five bodies, each with a managing director. They were all supervised by a group general manager. The number of subsidiaries rose to nine and later 11, following the creation of the second Port Harcourt, Warri and Kaduna refineries, there were nine companies. Following the indiginisation policy of the Federal Military Government under the Obasanjo regime, the name NPRC was changed to NNPC and its equity totally bought over by the Federal Government in 1978. Therefore, the NPRC constructed the first refinery in Nigeria generally known as Port Harcourt 1 while the NNPC built the Port Harcourt 11, Warri and Kaduna refineries.

The Warri Refinery built by Snamprogetti Spa Milan, Italy in 1975 at the cost of $478 million commenced operation in 1978. It had the design capacity of 100,000 b/d. The Kaduna Refinery was built by Chiyoda Engineering and Construction Company, a Japanese firm, at the cost of $525 million in 1979. The capacities of the refineries were expanded to meet increasing demand for petroleum products. But, sadly, all the four refineries are in bad shape in spite of the fact that more than N300 billion had been sunk into the bid to resuscitate the collapsed facilities.

Why refineries collapsed
There are several factors that led to the collapse of the Nigerian refineries and most of these problems have been there since the inception of NNPC and the refineries. According to a material titled History of Nigerian Refineries, Problems and Solutions, some of the problems were highlighted as: “Inability to secure adequate working capital from the NNPC corporate headquarters.

The failure of NNPC, the supervising agency, to commit the required funds, as (and) when necessary to procure chemicals and catalysts, equipment spare parts, other plant consumables and sub-contract services from outside experts. Again, the bureaucratic process of approvals, which in some instances required as many as 27 signatures to get critical maintenance done is a major problem facing both the NNPC as well as the refineries. The problems originated from the centralisation of power at NNPC corporate headquarters in Lagos and later in Abuja.’ The publication argued that the hierarchical and bureaucratic arrangement which made the petroleum minister and the chairman of NNPC the overall boss of the persons at the helm of affairs at the respective refineries had not augured well for the Nigeria’s downstream sub sector.

According to it : ‘In turn, the corporate headquarters derive their powers from the minister of petroleum and chairman of NNPC board. These problems affect all activities of the refineries directly or indirectly in varying degree of severity, depending on how each managing director can navigate his/her ways through the slow bureaucratic corporate headquarters approval process and continually expedite actions. The approval processes do not have time limits. They may take a long (up to six months) or relatively short time”. Besides the problem of administrative bottlenecks, it was also established that another worrisome problem militating against the effective running of the Nigerian refineries is the lack of proactive governance.

It is stated that “the ultimate driving force for any products manufacturing company is the profit motivation for the company and its shareholders. This crucial incentive which was quite noticeable in the NPRC slowly vanished when the NNPC took over the company. The NNPC refineries became cost centres instead of profit grounds and were operated like federal government ministries.” Again, sustaining staff morale in environment of an operating refinery is crucial to achieve safe and efficient production.

This has always been a serious challenge for the management of the NNPC refineries because of the bureaucratic pressures from the corporate headquarters. Interference by the Federal Government was another clog in the wheel of the refineries as managed by the NNPC. This, according to reports, can take any form from staff matters (appointments, recruitments and promotions), procurement issues to award of contracts etc. Industry observers have noted correctly that these undue influences, which constitute a heavy burden and distraction to the management would not exist or become so serious, if the refineries were privately owned.

Further investigations revealed that lack of efficient plant operations and maintenance is another reason the refineries are grounded. According to a report made available to this reporter, at the initial commissioning of each refinery, staff had been carefully recruited, properly trained on the job . These staff had imbibed operating cultures from the initial training environments, which were always quite disciplined and commercially oriented. However, with time and operating under a more bureaucratic owner influence, the staff and managers tended to become less disciplined and accountable in their duties.

This, according to findings, ‘ affected the refineries’ productivity negatively. For instance, the computerised materials management and maintenance system recommended to replace the outdated system was not installed for many years. The history of the refineries, problems and solutions noted that the poor activities of the technical services department to function very well was a big problem to the NNPC and the refineries. It stated that this department has not functioned effectively for many years, insisting that it is grossly understaffed with only one or two relatively inexperienced engineers per discipline. This was not the situation in the first few years when the refineries started operations in the country.

The colossal waste
The rot that milked the Nigerian refineries dry reared its ugly head sometime in 1996 when the administration of the late Gen Sani Abacha awarded the Turn Around Maintenance (TAM) of the refineries to local contractors but the job could not return the refineries to glory. According to Ugo Nwokeji in a research work titled: The Nigerian National Petroleum Corporation and it its Oil & Gas, “The Sani Abacha’s disregard of recommendations for reorganisation or privatisation of the refineries submitted to it in 1996 signalled the regime’s desire to maintain the status quo.

The regime’s creation of PTF for deposition and disbursing towards infrastructure and rehabilitation from monies realised from increases in refined petroleum products prices was the most notable reforms of that era.” It added that no meaningful result was achieved from the Abacha reforms. The report quoted a former NNPC Group Managing Director, Edmund Daukoro as saying that government’s policies had never helped both the corporation and the refineries. “We never seem to get it right.

Something always seems to be missing between government policy, implementation and public expectation. On the one hand, policy and its implementation may be either too far or short in scope, lopsided or mistimed. On the other hand, public perception and expectations may be unrealistic, utopian and misguided or misinformed. As a result, we stagger from one confederation to the next between policy makers, regulators and customers,” Daukoro said.
In real terms, refineries are structured to generate revenues through the money accruing from the fees remitted to them by NNPC (as charges for refining oil).

The four refineries controlled by NNPC and their pitiable states depict the ineptitude and rot that have visited the corporation. Built to produce a daily 445,000 b/d of gasoline, the Nigerian refineries are currently in a sorry sight as they have continued to produce at grossly beneath capacity levels while three of them are not functioning at all. This shows that the refineries have suffered what an analyst described as “total disrepair and comprehensive paralysis in the past three decades.”

An informed industry commentator Ugo Nwokeji who conducted a research work on Nigeria’s oil and gas sector in 2006 for University of California, USA, submitted in his report which was published by the institution and made available to this newspaper claimed that the finance ministry officials had to cut NNPC’s crude oil supplies, reasoning that it was cheaper by 20 per cent to import Nigeria’s refined products than have them through the inefficient mill of the refineries.

The report added: “The inability of NNPC to refine its crude has encouraged market inefficiency. Thus, the corporation has increasingly sold unrefined crude from this allocation in the international market since the 1980s and it uses the proceeds to import refined petroleum products. With the free allocation, NNPC is able to subsidise the products, a practice that discourages international oil companies from involvement in the domestic downstream sector. It is on record that the subsidies have never benefitted the ordinary Nigerians”. Nwokeji argued that the despicable conditions of the refineries had encouraged black market selling points and equally promoted acute shortages .

He said: “Apart from fuelling price increases, this black market promoted stealing of the valuable commodity just as built in inefficiencies, corruption and sabotage by militant resource agitators and oil pilferers had caused major crises in the sector.” To buttress the point being canvassed here, the former Chief Executive Officer of Warri Refinery and Petrochemical Company (WRPC), Bazil Idahosa, stated it very clearly in 2006 when the base was shut down for five months, insisting that following militant activities which had many a crude oil supply pipeline blown up , the staff situation was so bad that the refinery would not be operational even if the supply lines were re-fixed.

As it is, the Warri refinery is still grounded till date even after militant activities had drastically reduced following the amnesty deal which the regime of late President Musa Yar’adua brokered. It must be recorded the Abdulsalami Abubakar administration had taken well tailored measures aimed at reviving the refineries. First, it took away the importation monopoly which the NNPC had enjoyed over time. Second, the administration made the mind-boggling $39 million budget allocation for the repairs of the four refineries.

Third, the privatisation policy of the sector was vigorously pursued by the government. Analysts were quick to point out that more than $1 billion had been ejected for the repairs of the refineries between 1999 and 2007, that is, during the President Olusegun Obasanjo’s regime. Perhaps, it was due to the perception of the NNPC as a potential sleaze bed that prompted the Interim Regime of Chief Ernest Shonekan to announce the compulsory retirement of Daukoru and three other executive directors, alongside Kupoloku in 1993.

As the allegation of corruption at NNPC became the other of the day, it was revealed that the sudden disappearance of about $2.5 billion meant for fuel importation and the GMD of the time was reportedly fired. As if those were not enough, investigations revealed that a mouth watering $5 billion earmarked for comprehensive refinery maintenance was again misappropriated in 2007 and it was big embarrassment to the both the government and people of Nigeria. Recently, the Jetty and Petroleum Tank Farm Owners of Nigeria ( JEPTFON) in a petition made available to this newspaper accused the Petroleum Products Pricing Regulatory Agency (PPPRA) of wrong deeds its handling of the newly introduced SDI.

According to JEPTFON: “We, the members of JEPTFON have observed with dismay the PPPRA’s manipulation and non transparency in the administration of the newly introduced Sovereign Debt Instrument (SDI). This perceived manipulation is largely underscored in the allocation of importation of petroleum products approvals to ‘portfolio marketers’ instead of core downstream investors and its abuse of due process especially in the second and third quarters 2010 allocation.”

The PPPRA is a subsidiary of the NNPC and JEPTFON accused it of manipulation in its dealings. In view of the fact that the refineries are not working effectively, a group known as Executive Councils of NNPC, NUPENG and PENGASSAN accused BPE of corruption, unfair treatment in its resolve to sell or concession some business units in the NNPC.

According to the union’s group chairman, Comrade F.O. Johnson, “We had uncovered a well concealed ongoing plan by the Bureau for Public Enterprises ( BPE) to surreptitiously transfer ownership and control of some carefully selected, performing and viable national assets in the NNPC to certain surrogate foreign fronts that have been arranged by some privileged Nigerians to satisfy their parochial interests. The Councils do hereby use this medium to alert the teeming unsuspecting Nigerian populace of this devilish, retrogressive plot of the BPE. We are aware that processes are at advanced stages by the Nigerian National Petroleum Corporation namely NPDC, NGC, PPMC and the refineries to some Nigerian politicians using certain entities.”

Government’s reaction
Apparently worried by the tirade against the NNPC, especially the refineries, the Federal Government has acted swiftly by carrying out some measures to stem the crisis-ridden sector. To this effect, successive governments have tried in one way or the other to find a lasting solution to the pyramid problems of the refineries. For instance, during a one-day workshop for energy reporters on the reform of Nigeria’s oil and gas industry (the new regulatory regime) at Abuja recently, a member of the National Petroleum Directorate and the Establishment of the National Petroleum Research Centre, Dr. Mohammed Ibrahim, noted that it was time we shifted focus from being a crude petroleum exporter to being a crude oil and gas producer, processor and thereafter export processed products and excess crude petroleum.

According to Bolanle Onagoruwa, director general, Bureau of Public Enterprise (BPE), at a forum on the Petroleum Industry Bill (PIB) and the reforms in the oil and gas sector, “Government’s direct intervention via state-owned companies creates additional problems as there are no competitive pressures for efficient operations. This result, most times, is sub-optimal performance (as witnessed in the refineries). The reform’s driving principle is to ensure the nation obtains maximum benefits from its hydro-carbon endowments. This necessitated the Federal Government to set up the Oil and Gas Sector Reform Implementation Committee (OGIC).

It was meant to carry out the functions of synchronising, coordinating and monitoring all activities relating to the reform; restructuring and privatisation.” In a newspaper advertisement, the Minister of Petroleum Resources, Mrs Diezani Alison Madueke, stated the government’s resolve to reform the sector based on transparency and accountability, hence, she directed the ministry to create a special task force on governance in NNPC and other parastatals within the ministry. According to her:

“Today, we begin a new chapter for the Nigerian petroleum industry as we turn the page for new beginnings. We have listened to the voices of the people of Nigeria when, over the last few weeks, they spoke in unison for accelerated reforms in the industry. These reforms will anchor on new Petroleum Industry Bill (PIB). We are taking further steps towards the passage of PIB to replace all past industry legislations.”

The Sun News On-line| Special Report

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