On NNPC and the Overhaul Project of the Refineries

A punch report yesterday said the country’s refineries lost over N231 billion in the last four years owing to delay in the commencement of the planned overhaul of the refineries. The Nigerian National Petroleum Commission (NNPC) had been announcing plans to overhaul the refineries since 2017 through a private partnership but the negotiations with financiers were said to have reached a head in December 2018.

On 21 March this year, NNPC announced the commencement of the first phase of the rehabilitation of the 210,000 bpd capacity Port Harcourt Refinery. It said the project would be executed by Milan-based Maire Tecnimont in collaboration with its Nigerian affiliate, Tecnimont Nigeria to whom a US$50m contract was awarded. The Port Harcourt refinery overhaul is expected to be followed by the Warri and Kaduna refineries.

About 80% of the refined petroleum products consumed in Nigeria are imported. The refineries located in Kaduna, Warri and Port Harcourt with a combined nameplate capacity of 445,000 bpd have long operated at low levels due to many years of underinvestment and poor maintenance. The refineries were reported to have posted a combined capacity utilisation of 17.3% in October 2017. This declined significantly in November 2017 t0 5.92% as the Port Harcourt and Kaduna refineries were said to have been shut down during the month.

Dangote Group’s refinery, with a planned installed capacity of 650,000 bpd is scheduled to come on stream in 2019 providing competition for the state-owned refineries. The refinery is also built with a 5-year plan to double capacity. As such, while we laud the government’s efforts to revamp the refineries, we believe that economies of scale associated with

Dangote’s Refinery coupled with advanced technology will provide stiff competition for the state-owned refineries. Hence, we struggle to see how private investment in the state-owned refineries will be a profitable investment except the state-owned refineries are managed with similar efficiency.

Source: Nairametrics

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