Fuel subsidy: Refineries’ rebound threatens fuel importers …. NATION

Fuel subsidy: Refineries’  rebound threatens fuel importers

DESPITE minor glitches, there is a ray of hope of boosting local refining of petroleum products with the four refineries showing  recovery signs. In this report, AKINOLA AJIBADE takes a look at the conditions of the refineries before and after their reactivation, the factors that could have led to their sudden transformation and improved power supply.

The refineries

•Warri Refining & Petrochemical Company Limited (WRPC)
Installed capacity 125,000bpd Expected output 100bpd (80%)

•Port Harcourt Refining Company 1&2 (PHRC)
Installed capacity 210,000bpd Expected output 126 (60%)

•Kaduna Refining & Petrochemical Company Limited (KRPC)
Installed capacity 110,000bpd Expected output 71,000bpd (70%)

An impressive turnaround or an interesting bounce-back may be fitting  tags  to describe the revolution at the nation’s four refineries. The four, put together, have recorded phenomenal improvement in their production capacities in recent times.

Though the Warri Refinery has been temporarily shut down on the orders of the Nigerian National Petroleum Corporation (NNPC) for not producing enough petrol, the refineries have been showing remarkable levels of improvement.

From below 25 per cent production capacity in the last decade to the current 60 per cent production capacity, the refineries are showing signs of recovery.

The facilities went moribund, no thanks to years of neglect and mismanagement occasioned by lack of policy direction on the part of successive administrations. But, the good news today is that they are now functional, notwithstanding the few  glitches.

Going by the NNPC data on refineries,  the Port Harcourt Refining Company (PHRC 2) is producing five million litres of petrol; the Warri Refining Petrochemical Company (WRPC) Limited is awaiting the completion of the rehabilitation on its Fluid Cracking Catalytic Unit (FCCU) to raise local production by 3.5 million litres.

The Kaduna Petrochemical Refining  Company (KPRC) has resumed the production of automotive gas oil (AGO)  otherwise known as diesel, and Dual Purpose Kerosene (DPK), which can be used as both aviation fuel/Jet- A1 and household Kerosene, known in the technical parlance as (HHK).

The data has put the Crude Utilisation Unit (CDU) and capacity utilisation in the four refineries at 60.40 per cent.

Underscoring the utilisation capacity, the PHRC is set to ramp up its operation to about 60 per cent of its 210,000 barrels per day (name plate or initial capacity) and the WRPC will be hitting 80 per cent of its installed 125,000 barrels per day capacity. The development, according to the NNPC, is despite the fact that the Fluid Cracking Catalyic Units (FCCUs) have not been re-streamed.

The Corporation said: “The Port Harcourt and Warri refineries have been successfully re-streamed after a nine-month  rehabilitation was carried out by its in-house engineers and technicians.”

Enough evidences abound that the four refineries, which were built with initial capacity of 445,000 barrels of crude oil per day, will soon return to name plate capacity after undergoing  completion repairs in a couple of months.

The refineries cannot meet the daily consumption requirement of between 40 to 42 million litres of fuel per day yet but their production records had not only beaten the predictions of those who concluded that the plants would never run again in the light of the myriads of problems bedeviling them. Already, industry observers are singing a diffrent tune.

The magic wand

Like others in the past, the sudden recovery of the refineries has raised several questions in the industry. How did it happen? What was the formula used? How did the management revive the refineries within a short time? Were saboteurs actually frustrating the endless Turn Around Maintenance (TAM) that never revived the refineries? How did the Federal Government danced around the problem?

Successive administrations have sunk billions of the tax payers’ money into the TAM in the last two decades, but the refineries refused to work, forcing the Federal Government to rely on the importation of refined products to meet domestic demand. The importation brought about the involvement of members of the Major Oil Marketers’ Association of Nigeria (MOMAN) in the controversial money-guzzling subsidy regime.

In 2002, the former Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, approached the   Senate Committee on Petroleum (Downstream) with a Federal Government proposal to spend N251 billion (about one billion British pound sterling) to fix the four refineries. Scheduled for the TAM were the refineries in Kaduna, Port Harcourt and Warri in Kaduna, Rivers and Delta states.

Besides, the huge vote for the TAM, more than $10 billion was said to have been spent money in the last decade on routine maintenance.

Despite the TAM, the Federal Government continue to subsidise the importation of products to meet growing local needs.

The subsidy payments, being made to fuel importers, has not only grown overtime, but has eaten deep into the coffers of the government, whose resources has dwindled due the tumbling prices of crude oil at the international market.

It (subsidy payment) has risen to N1.9 trillion from N300 billion per annum. The scaring figure has not only caused frictions between the Federal Government and MOMAN members but pitted the importers against government.

The parties are sharply divided over the actual outstanding subsidy payments, a development that has attracted calls on the government to discontinue with the arrangement.

Of lately, the public and private sector’ operators have been trading blames on the actual cost of subsidising fuel imports into the country. The parties could not agree on the way forward.

Amid the lingering disagreement,  the unexpected has happened. The refineries are gradually coming back to life. And ever since the refineries began production, not a few Nigerians, especially, stakeholders in the petroleum industry, have been expressing mixed feelings on the issue.

Some take the gradual return of the refineries to optimum capacity as a new dawn in the troubled industry. Others see it as a step in the right direction for the country that has over the years, relied on importation to meet domestic demands.

No longer business as usual

They all agreed that the refineries have been going through positive re-engineering processes, which will on the long-run, affect the downstream segment of the petroleum industry

NNPC’s Group Managing Director (GMD), Dr. Emmanuel Ibe Kachikwu, pinned the sudden revival of the refineries to the re-engineering activities put in place by the government.

He said the issue of re-engineering of the refineries was embedded in the reforms initiated by the President Muhammadu Buhari administration to foster growth in the industry.

Kachikwu restated the Corporation’s commitment to carry out the reforms to the letter and boost domestic production.

Speaking at a forum in Lagos, the GMD said the refineries have been re-streamed to increase fuel production and further meet growing demands.

He, however, said that the refineries are yet to attain optimal capacity, despite efforts to re-stream them.

According to him, some worn-out components have been changed and the critical units that require intervention, have been fixed in clear demonstration of government’s commitment to make the refineries work optimally.

President of the local chapter of the International Association of Energy Economics (IAEA) in Nigeria, Prof Wunmi Iledare, agreed with Kachikwu’s views. He said the commitment of the government to local production accounted for  the reactivation of the refineries.

Iledare believes a good leadership will stimulate the socio-economic development of the country, pointing out that things have started taking shape in the downstream segment of the oil and gas industry, especially the refineries immediately President Muhammad Buhari assumed office on May 29.

Leadership and vision, he noted, are inseparable ingredients in any economy and that the two must co-habit to promote growth.

He described as shocking that the refineries on which successive administrations spent fortunes without result, have all started working within three months under the new government.

His words: “Is the improvement in the production capacity of the refineries a fall out of maintenance activities carried out years ago? No. The growth that is being witnessed in the operation of the refineries is the result of re-engineering activities, embarked upon by the NNPC months ago. The refineries are not just working; they are working because the government took the right steps to fix the problems plaguing their operations.’’

Iledare, who is a Professor Emeritus at the Centre for Energy Studies, University of Louisiana, United States (U.S.), said the perception of the leader, especially in the oil and gas industry, cannot but play vital roles in achieving the desired results.

“The public perception of President Buhari’ s government is strong, and everybody is sitting up in order not to incur the wrath of the government”, the professor said.

Iledare noted that the government has embarked on total cleansing of the ‘Nigerian System’ and the result is evident in the operation of the refineries now.

He said the refineries are working because the right processes and methodologies were adopted to fix their problems, adding the refineries will return to optimal capacity with the sustenance of the ongoing efforts.

Also speaking, the Managing Director/Chairman, Mobil Nigeria Plc, Mr. Tunji Oyebanji, said the refineries are coming up amid assurances by the Federal Government to pay the subsidy arrears owed to oil marketers.

He welcomed the resuscitation of the refineries as timely in view of the perennial fuel shortage and the pressure on the government to embark on full deregulation of the petroleum industry.

The Mobil oil chief, however, cautioned Nigerians against expecting the refineries to resume full production capacity immediately.

He said the process of making the refineries to deliver 100 per cent output could not be that simple, because a lot of rehabilitation must be done to achieve such feat.

Also, the Chief Executive officer, Starways Energy Limited, Oliver Mordi, said there must be more to the sudden recovery of the refineries, noting that previous administrations had tried, without success, to revive them.

He suggested that a probe should be instituted by the government to unravel the reasons for the poor production output of the refineries in the past.

According to him, sources within the refineries, claimed local engineers and technicians were used to put the refineries in order.

Mordi said: “In times past, the NNPC has been engaging Original Equipment Manufacturers (OEM) to carry out major repair of the refineries. The manufacturers, based in the developed economies such as Europe and the U.S. have strong pedigrees in the area of building and installing refineries.

“Yet, they were unable to fix our refineries. Recently, the manufacturers refused to come to Nigerian, on account of security challenges. As a result of this, the management of the refineries decided to use their workers to re-stream the refineries. ‘’ He said that from all indications, some saboteurs operated within the system to frustrate government efforts.

Recalling his relationship with the Kaduna refinery, from where he was lifting oil a couple of years back, Mordi said tanker owners contended with loading problems in the KRPC due to certain problems.

He said the refinery had battled with problems relating to loading and capacity, following allegations that workers have tampered with its operations.

Mordi, now an energy consultant, said the issue often culminated in long queue at the Kaduna refinery by marketers who patronised the facility for  petroleum products.

He said marketers were forced to lobbying in such situations to get their quota, adding that the problem is not limited to KRPC.

Mordi said it was an open-secret that workers were being tipped before they attend to marketers, stressing that such sharp practices may have been shielded from the management.

He said: “In the course of transacting business with some of the refineries few years ago, I discovered that the corrupt tendencies of workers were high. Cases abound where money exchanged hands between some key employees of the refineries and companies that came to load fuel before they render certain services.

“Sources within the refineries said something was wrong with the human aspect of the refineries; that aspect might have changed in view of the successes recorded in recent times.”

Local oil production boosts power supply

Apart from the milestone recorded in the industry with the gradual return of the refineries to installed capacity, the country is also savouring steady electricity supply.

Regarded as an albatross that the government and Nigerians have been contending with, the power sector has recorded an improvement.

With electricity generation increased from 4,515 to 4,545 megawatts (MW) as announced by the Transmission Company of Nigeria (TCN), the country may be set to enjoy uninterrupted supply.

The Nation discovered that the relative stability being witnessed in power supply could be traced to lack of distruption in the electricity value chain, including regular gas supply, reduced vandalism and upgrade of generation facilities by the new investors.

Residents of Agbara, Amukoko, Ojo, Sango-Ota, Ikotun, Igando, Olodi Apapa, Isolo, Ajegunle and Ikeja areas, all in Lagos and Ogun states, have being enjoying improved electricity supply.

Other areas are: the Federal Capital Territory (FCT), Abuja, Akure, Benin, Niger, Port Harcourt and Markurdi.  Residents in the listed communities now enjoy electricity for between four and five hours daily.

The situation, a marked departure from what obtained in the past, has brought succour to many Nigerians, especially business owners, who look forward to further steady electricity generation and supply.

Dr Sam Amadi, the Chief Executive Officer (CEO), Nigerian Electricity Regulatory Commission (NERC), said improvement in gas supply and relative stability in power supply across the country, was due to the anti-corruption disposition of the President.

He said Mr. President has since assuming office on May 29, instilled  discipline that has put every public official on his/her toes,leaving everybody with no option, but to key into the new order.

Amadi noted that the President has not left anybody in doubt that he has zero tolerance for corruption.

According to him, investors in the power sector have been told to sit up or shape out, a development he said, was responsible for the supply of gas to the various thermal plants across the land.

“The bottom line is that there’s a gas supply improvement in the system and partly also because of the zero tolerance for corruption by the present government, people are now sitting up,’’ Amadi said.

Managing Director, Ikeja Electric (IE), Mr Abiodun Ajifowobaje, said the involvement of private investors in the management of Power Holding Company of Nigeria (PHCN) Plc. assets has boosted electricity generation.

According to him, the private managers have introduced measures to improve electricity generation and distribution.

He said Ikeja has moved from a little over 300MW of electricity to 500MW megawatts within a short time.

According to him, the Distribution Companies (DISCOs) have been coming up with an initiative known as ‘’ Embedded Generation’’ through which a particular area will be designated and given to willing investors, who they will negotiate with to build power plants and sell to people within the locality at a cometitive price, relatively higher than what consumers pay the distribution firm operating in their domain.

He said the initiative, when properly implemented, will boost electricity supply.

Spokesman for the Eko Electricity Distribution Company, Mr Godwin Ihemudia, attributed the improvement to the boost in power generation.

The Group Managing Director, Aiteo Power, Dr. Ramson Owen, also corroborated the position, saying the Buhari administration has recorded some feats in the power and petroleum sector.

He, however, said that the sustenance of the achievements should be of primary concern to Nigerians.

But the question begging for answers are: Can Nigeria sustain the progress recorded in the areas of improvement in output of refineries and power supply, taking into consideration the perennial gas supply problems?