Most Nigerians have come to accept that the Nigerian National Petroleum Corporation (NNPC) must perform Turn Around Maintenance (TAM) on our refineries, but what we do not know is that the cost of these TAM is so high that it would actually make better sense to build a new refinery than to continue having these maintenances.
As an example, the cost for the TAM for the Port Harcourt refinery, as tendered by the original builder, was $297 million as of 2013. However, in the same year, the Azeri state energy company SOCAR built a 40,000 barrel per day refining capacity refinery at $250 million in Kyrgyzstan.
Also in the same year, Comico Oil built a 100,000 barrel per day refining capacity refinery for $250 million in Serbia. These are but a few examples of refineries being built with an amount less than what we spend on maintaining our own refinery.
Does this make sense especially when Nigeria’s crude, the Bonny Light Sweet Crude, is very low in sulfur and easy to refine?Something is wrong somewhere!
If other nations are building refineries for the price it takes us to maintain our refineries, I posit that it is better for us to sell our present refineries and use the money we are currently devoting to TAM to build new refineries that will create jobs and reduce our dependency on foreign fuel.
All our refineries are old. The Port Harcourt refinery was built in 1965 and upgraded in 1989. The Warri refinery was built in 1978, while the Kaduna refinery was finished in 1980. Our refineries have an average age of over 30 years. Since they were built, new technology has been introduced that has made much of their operating systems near obsolete. This is the reason why we are spending colossal sums to maintain them.
To put things into perspective, imagine taking a Mercedes Benz 450SEL 6.9 for servicing at a Mercedes Benz authorised service agent in the year 2015. The service may cost you even more than the car is worth because Mercedes Benz stopped making the 450SEL in 1981. Any part required for the service would have to be custom made from Germany or cannibalised from another Mercedes Benz 450SEL. If the service agent will be truthful to you, the best advice would be to buy a new Mercedes because there is nothing as expensive as an old Mercedes.
This is the state in which Nigeria finds itself with her refineries. Our refineries are old and their technology has not been upgraded over the years. TAM is called Turn Around Maintenance for a reason. They are designed to maintain a refinery not upgrade it. China for instance has passed a Cleaner Production Promotion Law of the People’s Republic of China, that will lead to “phasing out outmoded process units and technically transforming and improving older refineries”.
In 1982, America had 301 refineries with a combined refining capacity of 17.9 million barrels. Today, America has reduced the number of her refineries by half by shutting down the old refineries and building newer, cheaper and more energy efficient refineries and they have maintained the same refining capacity! In other words, the US has reduced the size of her capacity by 50 per cent and maintained 100 per cent of her output by adopting new technology.
With new technologies that have simplified the process of desalting and fluid catalytic cracking, the business of refining has evolved. But rather than evolve, Nigeria continues to take her Mercedes Benz 450SEL to the dealership for service as usual. The dealers will happily take our money but that does not change the fact that technology has left us behind!
If illiterate and semi literate Nigerians in the Niger Delta are able to refine crude oil locally and come out with petrol that works in cars, doesn’t that tell us that crude oil refining has been simplified enough to the point where it has become Do It Yourself! In 2014, the Nigerian Navy announced that it had destroyed over 260 illegal refineries in the Warri area alone! To me that is rather short sighted. Yes, what this people have done is wrong, but it is still evidence of local ingenuity.
What I think should have been done is that the Navy should have arrested these people and handed them over to the police. Thereafter, NNPC in conjunction with the Ministry of Justice, should offer them amnesty if they are willing to reveal the methods they used in refining crude into petroleum products. These methods should then be patented by the NNPC who may then wish to apply them (after tweaking it) for the establishment of inexpensive refineries in Nigeria. After all who cares how petrol is refined as long as it can fuel a car without damaging it? To paraphrase myself and Chairman Mao of China, “It doesn’t matter whether a fuel is black or white, if it moves a car it is good fuel.”
But then corrupt officials will not let this be. After all they allegedly make money by inflating contracts for the TAM of our refineries and as a result will not want the system to end. That is why we need to run NNPC in a businesslike manner. Right now, President Muhammadu Buhari simply appoints the group managing director (GMD) and board of the corporation. There are no strict rules regarding who may or may not be appointed as GMD and board member of the corporation.
The NNPC, which is a creation of statute, is more important to Nigeria than say a corporation like the Federal Inland Revenue Service (FIRS), yet, the president needs Senate confirmation to appoint the head of FIRS but not the GMD or board members of the NNPC. Does this make sense? If we ensure that the strictest recruitment criteria is followed in staffing, the NNPC from top to bottom and that at the top the recruitment is subject to Senate approval, we will have a brand new NNPC. Once you can get a new merit-based team in place and give them targets, Nigerians would be surprised how quickly the NNPC improves. Until then, all we are doing is taking our Mercedes Benz 450SEL for servicing.
My name is Ben Murray Bruce and I just want to make common sense!