NNPC Signals Intention To Privatise Refineries
18 Aug 2017
The Nigerian National Petroleum Corporation, (NNPC) has signalled its intention to privatise Nigeria’s troubled refineries, performing barely 15 per cent of their installed capacity after they have been refurbished.
Anibor Kragha, NNPC chief operating officer, Refineries, in a presentation at the 2017 Association of Energy Correspondents of Nigeria (NAEC) conference held in, Lagos on Thursday, said that selling the assets in their current state would not be in the best interest of the country.
“If you inherited a car that has been abandoned for almost 30 years, you would want to clean it up a little, refurbish it before you consider selling, otherwise you may not get the right value for the asset, it is similar with the refineries,” said Kragha.
Ibe Kachikwu, minister of state for petroleum resources, in an address at the event, explained this refurbishment in greater detail.
“In optimising local refinancing capacity, the first thing we did was to initiate steps towards revamping our own refineries in Port Harcourt, Warri and Kaduna. The refineries are not to be concessioned nor sold in whole or part because the current state, optimal value would not be obtained,” said Kachikwu.
“On the concept for co-location of refineries, we have moved from our initial model, which involved co-locating brownfield refineries with the existing refineries to the co-location of brand new (greenfield) refineries. The overall concept remains the same – pipelines, jetties, and where possible, storage tanks would be jointly invested in and shared,” said Kachikwu.
The minister further said that Nigeria sought externally for resources to finance the rehabilitation of the existing refineries, “which was a very tall order, telling someone to invest about $1bn in the refineries rehabilitation with no equity, and wait for incremental volumes of refined products to recoup their investment.”
Nigeria is engaging the original builders of the refiners, engaging partners with finances to fund the repair work on the refineries. The plan, according to the minister, is for the management team comprising the original builders, financiers and the NNPC, to steer the operation of the refineries over a period of 5-6 years to breed incremental liquids for recouping investments.
The minister did not indicate if the refineries would be sold at the end of the six years.
Aliko Dangote’s 650,000 barrels per day refinery is however billed for completion in 2019, raising a spectra of anxiety regarding the fate of the existing refineries.
According to Kachikwu, another dimension is to ascertain what holders of existing licenses to establish refineries have done since they were issued their licenses. Of about 40-50 licenses issued by DPR for the establishment of modular refineries, only two have shown substantial progress.
Meanwhile, Emmanuel Iheanacho, chairman of Integrated Oil & Gas Limited, one of the two licensees working to use his modular refinery license, said the challenges involved in establishing modular refineries were enormous.
A key challenge is building the plant close to the sea or a marginal field operations for easy supply of crude, said Iheanacho, urging operators to engage more with the DPR in terms of feasibility studies and carrying out environmental impact assessment.
“But the greatest challenge facing us marginal refineries is funding, as banks are not easily disposed to grant the loans at rates that will make operations sustainable.
Analysts say operators require as much as $2 billion dollars to set up marginal refineries that will produce over 100,000 barrels per day but banks whose books are currently bogged down with debts to the sector are not disposed to grant loans for such big projects.