By Emmanuel Uwaomah
ONE of the take home messages from the Group Managing Director, the
Nigerian National Petroleum Corporation, NNPC, Dr. Emmanuel Ibe
Kachikwu, after scaling his ministerial screening was that finally, the
nation’s four refineries will be made to work.
Kachikwu
If this happens by December as being planned, then not only will
Nigerians kiss goodbye to the perennial fuel shortages that bite harder
during this period, but also significantly reduce the cycle of petroleum
products importation and the attendant huge capital flight and subsidy
claims.
Heads were up at the National Assembly, as millions of Nigerians
watched the live telecast of the ministerial screening, when Kachikwu
gave the assurance that all the local refineries would have been
re-streamed by the year end.
According to him, this will displace massive fuel imports, cut huge
import bills, reduce pressure on the nation’s lean foreign exchange
earnings occasioned by the free fall in crude oil prices at the
international market as well as create multiplier effects in the
domestic economy.
He expressed confidence in the technical skills of the refineries
workforce, saying that over 80 percent of the NNPC technical staff are
competent. He cited the achievements of the Port Harcourt Refining
Company, PHRC, at rehabilitating the plants as part of the potential
available in the industry.
New business model
While responding to legislators’ questions, Kachikwu gave a rundown
of the Nigeria petroleum industry, and promised to drive an operations
model that will place the Corporation on a performance platform that
will guarantee commercial viability.
For the over one hour he was put to task, he gave a detailed
explanation of a reform package that has been activated to re-inject
vibrancy in the petroleum industry. He also disclosed of plans to
enhance efficiency and transparency in the sector as well as restructure
the national oil firm to be competitive across the full value chain of
the industry.
He equally promised to build local capacity across all the business
units of the Corporation to enable it live up to the roles as the
industry leader, government’s revenue earner, custodian of the nation’s
petroleum assets and lead domestic fuel market supplier.
He, however, noted that target objectives will remain only a dream
except the operations of all the business arms of the Corporation are
commercialised and profitable.
Using the refineries as an example, he said their new role is to
operate as profit centres, reliable fuel sources as well as feedstock
sources for ancillary businesses, particularly for the petrochemicals
and industrial.
At the Port Harcourt Refinery, for instance, he said the complex has
become the reference for domestic technical ingenuity, internal
innovation and revival model for sister refineries in Warri and Kaduna
respectively.
Nigerian refineries: Nigeria’s four refineries have
combined capacity for 445,000 barrels crude oil processing per day,
which produce about 18 million litres of the premium motor spirit, PMS
or petrol. This product is highly prized in the country as one of the
main fuel for transportation and light machines used by homes and small
businesses.
However, the refineries have remained largely moribund for decades
due to poor maintenance and wrong business models. The refineries are
over 30 years and have not had a proper turn around maintenance, TAM,
for over 15 years, as they relied on the NNPC for administrative and
funding control, a system that slowed processes and denied them of
financial independence.
But Kachikwu, who is tipped to become the junior but powerful
Minister of Petroleum Resources, has reiterated that the new business
model he activated in the system will dismantle all administrative and
funding constraints in all the Corporation’s business units, especially
the refineries. He added that this will enable them to leverage internal
energies and competencies in optimising uptime at the plants.
He told journalists in Lagos that the refineries are of strategic
national economic and security importance, and restated his commitment
to not only recover their capacity but also explore opportunities of
building new plants with a view to leveraging the economies of scale in
the existing industry hubs.
Operational efficiency: Kachikwu maintained that all
the nation’s refineries must be revamped and attain 60 percent process
capacity by December, when government will decide the best management
model to adopt in making them efficient.
He noted that none of the refineries can operate profitably below 60
percent capacity, adding that if this were the case, such a refinery
will not be supplied crude feedstock through traditional allocation
processes.
Under this circumstance, he said the Corporation will have no choice
than to explore private sector management for any underperforming
refinery.
He said: “If after we finish (facility maintenance) and we think that
the issue is management then we see if there is somebody willing to buy
a majority share that have the skills set and the market reach
internationally to do the work.
“Obviously if we did that and by then we have expressions of interest
from people who are building refineries in this political environment
they will be given the first right of refusal, because they will be able
to help manage what is there, help to share skills.”
He specified that the acceptable 60 percent performance benchmark
must not be a flash in the pan, adding that it would require sustainable
uptime at the refineries fluid catalytic cracking units, FCCUs, which
is the optimum process unit.
To scale the 60 percent performance hurdle the refineries must add
value to crude oil at all the process units in order to cut waste,
enhance commerciality of operations and optimise resources.
He had told journalists: “The greatest immediate challenge is how do
you limit the debt loss factor and then on the medium term basis address
the issues and make the refineries to work for example? The reality is
that the refineries are not working now, because if you give me a
60percent this week and next week I am down to zero performance, when
you take an average, you are down to 20percent and the average
performance of the refineries right now is below 30percent, that is on a
continuity basis. That is the fact.”
Scaling the hurdle: Interestingly, out of the three
refineries, only the 210, 000 barrels per day Port Harcourt Refinery has
all its three key process units including the Crude Distillation Unit,
CDU; Vapour Distillation Unit, VDU; and Fluid Catalytic Cracking Unit,
FCCU, on-stream after an internal rehabilitation programme.
The company which initiated and successfully evolved the downstream
petroleum industry local content model for in-country refinery
refurbishment and upgrade is already working to ramp up its production
performance level to 80 percent installed capacity in order to enter a
sustainable commercial comfort zone.
Kachikwu, pointed out that only PHRC appears to have crossed the
performance hurdle and stressed that government will no longer run
unprofitable businesses when better options exist in private sector
partnership.
After revamping the refineries, he said, their business models will
be examined to determine the best management approach to take. The
model, he said, will protect and preserve the public interest in the
refineries without compromising efficient commercial and technical
operations standards.
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