Making Sense of Kyari’s Stance on Port Harcourt Refinery’s Rehabilitation

By Editor on March 28, 2021

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The immediate frenzy that trailed the recent approval by the Federal Executive Council (FEC) of $1.5 billion to rehabilitate Port Harcourt Refining and Petrochemical Company Limited (PHRC) that has capacity to produce 10.4 million liters of Premium Motor Spirit (PMS) per day graphically explains the centrality of the oil sector to the daily Nigerian life.


Virtual Federal Executive Council Meeting

The socio-political and econometric dimensions of the approval become even clearer when it is considered that the refinery’s capacity which can refine 210,000 barrels per day was last maintained in 2000, precisely 21 years ago when so much would have been gained. This is just one angle of the matter.

The politics of it is thrown up when it is considered that the move signals President Muhammadu Buhari’s readiness to fulfill his campaign promise to fix all four refineries that had been rendered dormant, by design or default, for over 20 years, meaning that when the rehabilitation is finally over in four years’ time, it automatically marks the end of lucrative business for emergency petrol importers and their cronies benefitting from long years of importation largesse (and fleecing the nation dry!)

This is the real fight, according to some industry stakeholders who spoke to Daily Times at the weekend. And the fight is always bloody. 

To the Nigerian masses, March 17, 2021, the day that the Minister of State for Petroleum Resources, Mr. Timipre Sylva, announced the Council’s approval of the $1.5 billion should mark the beginning of their liberation day from the hardship of harsh petroleum realities of many years.


The Nigerian masses have experienced long years of unstable petroleum pump prices. Just recently was a controversial petrol pump price increase that was later reversed. At the root of these are Nigeria’s four dormant and non-working refineries which compel the country to import virtually all its refined petroleum products.

Certain logical questions should agitate the minds of ordinary Nigerians such as: how did all the refineries go down at the same time, by design or default, ad for what motive? If it is by design, what was the motive? Who are those calling for outright sale of the refineries?

It is obvious to Nigerians that the Nigerian National Petroleum Corporation has come under heavy weight as the nation’s fuel importer of last resort because the current petrol pump of N162 is far below N211 and N234 per liter as the landing cost of importation into the country.

The NNPC GMD, Mele Kolo Kyari, last Thursday, cried out that his corporation spends between N100 billion and N120 billion monthly to pay the balance which the consumers should have been paying as full value of the PMS they consume, prompting Nigerians to begin to read between the lines.

Juxtaposing his statement with the FEC’s approval to fix the Port Harcourt refinery speaks to the haste, enthusiasm and commitment being displayed by the present government to quickly fix the nation’s dormant refineries to refine crude oil locally to meet the refining needs of over 200 million Nigerian consumers.    

Industry watchers have welcomed the development, describing the benefits of bringing the nation’s refineries back on stream as enormous and endless. From satisfying local energy demand, growing the nation’s GDP, to strengthening the Naira by reducing the demand for forex to creating thousands of jobs across the value chain (crude supply, operating and maintaining the refinery, product supply, etc) including several third-party contractors that will supply outsourced services or goods, the advantages are huge. 

While the refined products also serve as feedstock for small scale local manufacturing, the most significant and visible benefit of the rehabilitation option is the national energy security it guarantees Nigerians.

If COVID-19 lockdown became global and Nigeria couldn’t import, it would have been a disaster as there was no capacity to refine crude in-country and as such, there would have been no products at all.

Nigeria’s three refineries in Warri, Kaduna and Port Harcourt with a combined capacity of 445,000b/d capacity had suffered years of serial neglect due to delayed mandatory Turn Around Maintenance (TAM) that had caused performance decline for over 20 years forcing them to be shut down for proper diagnosis and rehabilitation. While Kaduna Petrochemical Company Limited (KRPC) can produce 110, 000 bpd, Warri Refining Petrochemical Company Limited (WRPC) has capacity for 125, 000 bpd.

Many Nigerians are excited about current moves by government to rehabilitate the Port Harcourt refinery for optimal performance again. Unlike TAM which comes up every two years, the rehabilitation will involve comprehensive repairs of the plant with significant replacement of critical equipment to ensure plant integrity for at least ten years.


Notwithstanding, some critics believe it is more economical to build a new refinery than “just waste US$1.5bn” to rehabilitate the PHRC, which holds 210,000bpd out of Nigeria’s 445,000bpd refining capacity.

For example, Mr. Atedo Peterside, founder of Stanbic IBTC Bank Plc, called for the sale of the Port Harcourt refinery to core investors, urging that the $1.5 billion rehabilitation budget be subjected to informed national debate.

‘’FG should halt $1.5 billion approval for repair of Port Harcourt refinery and subject this brazen and expensive adventure to an informed national debate. Many experts prefer that this refinery is sold ‘as is’ by BPE to core-investors with proven capacity to repair it with their own funds’’, he said.

Instructively, critics who raised Shell’s sale of its Martinez Refinery in California to PBF Holding for $1.2bn “while NNPC is only rehabilitating PHRC for $1.5bn” may be unmindful that the 105 year-old Martinez Refinery (built in 1916) had a major fire incident in September 1989 causing it some grave regulatory challenges with the Californian State’s environmental authorities, apart from the relatively high cost of doing business in California, were the reasons for Shell’s decision to sell.

Also, Shell and PBF had previously entered into a market-based crude oil supply and product off-take agreements to continue supplying Shell-branded businesses and ensuring that Shell customers continue having access to Shell-branded fields showing that what happened between Shell and PBF was just a Management agreement packaged as a sale to manage and protect Shell’s image. It is not the same as the cost of rehabilitating an NNPC refinery or even building a new one. Peddlers of such stories now know that the up-coming refineries threaten their long-term interests that will eventually throw them out of business in favour of over 200 million Nigerians. 

But observers still think that while Atedo Peterside may not be alone in thinking it is business as usual whenever an issue like refinery rehabilitation is mentioned due to the sad history of non-refining refineries in the country, it is note-worthy that when the rehabilitation is completed, age-long fleecers of the nation’s wealth would have been out of business.

To further handle Atedo Peterside’s worry, independent inquiries conducted by this newspaper into the costs of brand new refineries across the world revealed Aramco Oil Refinery (250,000-300,000 bpd) in Pakistan was estimated at that $10bn, Abrue Lima Project (230,000) in Brazil at $12 bin, Pengerang Refinery and Petrochemical Integrated Development, RAPID (300,000 b/d + 3 mtpa) naptha steam cracker) in Indonesia at $27bn. The 650,000bpd Dangote Refinery in Nigeria is estimated at US$19 billion.

Not many know that the initial rehabilitation estimate for the Port Harcourt refinery was about US$2.5billion but was painstakingly negotiated downward by the dogged Kyari-led NNPC team to US$1.5 billion for onward presentation to FEC for approval.

Investigations have also revealed that many industry stakeholders think that serious countries don’t sell their strategic national assets such as the refineries as they are considered as the people’s patrimony apart from their historical importance. 

Nigeria is the only major oil and gas producer in the world that does not refine petroleum products in spite of its abundant hydrocarbon resources. It relies heavily on importation for most of its PMS needs locally. The popular thinking is that serious countries don’t sell off their strategic national assets such as refineries to the highest bidder to shore up their refining needs. Even countries that don’t produce a drop of hydrocarbon still aspire to build refineries.

Details of the FEC’s approval showed that the foremost African Export-Import Bank (Afreximbank) is the lender that agreed to raise $1billion for the project while Federal Government will add US$550m. The contractor, Tecnimont SpA, representative of the reputable Original Refinery Builder (ORB) ranked as one of the top ten global Engineering, Procurement, Construction, Installation and Commissioning (EPCIC) Contractor with requisite experience in building refineries, is believed to be mobilizing to move to site.

Shedding more light, NNPC’s GMD Mr. Mele Kyari, disclosed that the P/H refinery rehabilitation process was carefully undertaken since 10 years ago but was slowed down due to some mistakes along the line, explaining that the basic condition which Afreximbank gave was that the NNPC will not operate and manage the refinery upon completion but rather a private-sector partner.

‘’This means that NNPC will not operate this plant as a basic requirement of the financing institution. The financing partner will ensure that the contractor will work efficiently. Importantly is that the contractor O&M gave a guarantee that the facility will operate for the duration of the loan and the fact that the project will be done under a financing structure supported by Afreximbank.

‘’The bank promised a 500 million dollar loan in the first instance and additional 500 million dollars making it 1 billion dollars and the condition is for the loans to be repaid from the operations and proceeds of the plant’’, he added.

‘’During rehabilitation, by the 18th month, part of this plant will begin to produce, particularly the gasoline plants. In rehabilitation, we normally don’t shut down the plant completely, we repair a segment of it, and then it starts working, and then, you move to the next segment.

‘’You continue to scale up and that is why, within the four-year period, the contractor would have completely left your premises. What it means in a technical sense is that in 18 months, we will see production coming from that plant; we will follow it plant by plant until we are completely done’’, Kyari disclosed. 

Unlike what obtained in the past, the project is a governance structure that includes key independent external stakeholders such as Ministry of Finance, NEITI, ICRC, PENGASSAN and NUPENG. KBR and NETCO are NNPC’s Engineers to ensure that the project is delivered on schedule, within budget and at the right quality. Also, unlike the regular TAM, this rehabilitation will involve comprehensive repairs of the plant with significant replacement of critical equipment to ensure that the plant’s integrity is maintained for a minimum of ten years.

Not a few public analysts believe that the lender requirement of Operate & Maintain (O&M), unlike the previous failed models, is the best strategy for now for the following reasons as the contractor is expected to:   

• Be a single point of responsibility for managing operations, maintenance and technical services within the refinery’s battery limit

• Be a credible, proven refinery operator with preferably FCC experience

• Operate and maintain the refinery efficiently to generate sufficient margins to pay back the debt

• Be able to manage local and specialized sub-contractors

• Retain current NNPC staff, and actively support employee development to prepare for the transfer of the refinery management back to NNPC (timeline to be defined)

• NNPC will retain 100% of refinery ownership (e.g. no JV structure etc.)

• NNPC does not expect significant capital projects (e.g. upgrades, de-bottlenecking etc) during the O&M contract phase, and,

• NNPC’s structure and mandates outside of the refinery’s battery limits will not be impacted by the O&M strategy (e.g. PPMC).



Posted on March, 28 2021

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