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Monday , 22 October 2018

Nigeria’s 3 Refineries gulp N92bn running cost yearly

Over-staffed with 4000 workers,the Nigerian National Petroleum Corporation (NNPC) spends an average of N92 billion yearly to run the three refineries in the country even though they are operating at half of their installed capacity.

This makes them in the league of refineries with the highest operating costs worldwide, according to official Refinery Financial Performance data.

The data showed that in the last three years alone, N276.872 billion has been spent as operating expenditure or OPEX on all the refineries.

According to information sourced from leading refinery service advisory companies, OPEX or operating expenditures include expenses made on refinery personnel, maintenance, administrative, cost of chemicals and additives as well as catalysts, utilities (including electric power, water) among other general administrative expenses.

Operating costs of a refinery vary widely across countries and regions and such costs depend on multiple factors such as size and the complexity of the refinery, among others.

Guzzling funds for doing nothing

In 2015, N87.3 billion was expended as OPEX on the three plants located in Port Harcourt, Warri and Kaduna. The cost to run the refineries was N87.1 billion in 2016 but rose by 17.4 percent to N102.3 billion in 2017, according to the official data.

Despite suffering intermittent hiccups, months of low capacity utilization and zero crude refining at times, the data showed that the Kaduna refinery (KRPC) accounted for the highest operation costs within the last three years.

The Port Harcourt refinery (PHRC) adjudged as best performing among the three, gulped N96 billion while the Warri refinery famous for frequent process unit downtime soaked up N122.9 billion as operations cost.

Findings also showed that it is difficult to compare operating costs from different refiners/oil companies as they are not reported regularly and on a common basis.

However, world’s leading performance improvement company HSB Solomon Associates LLC, in one of its study of competitive refinery practices reported that for a refinery to be economically viable, its operating cost must be low.

According to one of HSB Solomon Associates’ report, the least-efficient refineries typically have high maintenance costs, low energy efficiency and high personnel usage.

The country’s refineries can pass in the category of least-efficient and economically nonviable among its global peers.

Refineries lost N213bn in 3 years

Data culled from NNPC’s operations report between 2015 and 2017 showed that the refineries OPEX continued to rise just as the three plants combined posted deficits of N213 billion, in the last three years put together, with yearly average loss put at N71 billion.

The NNPC recorded a total loss of N546.63 billion in the last three years and the corporation has attributed most of the losses to the downtime and “unimpressive performance of the refineries.”

Sources in the corporation explained that labour or personnel cost for all the refineries is a major contributor to the high operating cost recorded by the refineries.

One of the sources with knowledge of the matter said the refineries are overstaffed and this situation puts the corporation at a tight corner.

“Do you say because you want to cut down on cost you retrench? That means you are back on the table with PENGASSAN and NUPENG. The next thing you hear is stoppage of work,” the source said.

Over-staffed with 4000 workers

Another source in the corporation said, “Contributing to this (operating cost) is the cost of labour, if you check virtually all the refineries are overstaffed but if we know this what do we do? We embark on retrenchment or redeployment? They will shut down the place that is why the government is embarking on a scheme for investors to put in their money and revamp the refineries.”

“But even if the financier comes in how they are going to manage the workforce. One of the recommendations submitted by one of the seven committees to advise the NNPC management on revamping the refineries is the deployment of staff. So, where do we deploy them to? They are between 3 to 4000 workers so it’s a big issue,” the source said.

What experts say

Commenting on the refineries OPEX, the Chief Executive Officer (CEO) of the International Institute for Petroleum, Energy Law and Policy (IPELP) Dr Timothy Okon said determining whether the amount spent as OPEX on the refineries was high or low would be meaningless if the volumes of crude processed by the plants within the period are not taken into account.

“OPEX is usually reported within a context. There is fixed OPEX, there is operating expenses related to throughput. Those numbers should be related to the amount of crude processed,” Dr Okon who was a former Group Coordinator, Corporate Planning and Strategy at the NNPC said.

“You need to link it with the volumes of crude that were processed then you have it on a per barrel basis. If you have that on a per barrel basis then it’s meaningful. On a per barrel basis you will know whether it is high or low,” he said.

Also speaking the Technical Consultant to the President/CEO on Refinery & Petrochemical Projects, Dangote Industries Limited, Engr. Babajide Soyode said that high operating cost of a refinery may be due to problem with the refinery or waste but it doesn’t mean the refinery is not viable.

He said a lot of factors including the typical cost of operating similar refineries of typical capacity and complexities should be taken into consideration before reaching a particular conclusion which OPEX figures are high or low.

He, however, noted that if such amount of money is spent and the refineries did not operate to a certain capacity that means some is wrong.

“If you operate a refinery less than say 90 percent capacity at less than 90 per cent of the time then something is wrong. A refinery is supposed to operate at over 90 per cent of its capacity over 90 per cent of the time but of course these once are far from it,” Soyode who is part of individual spearheading the construction of the 650,000 barrels per day Dangote refinery said.

“The fact is that these refineries have not been maintained properly over years so the cumulative effect of that is what they (refineries) are suffering.”

He argued that contrary to popularly belief that the refineries were old and beyond redemption, a total upgraded of the plants with current technology and not outright sale should be considered by the government.

“We don’t need to sell the refineries but upgrade them but the problem is should the government continue to run them? It should be given the opportunity to operate like a private refinery like the Indians are doing,” he said.

Also speaking, renowned economist Prof Eghosa Osagie said the country’s failure in refining and expansion into petrochemicals are part of problems that have complicated its economy.

“Our refineries cannot meet our local demand so we are forced to import. When you combine the protracted devaluation of the naira with petrol import then you are faced with a dilemma. The price of petroleum product will be so high as to create a political crisis for the leaders which many governments would want to avoid,” he said while delivering a lead lecture at the 2018 Oil & Gas Public Lecture Series organized by the Institute of Oil and Gas Research & Hydrocarbon Studies in Abuja at the weekend.

“I am sure the PIB whenever it is passed will provide opportunities for more refining capacity for the country in which the host communities, Nigerian and foreign investors will have a stake in production,” he said.

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