Funding structure puts Kachikwu’s 2019 Nigeria’s refineries revamp promise a stretch too far

Ibe Kachikwu, Nigeria’s minister for state of petroleum resources, recently reiterated this administration’s commitment to ensuring that the nation’s refineries increase their capacity utilization from the current 20 percent to 80 percent in 2019.

However, experts say that without a concrete funding structure in place, it is just going to be an empty promise and that it could be part of the current administration’s ploy to get re-elected.

There are currently four existing refineries in Nigeria, two in Port Harcourt (Port Harcourt Refining Company), one in Kaduna (Kaduna Refining and Petrochemical Company) and one in Warri ( Warri Refining and Petrochemical Company) with an installed capacity of 445,000 barrels per day; but in 2017, capacity utilization was below 25 percent. A myriad of problems seems to be plaguing the obsolete refineries and no amount of public funds sunk into them has been able to solve any of them.

Lack of proper maintenance is just one of the many problems and in spite of an estimated $20 billion that has been spent on maintaining the refineries, they are still grossly underperforming.

As part of the steps taken to achieve the goal of increasing refinery capacity utilization by 2019, Kachikwu said that a rejig of the refineries is ongoing and the use of public sector funds will not be involved, which leaves it safe to say that private investors are being wooed to come and invest; but on what terms? Most experts are of the opinion that this can go down in various ways and some of these are – by concession, by leasing the refineries out, by selling the controlling and or part of the stake.

The federal government has flirted with these funding models before but none was successfully implemented as it usually reverted back to the use of public funds. The 2017 failed concession of the Port Harcourt refinery to Oando and Agip is a case in point. The refineries are like over-grown babies that the government is unwilling to let go, but sooner or later, it might be forced to do so.

The government is slowing down the process already because having a target date is not the problem, outlining a coherent plan and achieving the goal is. NNPC has said that the next round of revamping will be funded by private investors but as usual, it has been silent on which funding model will be adopted.

The fact that a funding model for the refineries has not been announced shows lack of seriousness on the part of the ministry of petroleum resources, because if the refineries are to reach 80 percent capacity utilization by 2019, certain issues, especially, which model would be adopted for the revamping, bidding round for prospective investors, funding terms amongst others, must first be resolved. Then the model must be approved by the Senate and that would take a long time because every decision concerning the oil and gas industry in Nigeria is usually weighed down by political bickering and bureaucracy.

Odion Omofoman, an energy expert and C.E.O. of New Hampshire Capital Limited, who spoke to business a.m., said if the plan is to get private investors to fund the revamping of these refineries, the key question then becomes what are the funding terms? He noted that, “the terms of funding are very critical; have they been ironed out properly between the government and prospective investors?”

Experts believe that unless NNPC or the ministry of petroleum resources comes up with a plan on how they are going to proceed, these are mere comments with no seriousness attached.

Jubril Kareem, an energy analyst with EcoBank Research in a phone conversation with business a.m. said that, “from an analytic standpoint, what I would clearly say is that as much as Kachikwu is in a position to say this, there has not been any concrete plan put forward. What would be the model, would it be concession, sold or leased out?” He asked.

He went further to say that, “we can’t analyse, criticise or evaluate for credibility if we don’t know what the plan is.”

Another problem with the 2019 goal of reaching 80 percent capacity utilization as a result of the aforementioned setback might be the said timeframe.

Decision making in Nigeria suffers from unnecessary bureaucracy and lack of a unified long term vision. It might take as long as a year just to finally make a decision the Senate and petroleum ministry agree upon and after which implementation becomes the next hurdle to cross.

Kachikwu saying that, “we look forward to completing the process by July 2018,” might be stretching it too far.