The planned rehabilitation of Port Harcourt refinery

UNDER normal circumstances, last Wednesday’s announcement that the Federal Executive Council (FEC) has approved the sum of $1.5 billion (about N600 billion) for the rehabilitation of the Port Harcourt refinery at Alesa Eleme should have been warmly received by the Nigerian public and watchers of the country’s oil industry. Addressing reporters after the FEC’s virtual meeting, Minister of State for Petroleum, Timipre Sylva, said that the planned rehabilitation, contract for which has been awarded to Maire Tecnimont S.p.A., an Italian firm, would be conducted in three phases of 18, 24, and 44 months respectively. Furthermore, and in an apparent departure from past practices, the minister assured that plans had been put in place to enlist the services of a maintenance company. Said Mr. Sylva: “Talking about operations and maintenance, that has been a big problem for our refineries and that was also exhaustively discussed in council and the agreement is that we are going to appoint a professional operations and maintenance operations company to manage the refinery when it is finally rehabilitated.”

Why, despite these assurances, has the FEC’s approval of money for the refinery’s rehabilitation been greeted with widespread skepticism? One probable reason is that many Nigerians have seen this before. Over the past several decades, successive administrations (military and civilian) have appropriated large sums of money for the rehabilitation of the country’s four refineries, yet none of them has ever worked at anything resembling average capacity. As a result, today, the country imports nearly all its refined petroleum products. Second, the FEC could not explain why, out of the four government-owned refineries, the Port Harcourt refinery, which last operated in 2016, has been singled out for rehabilitation. Third, it is widely known that, not unlike its sister refineries, the Port Harcourt refinery operates at a huge loss. For instance, according to media reports, “In 2018 alone, the refinery recorded a total revenue of N1.45 billion and recorded an expense of N240 billion in the same period.”

Nigerians’ frustration that the refineries have become a white elephant, and that the recent financial outlay will follow its predecessors down the drain, was best captured by former Vice President Atiku Abubakar, who released a statement questioning the wisdom of budgeting such a huge sum to renovate a refinery when the country is in such dire straits economically. Describing the FEC’s approval as “throwing good money after bad,” Mr. Abubakar also pointed to the incongruity of the country of seeking to invest in $1.5 billion in rehabilitation when, just last year, “Shell Petroleum Development Company… sold its Martinez Refinery in California, USA, which is of a similar size as the Port Harcourt refinery, for $1.2 billion. We must bear in mind that the Shell Martinez Refinery is more profitable than the Port Harcourt Refinery.”

We share the concern of Mr. Abubakar and the majority of Nigerians that it does not appear as if enough thought has been put into this project, and that the financial justification, if there is one, remains vague. Furthermore, given the minister’s statement that part of the money for the project will be sourced from an Afreximbank line of credit, we are worried that this will plunge the country into further debt and put the health of the Nigerian economy in jeopardy. Between 2015 and now, the country’s debt portfolio has nearly tripled from N12 trillion to N33 trillion.

The country can ill afford to continue throwing money at projects of dubious value. It should get out of the refining business and allow private investment to do its magic.

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