By Ibrahim Sanyi-Sanyi
The approval of US$ 1.5 billion contract for the rehabilitation of Port Harcourt Refinery Company Ltd (PHRC) by the Federal Executive Council (FEC) on Wednesday, 17th March 2021 has trended in Nigeria’s cyberspace with various compatriots expressing optimism, curiosity and criticisms. This is not unusual! Nigeria being an emerging democracy, public discourse is replete with divergent points of views, biases and influences.
This expository piece intends to scan the planned multi-million dollar PHRC rehab and avail the reader with facts and informed perspectives to enlighten him as he process deluge of information and decides what to do with it.
- A strategic national asset
PHRC is Nigeria’s biggest plant accounting for 47% of 445,000bopd (barrels of oil per day) NNPC refining capacity, capable of producing 10.4 million litres of petrol per day equivalent to about 19% of national consumption (55 million litres/day). The plant is connected to pipelines (crude supply and petroleum products) for evacuation and economic distribution to South West/parts of South-South via coastal transportation through the jetty in Okrika and to South South, South East, North Central and North East of the country via pipelines thereby ensuring national energy security for the country.
After rehab, PHRC operating at 90% capacity will supply 17% of national petrol consumption. This will significantly reduce fuel importation, conserve scarce forex and assist in strengthening the naira. Furthermore, thousands of jobs across the value chain will be created to boost the GDP – crude supply, product distribution as well as procurement & service contracts.
- The plant is undergoing total rehabilitation not TAM
Turnaround Maintenance (TAM) is a scheduled large-scale maintenance activity wherein an entire process unit is taken-off stream for an extended period for comprehensive revamp and renewal. TAM is normally carried out every two years. Conversely, the proposed rehab will consist of comprehensive repairs of the plant with significant replacement of critical equipment to ensure the plant integrity is maintained for a minimum period of ten years.
In any case, PHRC had the last TAM in 2000, which was 21 donkey years ago.
- Is the proposed rehab costlier than building a new refinery?
The answer is not far-fetched! But even then, it is important to note that the initial rehab cost of about US$2.5 billion was reduced to US$1.5 billion through painstaking reviews and negotiations by the Kyari led NNPC before the contract was presented to FEC for approval.
That aside, the question begging for an answer is: can you build a 210,000bopd name-plate capacity refinery with US$1.5 billion? The answer is fat no! Available cost data indicate that building a new refinery is a billion-dollar business. For instance, the 250,000 – 300,000bopd Aramco Oil Refinery in Pakistan is estimated to cost US$10 billion. The 230,000bopd Abreu e Lima Refinery in Brazil has an estimated cost of US$12 billion. The 650,000bopd Dangote Refinery in Nigeria is estimated to cost US$19 billion.
- Does Shell’s sale of its Californian refinery compare?
Again, no! Let’s compare apple with apple, please. Shell’s sale of its Martinez Refinery in California to PBF Holding for US$1.2 billion in contrast with US$1.5 billion PHRC rehab. I’ll explain.
To begin with, the sold refinery built-in 1916 is old (105 years), it had a major fire incident in 1989 and is having regulatory issues with state authorities. This reality, coupled with relatively high cost of doing business in California, might have informed Shell’s decision to sell the old plant.
Furthermore, as a condition of sale, Shell and PBF previously entered into a market-based crude oil supply and product off-take agreements to continue supplying Shell-branded businesses. This will ensure that Shell customers continue having access to Shell-branded fields. Simply put, the transaction was more or less a Management arrangement packaged as sale to protect Shell’s image and serve its business interests.
- Viable rehabilitation project, majorly funded by a credible lender
Afreximbank is the leading financier of the rehab project providing US$1 billion (67%). This is credible confirmation of the rehab project viability and bankability.
- The rehabilitated refinery will be run under O&M Model
In line with key lender requirements, the refinery after rehab will be run on O&M by an experienced and credible operator. NNPC will retain 100% of refinery ownership.
- Transparent project implementation governance
A project governance structure that includes external stakeholders such as the Ministry of Finance, ICRC, NEITI and labour unions (PENGASSAN & NUPENG) will be emplaced to provide steer and general directions.
You be the judge.
Ibrahim Sanyi-Sanyi writes from Abuja
