Nigeria’s two refineries lie idle, experts ask NNPC to sell

By Odinaka Anudu
Posted on Wednesday, 24 August 2022 16:25

Cars queue to buy petrol at the NNPC Mega petrol station in Abuja, Nigeria March 19, 2020. REUTERS/Afolabi Sotunde

Nigeria’s refineries in Warri and Kaduna are performing below capacity, prompting experts to ask the state-owned oil company, the Nigerian National Petroleum Corporation (NNPC), to sell.

The two refineries made revenues of N6.706bn ($15.7m) between 2017 and 2019, but incurred losses totalling N631.907bn. Salaries accounted for N43.25bn, while maintenance of the Kaduna refinery cost N1.6887tn, according to their financial statements released by the NNPC.

The NNPC recently became a commercial venture and limited liability company, but its board and management have remained the same, casting doubts on the minds of oil and gas experts on their capacity to manage the refining outfits efficiently.

“The government should let go of these refineries and allow the private sector to salvage it – if there is really anything to salvage,” says Mustapha Wahab, an oil and gas expert at Chapel Hill Denham, an investment firm in Nigeria.

The refineries have proved that the government has no business in running any business

“I have been to Dangote Refinery and I have seen the level of work being done there. Its installed capacity alone is 650,000 barrels per day, which is enough to satisfy the local market and then export. You will then wonder why the government is holding onto the refinery or planning to revive refineries that are moribund,” he says.

Below capacity

The NNPC, alongside some financial partners, recently raised $1.5bn to rehabilitate another refinery in Port Harcourt to refine fuel and save the country from spending its hard currency on crude refining abroad.

However, Wahab says the NNPC underestimated the cost of the rehabilitation, which was about $4bn to $5bn. He is sceptical about the refinery’s capacity to compete with Dangote and others across sub-Saharan Africa.

Nigeria currently refines its crude oil abroad as its refineries are unable to perform efficiently owing to years of neglect and corruption, according to experts.

The Warri refinery was commissioned in 1978 to refine 120,000 barrels of crude oil daily, while the Kaduna refinery was programmed in 1983 to refine 110,000 barrels per day. However, oil and gas analysts estimate that both refineries have met only 15% capacity since they were constructed.

“We pump billions in the refineries for turnaround maintenance yet refine oil abroad. The refineries have proved that the government has no business in running any business,” says Ike Ibeabuchi, who is a player in the downstream petroleum sector.

“[The] government must not keep those refineries; it should sell them to the private sector. If they are reluctant to sell, have a 49% share and allow private companies to become the major shareholders,” he adds.

Legacy technology

A Lagos-based chartered accountant, Mr Bala Augie, says the refineries have become liabilities as their technologies are now obsolete.

“The NNPC is now a commercial venture, and its shareholders won’t enjoy inheriting liabilities. They have to bring in those who understand how to run refineries to take over,” he says.

The government may be reluctant to sell because they are strategic assets, but they need to take the decision that best suits the shareholders

Petrol is one of the most crucial products in Africa’s most populous nation.  The country has faced at least three fuel scarcities this year because the NNPC and the Nigerian government are regulating the petrol market and marketers aren’t allowed to sell at the market rate.

Nigeria consumes over 50 million litres of petrol daily, though the figure is disputed. Experts however believe the population places the country on a better market pedestal to compete in refining.

State capture?

Still, some analysts remain sceptical about allowing private companies to buy the state-owned refineries, saying that it would amount to state capture.

An oil and gas expert, Mr Zakka Bala, says Nigerians must prevail on the government to rehabilitate the refineries and manage them efficiently.

“A lot of people do not understand what it takes to run a country with 200 million people. We must not allow them to get away with selling the refineries. They must fix them and manage them because they are strategic assets,” he says.

Even so, Dr Muda Yusuf, an economist and chief executive officer of the Centre for the Promotion of Private Enterprise, slightly disagrees.

“The NNPC needs to have a different business model. I am sure that it is no longer going to be business as usual. They can manage it well alongside the private sector – the way Saudi Aramco is being managed. They can also adopt the LNG model, whereby they have 49% share and the private sector, 51%. Another option is to turn the refineries around and get investors to buy. The government may be reluctant to sell because they are strategic assets, but they need to take the decision that best suits the shareholders,” he says.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options