What $1.5bn refinery repair says about Nigeria: The more you look, the less you see

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By Chika Izuora and Festus Okoromadu

ABUJA – The Port Harcourt Refinery is one of the assets listed for sale by the cash-strapped Federal Government.
In a dramatic turn of events, however, the government on Wednesday announced that it plans to spend $1.5billion to repair the refinery.
Where is the money coming from?

Sources said the Nigerian National Petroleum Corporation (NNPC) would provide $300m. But that’s only one-fifth of the amount.
In January, Reuters reported that the government plans to borrow $1billion from the African Export-Import Bank (Afreximbank), potentially guaranteed by the Central Bank of Nigeria, to plug a substantial part of the cost. The remaining $200million could be raked in from the operations, when the refinery comes back on stream. That is, if – and it’s a BIG IF – the cost is not varied again.

Why the government plans to spend money that it does not have to repair a refinery that it does not need has become a major subject of public interest.

On Sunday, the Founder of Stanbic IBTC and Anap Foundation, Atedo Peterside, called for a “national debate” on the matter.
“Beyond what the government is saying,” a source said last week that, “the story of politics, intrigues and power-play that makes the economics of the repairs a mere footnote.

About 16 years ago, the Group Chief Executive of Oando Plc, Mr. Wale Tinubu, lost a bid to buy the Port Harcourt Refinery to Blue Star, put together by Aliko Dangote and Femi Otedola.

That hurt. Tinubu had boasted that adding the Port Harcourt Refinery to his portfolio would not only enhance his oil assets, it would also secure Oando’s listing on the Johannesburg and Canadian stock exchanges.

The statement, deemed improper and opportunistic, backfired and played to the advantage of Blue Star. The government of President Olusegun Obasanjo later awarded the Port Harcourt Refinery to Blue Star at about $500million. Also, after cancelling Petro-China’s $103million bid for the Kaduna Refinery, Obasanjo pressed Blue Star to buy the refinery at a price higher than what the Chinese had offered.

Tinubu nursed his injury and left to fight another day. Unfortunately for Dangote and Otedola even though Blue Star had paid about $680million for the Port Harcourt and Kaduna Refineries, Obasanjo’s government had not formally handed over the refineries before handover on May 29, 2007.

Under pressure, the new government of President Umaru Musa Yar’Adua reversed the sale and returned the Access Bank cheque with a promise to Dangote that if government was unable to fix the refineries in two years, Blue Star would have pre-emptive right of purchase. That has been the longest two years in the annals of refinery promises.

“That was a political promise” an inside source said. “It was from the date of that reversal that Dangote promised that he would build his own refinery and petrol chemical company in Nigeria. He took it personal.”

Yet, Blue Star’s loss was music in Tinubu’s ears. It many have taken nearly 16 years, but the cat, backed by influential forces in government and the NNPC, may have enacted its ninth life in the current transaction, featuring Maire Tecnimont.

Although Maire Tecnimont, an Italian process engineering and consulting firm, is managing the contract for NNPC, Tinubu has a long-standing relationship with Tecnimont and other Italian oil companies, nurtured and cultivated, in peace time, through Gabriele Volpi, the Nigerian-based Italian business kingpin, now out of official favour.

Tecnimont did the first diagnostic review of the Port Harcourt Refinery for the NNPC in 2012.
At the time, the firm, which also handled the petrochemical unit of the Warri Refinery and the Eleme Petrochemical Company (now Indorama), came on the invitation of the former GMD of NNPC, Austen Oniwon.

It billed the NNPC about $3million for its integrity check on the Port Harcourt Refinery and estimated that the cost of repairs would be about $290million. By the time the memo leaked from NNPC to vested interests outside and cycled back, the cost of repairs had escalated to $400million.

Apart from the inflated cost, there was another problem. The original design of the refinery was with the builders, the Japanese Gas Corporation (JGC), and neither Tecnimont nor the Nigerian government had it. Tecnimont needed it to get the job; NNPC was not interested in it because it could potentially eliminate the middleman and lower costs considerably.

The Japanese, on their part, said the Niger Delta had become a no-go area, even though they were active in the NLNG. They were happy to hand over the design to Tecnimont on request. Yet, both in Milan and in Tokyo, how the cost of repairs went up by over $100million kept eyes rolling.

By the time Diezani Allison-Madueke became Petroleum Miniser, the quandary had become a sludge. According to a report in Vanguard of April 30, 2016, “In 2013, $1.6billion was budgeted for Turn Around Maintenance (TAM) for the four refineries, with the former Petroleum Minister, Mrs. Diezani Allison-Madueke, stating that over 75 per cent of the spare parts maintenance on the Port Harcourt Refinery had already arrived the country, while the original builder of the refinery had been paid $32million for the TAM.”

Continuing, the report said, “She stated that the TAM for the Port Harcourt Refinery would cost $147million while modernisation of the refinery could cost $406million.”

For decades, the refineries have been Nigeria’s biggest lottery, the draw with which the NNPC keeps its cronies, politicians and the government in power, happy.

But that bazaar was supposed to end in 2015 when President Muhammadu Buhari won election, almost unexpectedly. To drive home the importance of the sector, he announced himself Petroleum Minister, signaling readiness to take responsibility.

It seemed to be going well when Buhari’s government, as part of what was supposed to be a housecleaning, launched a hunt for Allison-Madueke. Buhari’s junior minister, Dr. Ibe Kachikwu, suspended Tecnimont’s original bid to fix the Port Harcourt Refinery, whether $290million or $400million.

In a newspaper report in September 2015, Kachikwu declared that he had been assured that only $10million was spent by NNPC engineers to fix the Port Harcourt Refinery in a phased rehabilitation. The government appeared to be regaining control, at least on paper.
And then the story changed, again. Maikanti Baru, former NNPC GMD who made a virtue of singing from a hymnbook different from Kachikwu’s, asked Tecnimont to come back, four years after the minister had extolled local engineers. The Italians were back. Tecnimont’s patience paid off. The firm was still being owed over $1million from its earlier consultancy and was happy to return to the gig, if nothing else, to recoup a potential loss.

The company rushed to JGC to retrieve the design and towards the end of 2019, submitted a fresh service bill to the NNPC for $50million for “a comprehensive integrity test” and scoping of the Port Harcourt Refinery. The cost of repairs of the refinery, it said, would now cost $1.78billion.
This time, while Tecnimont would be the main consultant, it would also act at the contractor, subletting areas outside its competence, like core engineering, for example, to Saipem of Italy and Chiyoda of Japan, among others. Both companies are active in NLNG. Local contractors have also been shuttling between Abuja and Lagos since the government announced the repairs would restart.

It’s in the sharing of the spoils that Tinubu’s influence, which has grown in contrast with Volpi’s, will loom even larger.
It would seem that what he lost to Dangote and Blue Star nearly two decades ago, is coming back bigger and better packaged. Will Oando make another bid in future?

A source in Oando who spoke with LEADERSHIP on Sunday said, “Oando initially bid to invest in the refinery rehabilitation in support of the federal government’s public, private sector initiative but that could not be realised for several reasons. At this point, Oando is not part of any refinery initiative and the Port Harcourt Refinery is not in our consideration, for now.”

Where is the larger public interest in the deal?
Even at its peak, the Port Harcourt Refinery would only produce 210,000 barrels per day, one third of the capacity of the Dangote Refinery scheduled to come on stream by the end of next year.

Why is a government that is divesting and encouraging the setting up of modular refineries now competing with private refiners? What is the point in deregulation when government insists on feeding the beast of public enterprise?

Why should a government already in debt borrow at least $1billion to repair a company already listed for sale and at a cost many times over what was quoted eight years ago?

And if the lives of Nigerians depended soley on repairing the Port Harcourt Refinery, why couldn’t government approach the original manufacturers, JGC, directly, to cut out the middleman and reduce costs?

While Buhari goes ahead with the contract, these questions appear to have divided even insiders at top levels of his government, with Vice President Yemi Osinbajo; Minister of Finance, Budget and National Planning, Zainab Ahmed; and the DG of the BPE, Mr. Alex Okoh, on one side. On the other side are the Ministry of Petroleum Resources, NNPC, a few very close aides to President, and Tinubu.

NNPC spokesperson, Dr. Kennie Obateru, said on Sunday that the government decided to revamp the refineries so that they would “not be sold as scrap – a situation where private sector investors will not only buy them cheap, but vandalise them later.”

He said the investment was not a blackhole or another sweetheart deal. “The three key partners – NNPC, FG and Afreximbank – must be repaid before the sale of the refineries, if the need arises.” (Leadership)