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Nigeria’s refineries in ruins despite MoUs with China, India, others

  • Gov’t officials justify foreign trips through MoUs – Expert

Plans by the Federal Government over the years to fix its ageing refineries have not materialised despite signing several Memoranda of Understanding (MoUs) to fix them, Daily Trust reports.

In the last four years, under the leadership of President Muhammadu Buhari, Nigeria signed MoUs with China, India, Saudi Arabia and Russia on oil and gas partnerships in general and for complete overhaul of the refineries in particular.

Meanwhile, since a MoU, which is an agreement between two or more parties, does not usually contain legally enforceable promises, unlike a contract, experts wonder why the Federal Government continues to sign them on the same issue which have not yielded positive results.

Nigeria has 445,000 barrels per day (bpd) refining capacity from four facilities – two in Port Harcourt, one each in Kaduna and Warri – but they operate far below capacity due to lack of maintenance.

Data reviewed by Daily Trust show that despite being Africa’s biggest crude oil producer, Nigeria currently imports the bulk of its petroleum products and is among the world’s largest importers of Premium Motor Spirit (PMS or petrol).

Our correspondent reports that the poor state of the refineries prompted President Buhari to approve for the NNPC to open negotiations with investors interested in funding the repair of the plants.

The negotiations, which lasted for one and half years, broke down in controversial circumstances in 2018 forcing the government to take the option of looking inwards for funds to revamp the refineries.

Findings reveal that about $2.5bn is required to overhaul the refineries. The Group Managing Director of NNPC, Mele Kyari, had announced in September, 2019, that the full rehabilitation of the four refineries would commence in January, 2019.

NNPC’s acting spokesman, Mr. Samson Makoji, did not respond to calls and SMS on why MoUs signed by the corporation on behalf of the government in the last four years have not translated into the rehabilitation of the refineries.

‘MoUs revamp refineries only on paper’

Daily Trust reports that while the government tried sourcing for private funds to revamp the plants, the signing of MoUs continued.

Russia

Russia became the latest partner in the league of countries Nigeria signed MoUs with to revamp the refineries.

However, the recent MoU has been called to question after implementation of a similar one in 2009 between Gazprom, a Russian energy giant, and NNPC (NiGaz Energy Joint Venture Company) failed to fully take off.

On October 24, 2019, the NNPC signed a MoU with Russian oil company, Lukoil, for cooperation in upstream operations and for revamping Nigeria’s refineries.

The signing ceremony took place on the sidelines of the Russia-Africa Summit, where at an earlier meeting with Russian President, Vladimir Putin, President Buhari gave assurance that his administration would “ensure this initiative is implemented within the shortest possible time.”

Saudi Arabia

On October 31, 2019, NNPC and Saudi Aramco agreed to among others collaborate in revamping the refineries in Nigeria which culminated in the establishment of the Nigeria-Saudi Council.

The decision to set up the council was the highpoint of a bilateral meeting between President Buhari and Saudi Crown Prince, Mohammed bin Salman, at the Future Investment Initiative conference in Riyadh.

According to a statement by the presidency, President Buhari had directed officials of the petroleum ministry and NNPC to work with Saudi Arabia to “expedite the modalities for investments and collaborations.”

President Buhari at separate meetings, told Saudi Aramco Chairman, Yasir Al-Rumayyan, that, “Nigerian officials are ready to collaborate with you; they will identify their priorities and invite you for a meeting in the country so that you can go round to inspect the refineries and other oil facilities.”

A similar parley with Saudi authorities took place earlier in April, 2019, when Saudi’s Minister of Energy, Industry and Mineral Resources, Khalid bin Abdulaziz Al-Falih, expressed readiness of his country to sign an MoU with Nigeria.

In a statement shortly after, NNPC said the then Minister of State for Petroleum, Ibe Kachikwu, held talks with Saudi energy officials.

The statement indicated that an early draft of the MoU would be ready in the first week of May.

The statement read in part: “Areas of interest will cover the existing refinery revamp, building of a brand new refinery, LNG investments and product supply trading in crude and refined products.” But to date, no known action has taken place.

No bite to China, India MoUs

In June, 2016, NNPC and the Ministry of Petroleum Resources in separate statements said a first of its kind road show took place in China where MoUs worth over $80bn were signed with Chinese companies to among other things fix the country’s ailing refineries.

The then NNPC GMD, Kachikwu, led top NNPC management officials and key industry stakeholders to China. The visit was a follow up to the working visit of President Buhari to China in April, 2016.

Speaking when a delegation of the Chinese company, NORINCO, paid him a visit in Abuja, Kachikwu said the MOU, which they both entered into in China in June, was presented to President Buhari and the highest decision-making body in the country, the Federal Executive Council (FEC), and that he had been given the go ahead to actualise the memorandum.

He said it was on the basis of the “go ahead” by FEC that he inaugurated a high-powered inter-ministerial implementation committee to spearhead the actualisation of the terms of the MoU.

A delegation of Chinese companies later in the year met with officials of the Nigerian government to actualise the terms of the MoU. The Chinese companies promised to invest $1.1bn to revive Nigeria’s four refineries by 2017.

Details of the commitments show that CINDA Consortium (made up of many leading Chinese state-owned companies) will invest in constructing new gas Central Processing Facility (CPF), power plants and repair Nigeria’s refineries.

While terms for the deals were still being worked out, the projects were expected to start in 2017, but they did not see the light of day.

Dr. Kachikwu also visited India between October 16 and 18, 2016, where he met his Indian counterpart Shri Dharmendra Pradhan, and both countries agreed in an MoU to facilitate Indian investment in, among other things, Nigerian refineries.

The Nigerian minister visited India again in December 2016, along with three senators and some high-ranking officials to attend the Petrotech 2016 Conference in New Delhi to push for early conclusion of the MoU on the investment proposal.

There is no public record if the MoU was actually carried through.

Italy

In January, 2017, NNPC, through its subsidiaries – Nigerian Agip Oil Company (NAOC) and Nigerian Agip Exploration (NAE), and Italian oil giant, Eni – signed an MoU for the rehabilitation and enhancement of the Port Harcourt refinery.

Kachikwu and the CEO of Eni at the time, Claudio Descalzi, met in Rome to further strengthen the longstanding partnership with Nigeria.

Gov’t officials justify foreign trips

An oil and gas expert, Mr. Michael Faniran, said he doubted the sincerity of purpose around the Eni deal or the others.

Mr. Faniran asked, “If they are going to take care of the refineries, what about the billions government have been voting for the revamping of these refineries?

He further said, “I doubt if Aramco is going to come here and do any refinery. I still maintain that these refineries should be sold.”

Two other experts in refinery operations also spoke to Daily Trust on condition of anonymity.

One of them said, “MoUs are overused political instruments that are non-binding and rarely go into action. They are usually used as a way of government officials justifying their trips abroad and politically justifying their claims to try to raise investment for the nation. How many of the MoUs have translated into action on the ground?”

He said the Russians were extremely conservative and would prefer other markets, including Africa, where there were clearer fiscal structures, more incentives and stability.

He further said, “Why would they be coming to Nigeria? I think the Russians are more interested in arms sales than investments in oil and gas. There was a time they were serious, but the way Nigeria behaved wrote them off.”

The other expert said it was not a bad thing to seek bilateral understanding with another country.

He said the major problem with the plan to revamp the refineries was that NNPC was not willing to refine crude oil locally.

“So, whatever President Buhari signs in good faith gets mutilated when it comes down to implementation because they receive their salaries whether these refineries work or not. There is no incentive for them to ensure that the refineries work,” he said.

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