In March this year, the Minister of State for Petroleum Resources, Chief Timipre Sylva, announced the approval of $1.5 billion by the Federal Executive Council for the rehabilitation of the Port Harcourt refinery. He also announced that the work of reviving the plant will be carried out by Maire Tecnimont SPA, an Italian company. As Engineering, Procurement and Construction (EPC) Contractors, the company will handle 2 of the 3 phases of the project over a 24-month period, including integrity checks, equipment inspection and rehabilitation.
Varied reactions trailed the announcement, with most being against the move by the federal government, decrying it as wasteful and unwise. Still, the government proceeded with the project, after signing the EPC contract on April 6 with Tecnimont. Mustapha Yakubu, Chief Operating Officer, Refineries and Petrochemicals for the Nigerian National Petroleum Corporation (NNPC) speaking in Abuja three weeks ago said, “As we speak, the EPC contractor is on site, mobilised fully and working with our project management group. They have commenced all the activities.”
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As there appears to be no going back from what many have termed a fatal gaffe by the government, it is worth asking if Tecnimont can raise the dead. The Port Harcourt refinery has a chequered history – from 1965 when it was established as a joint venture by Shell and British Petroleum with its 38, 000 bpd capacity, the refinery functioned properly for 13 years until the federal government nationalised it and in a short while, production started to decline, turnaround maintenance (TAM) was delayed and output went from low to almost non-existent. Since then, there have been attempts to both overhaul and sell the refinery to core investors at different points in time, all of which have failed. Why this contract would be any different is the question at the fore of many minds.
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The expertise of the appointed EPC contractor hardly appears to be in question. Tecnimont recently signed the $160 million deal to reconstruct the Heydar Aliyev refinery in Baku. It was also contracted for the expansion of the $170 million Barauni refining plant in India, the €450 Rijeka refinery project in Croatia and the $200 million upgrade of the Luanda refinery in Angola in 2019. Thus, it seems to know what it is doing in the EPC and refining space. Yet the peculiar nature of the Port Harcourt refinery may require further probing. While many of the contracts highlighted involve installation of new generation refining units, upgrade of some plants and expansion of others, the Port Harcourt refinery needs to come back to life. From June 2019 to July 2020, the refinery produced nothing while at the same time gulping N43.8 billion. Would $1.5 billion in the hands of Tecnimont work wonders over the next 24 months?
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As this is also the first contract the company is ever handling in Nigeria, it should brace for certain typical challenges. With respect to host community issues, a few weeks ago, Ogoni youths in Rivers State blocked the Eleme area of the East-West road which leads to the Port Harcourt refinery while protesting the deplorable condition of the road. They threatened to halt the rehabilitation and gave an ultimatum of 14 days- a disturbance that may derail the work by the contractor. Other challenges include vandalism of key pipeline networks like the Trans-Forcados Pipeline, a pipeline that has shut down and declared force majeure year after year due to both sabotage and operational challenges. One recent report estimated that the shutdown of the pipeline cost NNPC and its partners $99.8 million in one month alone.
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Another potential challenge is the uncertainty around whether the next government will be willing to proceed with the rehabilitation of the refinery, especially as the third phase is expected to span to 44 months. Add this to the International Energy Agency’s recent 2021 report that Nigeria’s plan to repair the refineries may fail due to the fact that it has missed out in the past decade’s oil demand growth. This report or simply a need to change policies as all new politicians do, may inform the subsequent government. If history is anything to go by, the attempt by the Obasanjo-led government to sell the refinery to core investors was reversed by the Yaradua-led regime when Yaradua took office. What says this deal would not be reversed, especially with the gross opposition it has faced?
Pundits have argued that the refinery is better off in private sector hands than in the hands of the government, moreso given how it deteriorated once it was fully nationalised. There is merit in this argument if one examines the Indorama Fertiliser (formerly Eleme Petrochemicals) which was originally fully owned by the government, but has now become fully functional and productive in private hands. There is also the fear that if left in the hands of NNPC, any success achieved by the contractor with the refinery may be reversed by neglect, corruption and the perennial problems plaguing the Corporation. Experts have opined too, that while the PIB attempts to solve the perennial problems of NNPC through the creation of a limited company, the move will not erase the “government” behaviour from the entity for very long. Perhaps the answer to the question as to whether Tecnimont can raise the dead is better seen than imagined.
