We heard the news from the Nigerian National Petroleum Corporation LTD (NNPC) that it has “blended” naphtha, and we now have a functional NNPC refinery in Port Harcourt (PH).
I say pop no champagnes just yet.
The NNPC PH Refinery Complex comprises two refineries at Alesa-Eleme near Port Harcourt in Rivers State.
NNPC’s Old PH refinery was commissioned in 1965 and is now 59.
Capacity of Nigerian-owned refineries
The New PH Refinery, according to the BPE, is a “complex, conversion refinery” that was initially intended to serve as an export refinery but has been dedicated to serving the domestic market. The Combined output of PH refineries is 210,000bpd. The Combined output of all NNPC refineries in Nigeria is 445,000bpd.
- According to the House of Representatives, Nigeria spent a combined figure of N11 Trillion (Eleven Trillion Naira) rehabilitating the NNPC-owned refineries from 2010 to 2023. Only one, the old Port Harcourt refinery, is reported to be working by “blending”, and that’s the 59-year-old refinery!!
- Older machinery yields much less than new machines with the latest technology. Older machines also break down faster; there is a reason why accountants depreciate equipment and manufacturers slap the “useful life” tag on machines.
No private company will spend a kobo to repair a 59-year-old machine when it has a brand-new machine that can meet all its needs.
- The cost to process a litre of PMS from NNPC will be higher than Dangote Refinery because NNPC refineries are older and require more maintenance, while Dangote is literally brand new.
- Dangote Refinery was commissioned in 2024; Dangote Refinery’s capacity is 650,000bpd.
- If you give this case study to any business class, hide the names, or change it to cars, no business class will support spending a kobo on any NNPC refinery.
If NNPC had built the Dangote Refinery, it would not have spent a kobo on Turnaround maintenance of its older refinery.
In finance, we call investing in NNPC refineries capital destruction. It’s similar to an individual who just bought a brand new Tesla car and spending more money to revive his 60-year-old Peugeot 404; it is a waste of time and capital.
The irrelevance of reviving NNPC refineries
Why is the NNPC so intent on reviving its refineries? As far back as 2006, the Bureau of Public Enterprises has been looking for a buyer for the NNPC refineries in Nigeria; they remain unsold but have become liabilities to the Nigerian taxpayers. The Nigerian government has become hoarders, holding on to institutional projects well past their useful life, including the Ajaokuta steel plan and four aged NNPC refineries.
- There is no economic argument to revive refineries that are older than 35 years, especially when the same organisation owns a stake in the brand-new Dangote refinery.
- Cut the NNPC refineries loose. Sell them and repurpose their real estate for something else. They had the advantage of time, but competition has caught up with them and eclipsed them.
Let’s not use the monopoly argument and commit trillions of taxpayers’ funds to a boondoggle.