NNPC moves to revamp ailing refineries, wins 2020 Africa Arbitration Awards

*Nigeria’s 4 refineries with a combined capacity of 444,000 barrels per day are set for major rehabilitation, says GMD Mele Kyari

Isola Moses | ConsumerConnect

In a strategic move to reduce prices of petroleum products and ensure security in the country, the Nigerian National Petroleum Corporation (NNPC) has undertaken a detailed audit of the government’s ailing refineries.

The state oil corporation also has begun to mobilise funds and technical resources to restore them to full operating capacity in the shortest possible time.

ConsumerConnect learnt that the NNPC’s latest measures have been commended by industry experts and consumers as the Federal Government has halted the controversial subsidy regime and embraced full deregulation.

Report indicates that market forces should now determine prices of petroleum products in Nigeria.

Incidentally, as the energy challenge has remained the bane of development of the nation’s downstream sub-sector of the economy for decades, global records showed that Nigeria is probably the only major oil-reliant country without functional local refining capabilities.

Oil Refinery

The development was said to have regularly drained its lean foreign reserves through scandalous deals that entail exporting premium crude oil and importing low-grade refined products in return for consumers.

However, in an attempt to reverse the status quo, Malam Mele Kolo Kyari, Group Managing Director (GMD) of NNPC, at a recent interview disclosed that all the nation’s four refineries (Kaduna, Warri, Port-Harcourt and Indorama Petrochemical, Eleme) are set for major rehabilitation. The four refineries have a combined capacity of 444,000 barrels per day.

Kyari explained that they were deliberately shut down, having been starved of the mandatory routine turnaround maintenance and major rehabilitation, despite the huge chunk of money voted for them over the years.

The NNPC GMD stated: “What you call rehabilitation is different from turnaround maintenance (TAM). TAM is a routine endeavour.

“When you talk about rehabilitation that means you have colossal loss of capacity in the refineries.

“It means you’ve not done TAM properly, you’ve not replaced parts as and when due and it has gotten to a point where you’re not able to operate the refineries in the full installed capacities.”

He further disclosed that “every refinery is expected to operate at least 90% of installed capacity.

“With all the TAM down, it was impossible to run any of these refineries at 90 per cent capacity.

“Our estimate was that we could run at 60 per cent capacity but if we do that, it’s simply value destruction. You take a $100 crude and bring out $70 product, it doesn’t make sense.

“We want to make them work and that’s why we’re doing full rehabilitation. Refineries are like aircraft.

“I’ve visited refineries that are over 100 years old that are still still functioning. Refineries don’t die like cars or other assets”, he explained.

In order to save cost and hefty consultancy fees in respect of the programme to rehabilitate refineries anew, the NNPC has looked inwards and leveraged local competence.

The Corporation appointed engineering subsidiary, National Engineering and Technical Company, NETCO/KBR as Owners Engineer (OE) for the Port Harcourt and Warri refineries in May 2020, according to report.

The NNPC management has also issued invitation to tender for the repair of Port Harcourt refinery and signed a $1.5 billion prepayment deal that will see it selling crude to some oil trading companies in exchange for the prepaid money.

The financing package, called Project Eagle, was backed by the African Export Import Bank (Afreximbank).

The NNPC as well signed an engineering, procurement and construction (EPC) contract to boost the country’s liquefied natural gas output by more than 30 percent.

Construction activities will begin in the first quarter of 2021 and financial close will be achieved for the Port Harcourt by November 2020.

Meanwhile, the Litigation Team of the Nigerian National Petroleum Corporation has won the Leading Case Counsel Team of the 2020 Africa Arbitration Awards.

Dr. Kennie Obateru, Group General Manager (GGM), Group Public Affairs Division of NNPC, in a statement, said the award was given to the NNPC Litigation Team in recognition of its stellar performance at the 8th Edition of the East African International Arbitration Conference (EAIC).

The event recently took place in Nairobi, Kenya, while participants joined in virtually.

According to Dr. Obateru, the conference is aimed at promoting commercial arbitration and showcasing African lawyers and law firms which have performed well in arbitration practice, the NNPC Legal Team gave a presentation on the challenges and lessons learnt from arbitrations and the successes recorded.

Among the successful arbitration cases showcased by the NNPC Legal Team at the conference were the IPCO (Nigeria) Vs. NNPC in respect of the dispute over the Bonny Export Terminal Project in which $367.5million was saved after 13 years of litigation and ESSO E&P Nigeria Limited Vs. NNPC in respect of the dispute over the interpretation of the Production Sharing Contract (PSC) covering Oil Prospecting License (OPL) 209/Oil Mining Lease (OML) 133 in which the enforcement of $2.7billion claim was dismissed.

Other recent arbitration cases presented at the conference include: ESSO & Others Vs. NNPC in respect of alleged breaches in interpretation and implementation of the PSC covering OPL 222/OML 138 with over $380.141million saved and the Atlantic Energy Group vs. NPDC in respect of allegation of wrongful termination of Strategic Alliance Agreements over eight OMLs resulting in the award of $1.6billion in favour of NPDC.

The NNPC Legal Team’s entry for the Leading Case Counsel Team category of the Africa Arbitration Award was also adjudged the best among entries from 100 other institutions across Africa resulting in the award.

Obateru stated that the award is a testimony to the commitment of the Legal Division, and indeed, staff of the Corporation to Transparency, Accountability and Performance Excellence (TAPE) agenda of the Malam Mele Kyari-led management of the NNPC.

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