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Fuel scarcity: Kachikwu ignites hope with new refining models

by InlandTown Editor
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ONE of the take home messages from the Group Managing Director, the Nigerian National Petroleum Corporation, NNPC, Dr. Emmanuel Ibe Kachikwu, after scaling his ministerial screening was that finally, the nation’s four refineries will be made to work

If this happens by December as being planned, then not only will Nigerians kiss goodbye to the perennial fuel shortages that bite harder during this period, but also significantly reduce the cycle of petroleum products importation and the attendant huge capital flight and subsidy claims.

Heads were up at the National Assembly, as millions of Nigerians watched the live telecast of the ministerial screening, when Kachikwu gave the assurance that all the local refineries would have been re-streamed by the year end.

According to him, this will displace massive fuel imports, cut huge import bills, reduce pressure on the nation’s lean foreign exchange earnings occasioned by the free fall in crude oil prices at the international market as well as create multiplier effects in the domestic economy.

He expressed confidence in the technical skills of the refineries workforce, saying that over 80 percent of the NNPC technical staff are competent. He cited the achievements of the Port Harcourt Refining Company, PHRC, at rehabilitating the plants as part of the potential available in the industry.

New business model

While responding to legislators’ questions, Kachikwu gave a rundown of the Nigeria petroleum industry, and promised to drive an operations model that will place the Corporation on a performance platform that will guarantee commercial viability.

For the over one hour he was put to task, he gave a detailed explanation of a reform package that has been activated to re-inject vibrancy in the petroleum industry. He also disclosed of plans to enhance efficiency and transparency in the sector as well as restructure the national oil firm to be competitive across the full value chain of the industry.

He equally promised to build local capacity across all the business units of the Corporation to enable it live up to the roles as the industry leader, government’s revenue earner, custodian of the nation’s petroleum assets and lead domestic fuel market supplier.

He, however, noted that target objectives will remain only a dream except the operations of all the business arms of the Corporation are commercialised and profitable.

Using the refineries as an example, he said their new role is to operate as profit centres, reliable fuel sources as well as feedstock sources for ancillary businesses, particularly for the petrochemicals and industrial.

At the Port Harcourt Refinery, for instance, he said the complex has become the reference for domestic technical ingenuity, internal innovation and revival model for sister refineries in Warri and Kaduna respectively.

Nigerian refineries: Nigeria’s four refineries have combined capacity for 445,000 barrels crude oil processing per day, which produce about 18 million litres of the premium motor spirit, PMS or petrol. This product is highly prized in the country as one of the main fuel for transportation and light machines used by homes and small businesses.

However, the refineries have remained largely moribund for decades due to poor maintenance and wrong business models. The refineries are over 30 years and have not had a proper turn around maintenance, TAM, for over 15 years, as they relied on the NNPC for administrative and funding control, a system that slowed processes and denied them of financial independence.

But Kachikwu, who is tipped to become the junior but powerful Minister of Petroleum Resources, has reiterated that the new business model he activated in the system will dismantle all administrative and funding constraints in all the Corporation’s business units, especially the refineries. He added that this will enable them to leverage internal energies and competencies in optimising uptime at the plants.

He told journalists in Lagos that the refineries are of strategic national economic and security importance, and restated his commitment to not only recover their capacity but also explore opportunities of building new plants with a view to leveraging the economies of scale in the existing industry hubs.

Operational efficiency: Kachikwu maintained that all the nation’s refineries must be revamped and attain 60 percent process capacity by December, when government will decide the best management model to adopt in making them efficient.

He noted that none of the refineries can operate profitably below 60 percent capacity, adding that if this were the case, such a refinery will not be supplied crude feedstock through traditional allocation processes.

Under this circumstance, he said the Corporation will have no choice than to explore private sector management for any underperforming refinery.

He said: “If after we finish (facility maintenance) and we think that the issue is management then we see if there is somebody willing to buy a majority share that have the skills set and the market reach internationally to do the work.

“Obviously if we did that and by then we have expressions of interest from people who are building refineries in this political environment they will be given the first right of refusal, because they will be able to help manage what is there, help to share skills.”

He specified that the acceptable 60 percent performance benchmark must not be a flash in the pan, adding that it would require sustainable uptime at the refineries fluid catalytic cracking units, FCCUs, which is the optimum process unit.

To scale the 60 percent performance hurdle the refineries must add value to crude oil at all the process units in order to cut waste, enhance commerciality of operations and optimise resources.

He had told journalists: “The greatest immediate challenge is how do you limit the debt loss factor and then on the medium term basis address the issues and make the refineries to work for example? The reality is that the refineries are not working now, because if you give me a 60percent this week and next week I am down to zero performance, when you take an average, you are down to 20percent and the average performance of the refineries right now is below 30percent, that is on a continuity basis. That is the fact.”

Scaling the hurdle: Interestingly, out of the three refineries, only the 210, 000 barrels per day Port Harcourt Refinery has all its three key process units including the Crude Distillation Unit, CDU; Vapour Distillation Unit, VDU; and Fluid Catalytic Cracking Unit, FCCU, on-stream after an internal rehabilitation programme.

The company which initiated and successfully evolved the downstream petroleum industry local content model for in-country refinery refurbishment and upgrade is already working to ramp up its production performance level to 80 percent installed capacity in order to enter a sustainable commercial comfort zone.

Kachikwu, pointed out that only PHRC appears to have crossed the performance hurdle and stressed that government will no longer run unprofitable businesses when better options exist in private sector partnership.

After revamping the refineries, he said, their business models will be examined to determine the best management approach to take. The model, he said, will protect and preserve the public interest in the refineries without compromising efficient commercial and technical operations standards.





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