April 13, 2022/CSL Research
A Punch news report stated that the Minister of State for Petroleum Resources, Timipre Sylva, yesterday, hinted about the possibility of the April 2023 completion date for the rehabilitation of the Port Harcourt refinery. Furthermore, he stated the refinery would be able to deliver 60,000 barrels per day by the first quarter of next year (2023). We recall in March 2021, the Minister announced the commencement of the rehabilitation of the refinery to be done in three phases and to be completed by 2025. NNPC aims to restore the Port Harcourt refinery complex to 90% of its design capacity by the end of 2022.
The oil refinery complex consists of a 60,000 barrels per day (bpd) old refinery that started operations in 1965 and a 150,000bpd new refinery that came on stream in 1989. Despite having a combined crude processing capacity of 210,000bpd, the Port Harcourt refinery, like other state refineries of the country in Kaduna and Warri, has been operating only at a fraction of its capacity over the last few decades due to poor maintenance. The first phase of the rehabilitation project was to be completed in 18 months, with plans to take the refinery to a production of 90% of its nameplate capacity. The second phase is to be completed in 24 months, and all the final stages will be completed in 44 months. The rehabilitation was to cost about US$1.5bn.
Over the years, successive governments have tried to revive the country’s ailing refineries with no evident results. Consequently, over 90% of the refined petroleum products consumed in Nigeria are imported. The refineries located in Kaduna, Warri, and Port Harcourt, with a combined nameplate capacity of 445,000 bpd, have long operated at extremely low capacity due to many years of underinvestment and poor maintenance.
Currently, the combined capacity utilization of the existing refineries stands at 0.00% due to the ongoing revamping of the state-owned refineries based on available data from the Nigerian National Petroleum Corporation (NNPC). Consequently, the refineries have lost N128.61bn in 19 months between February 2020 and August 2021, according to the NNPC’s most recent statement.
In particular, over the years, the Port Harcourt refinery, being the biggest state-owned refinery, has always been the first point of call for any overhaul plans, but none of these overhaul exercises has led to any significant capacity improvement. Though there are indications that the current rehabilitation of the Port Harcourt refinery will deliver results unlike in previous years, the plan to achieve 60,000bp/d in Q1 2023 while its private counterpart, Dangote Refinery, is planning to deliver 540,000 bp/d by the end of Q3 2022 already gives Dangote refinery an edge.
As such, while we laud the government’s efforts to revamp the refineries, we believe that economies of scale associated with Dangote’s Refinery coupled with advanced technology will provide stiff competition for the stateowned refineries. Hence, we struggle to see how private investment in the state-owned refineries will be a profitable investment, except the state-owned refineries remain in government hands and, as they say, the government has no business in business
