A New Agenda for the NNPC’s Refineries

Oil & Gas
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Tuesday, February 20, 2018 10:25 AM / FBNQuest Research 

Against the background of periodic challenges with the supply and distribution of petroleum products, the board of the Nigerian National Petroleum Corporation (NNPC) approved the list of firms to be selected for the rehabilitation, operation and maintenance of its refineries at Kaduna, Warri and Port Harcourt last month. 

The corporation’s already appointed advisors will be supplemented by independent audit, environmental and regulatory firms to undertake the necessary due diligence on the investment by the private sector.

The rehabilitation is to be carried out by the original refinery builders. This policy decision has been taken because of their inherent knowledge and competitive advantage. Additionally, they are best placed to provide the necessary performance guarantees.

Funding for the rehabilitation of each refinery is to be provided by an approved consortium under a prepayment structure. The consortia will have firms with a proven track record in the field. They will execute an operations and maintenance agreement, binding them, inter alia, to the refineries operating at 90% capacity. 

The consortia are also required to include a firm with strong product marketing experience. This prerequisite is designed to underpin the sale of refined products on the open market. 

The corporation expects the conclusion of the financing arrangements within three months and currently sees the rehabilitation of the refineries on or before end-2019. 

The advantages of the project are clearly numerous. The first to mention is the scope for substantial FX savings on imported products. We recall that the refineries have a combined capacity to process 445,000 barrels of crude oil per day. The savings would allow the FGN to deploy the funds to other priority areas of the economy. The project also has great potential in terms of job creation. 

Finally, the project will bring the upgrading and eventual replacement of oil pipelines. The technique of horizontal directional drilling is to be used for the installation of the pipelines several meters underground. This way, the security of the pipelines is greatly enhanced.

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