The Nigerian National Petroleum Corporation (NNPC) has said that building a new refinery in the mold of the one in Port Harcourt, Rivers State will cost the federal government between $7 billion and $12 billion hence the resolve to rehabilitate it with $1.5 billion.
It would be recalled that the federal executive council had, on Wednesday, March 17, 2021 approved the sum of $1.5 billion for the rehabilitation of the refinery.
The repair will be executed in three phases of 18, 24 and 44 months by an Italian firm, Tecnimont SPA.
The group managing director of the Nigerian National Petroleum Corporation (NNPC), Mr. Mele Kyari disclosed this in Abuja yesterday.
He argued that revamping the geriatric refinery was preferred because constructing a new refinery will take a period of four years, during which Nigeria must continue to import petroleum products.
He also said there was no basis for comparison between the Port Harcourt Refinery and the one sold by Shell in America for $1.2 billion in terms of capacity.
He said the actual cost of the project is about $1.34 billion, noting that the additional expenses include taxes and other duties that could come up.
“The real cost is $1.34 billion. Even then you could argue and say why you wouldn’t build a new refinery. We have also seen some curious comparisons that shell sold one of its refineries for $1.2 billion and that it’s even better than our own.
“This is mundane. Even a Google search will reveal that it was built in 1915 and it’s a 107,000 barrels per day refinery. It has been on shut down by the regulators since early last year. Not only that, when you buy a refinery you buy its assets and the liabilities,” he argued.
He stated that many people are ignorant of the financial transactions that go into some negotiations stressing that is needless to compare a combined refinery of 210, 000 barrels to a much smaller and much older refinery which has many issues with regulators.
“Simple due diligence was not conducted before those comments were made. They have asked why we don’t just build a new one. What does it take to build a refinery of this status today? It’s anywhere between $7 billion to $12 billion to construct a refinery of this nature. This is what we call battery limit construction. That’s the estimate you see in the public space.
“There are things you do outside the battery limits like the tank and other utilities that are never accounted for when the estimates of this nature are done. That’s about 25 per cent of the total cost. So, when you say refineries can be built for $6 billion or even $10 billion, you should also think about the 25 per cent you will add to it,” Kyari said.
Kyari said the refinery will begin production in 18 months.
He said the exercise will include a complete rehabilitation and not turnaround maintenance of the refinery.
He said major components of the refinery will be replaced as the contractor executes the repair in phases.
“We are not doing turnaround maintenance, we are doing rehabilitation of the refinery, and it is very different; it means that we are replacing certain major components,” he said.
“We are introducing some items that ordinarily we won’t need to do in turnaround maintenance and there are major shifts in the status of the plant that we have to do and it is not done during turnaround maintenance.
“During rehabilitation, by the 18th month, part of this plant will begin to produce particularly the gasoline plants. In rehabilitation, we normally don’t shut down the plant completely, we repair a segment of it, and then it starts working, and then, you move to the next segment.
“You continue to scale up and that is why, within the four-year period, the contractor would have completely left your premises. What it means in a technical sense is that in 18 months, we will see production coming from that plant; we will follow it plant by plant until we are completely done.”
The managing director said THE process of rehabilitation started about 10 years ago but was slowed down due to a number of mistakes.
He said the federal government resorted to partly fund the project through borrowings, in order to ensure compliance with required conditions.
“This process started 10 years ago and a number of mistakes happened leading to the enormous delay we have seen in this process because there were a lot of interference in the past but these are gone.
“Initially, we thought that the best way to go was to go to the original builder but it wasn’t the right strategy.
“Another way of making this project work was the introduction of borrowing for the repair work because when you borrow, the lenders will put conditions and one of the conditions is that it should be maintained under ‘own and earn’.
“This means that the NNPC will not operate this plant as a basic requirement of the financing institution. The financing partner will ensure that the contractor will work efficiently.
“Importantly is that the contractor O&M gave a guarantee that the facility will operate for the duration of the loan and the fact the project will be done under a financing structure supported by Afreximbank.
“The bank has promised a $500 million loan in the first instance and additional 500 million dollars making it one billion dollars and the condition is for the loans to be repaid from the operations and proceeds of this plant,” he added.
