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Politicians showed unusual interest in refineries’ maintenance contracts – Akpieyi

Politicians showed unusual interest in refineries’ maintenance contracts – Akpieyi

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Chief Joseph Akpieyi, a former Chief Executive Officer of Nigerian Petroleum Refining Company (now Port Harcourt Refinery Company) (1980-85) and Warri Refining and Petrochemicals Company Limited (1980-88), is the chairman of ARCO Group. He speaks to ’FEMI ASU on the state of the nation’s refineries

Can you give us insights into what the refining space in Nigeria was in the past, particularly after Shell and BP built the first Port Harcourt refinery?

The refinery was called Nigerian Petroleum Refinery Company. As you rightly observed, Shell and BP built the refinery that was inaugurated in 1965, when their production reached a particular level – I think one million barrels a day. By the statutes, they were required to build a refinery in the country when their production reached that level, which they did, and so they provided the top management personnel for the company.

Before the civil war, the capacity of that refinery was 35,000 barrels per day, which was sufficient to serve the Nigerian market. But after the civil war, economic activities ballooned significantly that the refinery was no longer able to meet the needs of the country. It was upgraded to 60,000bpd but even that was still insufficient to satisfy the needs of the country. Therefore, we had to import products into the country.

In the 70s, government at the time pursued an indigenisation policy.  That policy was energised when there was an exodus of the expatriate personnel from the refinery when the civil war started.  The refinery was fully indigenised by 1975, that is, only Nigerians were running the refinery by that date. Operating capacities and efficiency levels ranged from 95 to 99 per cent.

Who carried out the turnaround maintenance activities at the time, and were they effective?

Nigerian workers carried out the bulk of the turnaround maintenance activities; expatriates from original equipment manufacturers were brought in to maintain their specialty equipment. The maintenance activities were adequately planned and scheduled to last for not more than six weeks, and they were generally concluded on schedule. During that period, adequate arrangements were made to stock petroleum products in the refinery and to import additional volumes to augment any shortfalls. Nigerians never knew turnaround maintenance activities were occurring because of the seamless arrangements that had been made to stock and provide adequate quantities of petroleum products to meet the needs of the nation.

You gave the impression that the refineries were efficiently run in the 70s and 80s. So what has led to the present inefficiency that has characterised the refinery operations?

At the time I was seconded from the Nigerian National Petroleum Corporation to the Port Harcourt Refinery in 1980 as its chief executive, the company had been fully Nigerianised. I know that we succeeded in managing the refinery effectively because of the independence we enjoyed. The company was run as a limited liability company, subject only to the directives and policies of its Board of Directors. So, there was no question of government officials breathing down our necks or interfering with how the company was managed. Processing fees were paid for crude oil processed in the refinery and so we did not have to go to government for our operating budgets.

My opinion is that these days, the top management personnel given the responsibilities to lead those companies are not given free hands to run them. When politicians came to realise that the turnaround maintenance of refineries required significant amounts with large foreign exchange content, they showed unusual, inordinate interest in being awarded the contracts to execute turnaround maintenance even though they had the scantiest ideas of what such maintenance contracts entailed. Out of fear of losing their jobs, the executives had to contend with those abnormal situations, resulting in ineffective turnaround maintenance at exorbitant costs.

It is not that the Nigerians who are there now are less competent than we were but the environment in which they are working now doesn’t give them adequate freedom to act. That’s my opinion. If they were to be given more freedom of action today, I’m sure they will be able to run the refineries competently and even achieve better results than we achieved.

 When and why was the offshore processing scheme introduced by the NNPC?

The offshore processing scheme came into being around 1973. After the civil war, there was a wide gap between local refining capacity and the nation’s demands for petroleum products. At the time, I was in charge of the Pipelines and Products Marketing arm of the NNPC. We reasoned that if we could process additional crude outside the shores of Nigeria and import the products that were obtained from it, that would be tantamount to making up for the shortfall in local refining capacity, thereby closing the gap in the availability of refined products. When the idea was submitted to my bosses, they readily approved it. That gave birth to the offshore processing of our crude oil abroad and the importation of the products derived from the crude oil tendered.

What did the process entail?

Ab initio, it was decided that only fully integrated, reputable international oil companies would be used for the process. We embarked on negotiations with Shell Curacao and the BP. Shell Curacao gave much more competitive processing fees and freight rates for vessels to be used for transporting the petroleum products derived from the crude oil tendered for processing to Nigeria. In subsequent rounds of negotiation, Total replaced Shell Curacao.

The beauty of that offshore processing scheme at that time was that the Federal Government was not required to pay any subsidies on imported products, and the revenues we generated from the sale of products surplus to the needs of the nation by Shell Curacao in international markets were enough to pay the processing fees and the negotiated freight charges on the importing vessels. By the time we balanced out the whole thing, we still had reasonable surplus revenue to our credit. On top of that, the products imported were sold by the NNPC to the marketing companies for resale to the public at a uniform price. The scheme also insulated the nation from the vagaries of the international products markets as we did not have to go scouting for petroleum products.

The NNPC defined its own space at that time as bringing in the products and leaving the marketing to the major marketers. In the beginning, we had only the major marketers. Let me add that shortages were staved off throughout the period we operated the offshore processing scheme.

When did we get to a point where the NNPC was engaging third parties in the offshore processing scheme?

I left the NNPC some 26 years ago. What I was trying to describe to you was what we did when we were in the system. I suspect that every Tom, Dick and Harry was brought in with the objective of liberalising the importation of petroleum products into the country.  Those parties that were brought in had to scout for petroleum products from international markets for sale to the Nigerian public. They would no doubt have caused pressure on the international markets, leading to higher costs and their demand for subsidy payments by the Nigerian government.

Are you saying the scheme was introduced before the government built additional refineries?

Yes, the offshore processing scheme came into being by 1973, while the Warri and Kaduna refineries came on stream by 1978 and 1980, respectively. Simultaneously, we were building the network of pipelines and associated depots. My immediate boss at that time, late Mr. Kufeji, handled the refining side, and I was coordinating the building of the depots and the pipeline network. We had many international companies brought into the country to do the building of the pipeline network as well as the depots. The moment the Warri refinery and pipeline system came on stream, the OPS stopped because we had enough refining capacity locally, and the movement of products through the network of pipelines was quite efficient. A brand new refinery with 150,000bpsd was later built in Port Harcourt in 1989 in addition to the premier refinery with 60,000bpd.

I gathered that you retired in 1991; did the OPS return before then?

No, the OPS did not return by the time I retired. It came back after I had retired. It came back because the refining capacity was no longer enough to meet our demand. Most of the refineries are not operating efficiently and effectively. The total refining capacity we have today is about 445,000bpd. Even if all the refineries were operating at full capacity, the 445,000bpd would not be enough to meet our demand. So arrangements have to be made to import the shortfall.

The way to stop this importation of products is to build more refineries in the country such that we have enough refining capacity greater than the country’s demand.

For nearly 30 years, no new refinery has been built by the government, and private investors are reluctant to do so. What is your view on this?

Government made a grave mistake in thinking that the Nigerian private sector will provide the additional refining capacity that the country is in dire need of. The private sector players by their nature don’t venture into any business in which they will not make immediate, reasonable profits. The prices of our products are controlled; so the private sector is not interested in building refineries.

If we had waited for the private sector, we would not have had Warri and Kaduna refineries and the pipeline network. It is a question of government realising that it needs to build these things. If you calculate the cost of importation and subsidies that have had to be paid, I am sure the amount spent would have built two or three refineries of the size of Port Harcourt refinery, for example.

Now, everybody in Nigeria is waiting for Dangote’s refinery to come on stream. When that refinery comes on stream, don’t you think it will want to recover its investment in the shortest possible time? Don’t you, therefore, think most of its products are likely to be sold outside the country if that is where it will recover its investment fastest? People may argue that Dangote is quite a nationalistic person; therefore, he will ensure that the refinery products are first sold to the local market. But if the nation doesn’t operate a liberalised regime of increased price of products, it will sell its products outside the shores of the nation.

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