P’Harcourt refinery: Will NNPCL be able to compete with Dangote?

The reactivation of the Port Harcourt refinery on Tuesday marks a significant turning point for Nigeria’s downstream oil sector, after years of stalled attempts. With its return, the refinery is set to rival the already operational Dangote refinery in contributing to Nigeria’s aim of becoming a petrol-exporting nation, writes LAOLU AFOLABI

In an unprecedented announcement, the Nigerian National Petroleum Company Limited announced on Tuesday morning that the previously moribund Port Harcourt Refinery was now operational and would begin daily product loading for marketers.

NNPCL confirmed that the previously idle refinery, located in the Alesa Eleme refinery complex, about 25 kilometres east of Port Harcourt, had been successfully revitalised and was loading petroleum products for distribution to marketers.

The announcement of a significant milestone in Nigeria’s efforts to enhance domestic refining capacity caught many unawares. Before the Tuesday rollout day, there had been a sorry state of failure in the delivery of the refinery. After its missed production rollout deadline for the seventh time in September, the oil giant tactically withdrew from promising any new date.

Maire Tecnimont SpA, the contractor overseeing the refinery’s rehabilitation, stated that it could not disclose details of the rehabilitation process, including the proposed completion date of the project.

The company’s Chief Corporate Communications Officer, Femi Soneye, announced in a terse message on his X.com handle, “Port Harcourt Refinery Begins Production; Truck Loading Starts Today, Tuesday!”

In another statement, he said, “The Nigerian National Petroleum Company (NNPC) Ltd has fulfilled its pledge of re-streaming the Port Harcourt Refining Company (PHRC), signalling the commencement of crude oil processing from the plant and delivery of petroleum products into the market.”

On Tuesday, trucks began loading petroleum products, including Premium Motor Spirit (petrol), Automotive Gas Oil (diesel) and Household Kerosene (kerosene), while other product slates were also scheduled for dispatch.

For the rehabilitated Port Harcourt refinery, it was a long, rough road to its rehabilitation and fuel production after years of failed and unfulfilled promises by the government.

The refinery has two wings – the old refinery, built and put to use in 1965 with a refining capacity of 60,000 barrels of oil per day, and the new plant producing 150,000bpd, both summing up to 210,000bpd. The oil refinery came on stream on Tuesday and about 200 trucks loaded at the gantry.

In a statement by the Special Adviser to the President (Media and Public Communications), Sunday Dare, “The Port Harcourt Refinery has two wings. The old refinery comes on stream today with an installed production capacity of 60,000 barrels per day of crude oil. About 200 trucks are expected to load products daily from the refinery Renewing the Hopes of Nigeria.”

The NNPC said it had fulfilled its pledge of re-streaming the Port Harcourt refinery, signalling the commencement of crude oil processing from the plant and delivery of petroleum products into the market.

Speaking during a brief ceremony to mark the commencement of product loading at the refinery in Port Harcourt, the Group CEO, Mele Kyari, described the commencement of the loadout activities as a monumental achievement for Nigeria.

He thanked President Bola Tinubu for his unwavering support and understanding towards the rehabilitation project and for his persistence in ensuring energy security for the country.

Kyari also expressed deep appreciation to the NNPC board of directors and the entire staff for their support and commitment, which crystallised into the streaming of the refinery. He also commended the contractors for their excellent work in ensuring the refinery’s delivery despite numerous challenges.

The GCEO further thanked Nigerians for their patience and for the legitimate expectations of the company to deliver on the other refineries.

In his remarks, the CEO, Nigerian Midstream and Downstream Petroleum Regulatory Authority, Farouk Ahmed, assured the company of his agency’s continued support in completing the rehabilitation work at other refineries.

Tinubu, in a message by the Special Adviser to the President on Information and Strategy, Bayo Onanuga, extended his heartfelt congratulations to NNPCL on the successful revitalisation of the Port Harcourt refinery.

The President acknowledged the pivotal role of former President Muhammadu Buhari in initiating the comprehensive rehabilitation of all the refineries and expressed gratitude to the African Export-Import Bank for its confidence in financing the critical project.

With the successful revival of the Port Harcourt refinery, Tinubu urged NNPCL to expedite the scheduled reactivation of both the second Port Harcourt refinery, as well as the Warri and Kaduna refineries.

Highlighting the values of patience, integrity, and accountability in the rebuilding of the nation’s infrastructure, Tinubu called upon individuals, institutions, and citizens entrusted with responsibilities to maintain focus and uphold trust in their service to the nation.

Long, tough road to rehabilitation

The four state-owned refineries in the country located in Port Harcourt, Kaduna and Warri stopped operations in 2019, forcing the Federal Government into foreign refining of its crude oil, which grossly affected the fuel supply and economic stability of the country.

The Port Harcourt refinery was last fully operational over a decade ago, with its performance declining significantly in the years leading up to its eventual shutdown in 2019. Before that time, the refinery operated below capacity, producing little to no refined products. The facility’s inefficiencies and lack of maintenance led to its complete closure for the rehabilitation project initiated in 2021.

Speaking on why it shut down the four refineries, Kyari, in a TV interview, said they were functioning below capacity.

“All the four refineries in three locations are shut down and it was a deliberate decision for two reasons. One is that the delivery of crude oil to these refineries is completely challenged because the pipeline network has been completely compromised by vandals and all kinds of people who will not allow us to operate these pipelines,” he stated.

“That means you are not able to deliver crude oil to these refineries effectively to their maximum capacity. Secondly, what you call rehabilitation is different from turnaround maintenance. Turnaround is routine which every refinery does but when you talk about rehabilitation, it is that colossal loss of capacity in the refinery and it means you haven’t done the turnaround maintenance properly.

“Typically, every refinery is expected to operate at 90 per cent of its installed capacity. With the best of effort, with all the turnaround maintenance that has taken place, it is impossible to run any of the refineries before the shutdown at that level.

“Our estimate was to run it at 60 per cent of capacity but if you do that, all you are doing is value destruction. You will take $100 crude into the refinery and bring out $70 product. It doesn’t make sense.”

His statement further confirmed the assertions by former Nigerian leaders that the refineries would not work, blaming corruption and poor management.

Former President Olusegun Obasanjo, while addressing some House of Representatives members who visited him, recalled how Shell refused his pleas to help run the refineries when he invited them during his days as President.

According to Obasanjo, some Nigerians later paid $750m to take over the refineries, but his successor Umaru Yar’Adua turned it back.

“I ran to him (Yar’Adua), I said, ‘You know this is not right’. He said, ‘Well, the NNPC said they can do it’. I said ‘NNPC cannot do it’. I told my successor that ‘the refineries, from what I heard and know, will not work and when you want to sell them, you will not get anybody to buy them at $200m as scrap’. And that is the situation we are in.

“So, why do we do this kind of thing to ourselves? NNPC knew that they could not do it, but they knew they could eat and carry on with the corruption that was going on in NNPC. When people were there to do it, they put pressure. In a civilised society, those people should be in jail,” Obasanjo posited.

Also, while reacting to the plan to hand the refinery over to private managers, former Vice President Atiku Abubakar tackled former President Buhari and the incumbent Tinubu for failing to heed his advice that the refinery and others owned by the government should be sold to private individuals.

The Senate also recently raised questions over the $1.5bn approved in 2021 for the renovation of the refinery. The Upper Chamber lamented that it was “unfair and wrong to treat government businesses or public companies as an orphan while private businesses were flourishing and thriving.”

The Senate Leader and Chairman of the Senate ad hoc Committee to investigate the alleged economic sabotage in the Nigerian Petroleum Industry, Opeyemi Bamidele, raised the questions at a session with stakeholders in the industry in Abuja.

The rehabilitation of the Port Harcourt Refinery, Nigeria’s largest refining complex, marks a significant milestone in the country’s quest for energy self-sufficiency.

In 2015 when he came on board, former President Buhari declared that the country would no longer import petroleum products by 2019 and that the Port Harcourt Refinery was key to achieving the goal. However, by 2017, two years away from the planned deadline, the rehabilitation efforts stalled due to funding challenges.

Having failed to fulfil the promise, Buhari, on his return to power in 2019, admitted failure to meet the deadline and set a new deadline for 2020. However, COVID-19 and challenges with the contracting process and funding once again derailed the project.

In 2021, the Buhari government made another attempt, approving $1.5bn (approximately N567bn, considering the exchange rate at the time) for the refinery with a new completion date set for 2023. The contract was awarded to the Italian firm, Maire Tecnimont SpA, structured across three phases with timelines of 18, 24, and 44 months. The first phase of operation was scheduled to begin in 2022 and completion in 2023. The dream remained a mirage until the former President ended his tenure.

Tinubu renewed his interest in the refurbishing of the refinery, having promised to build on the works of his predecessor. There was also pressure on him after his off-the-mark “Subsidy is gone” inaugural speech to ensure the refineries became operational, so as to reduce the price of petroleum products across the country.

After a meeting with the organised Labour and other stakeholders, the government assured them that the refinery would come on stream by December 2023. By the deadline, the NNPC announced that it had completed the mechanical rehabilitation of the refinery. With the first phase completed, achieving mechanical readiness for part of the refinery’s operations, a test run commenced in early 2024, leading to the refinery’s gradual restart with an initial processing capacity of 60,000 barrels per day.

However, the NNPCL continued to shift deadlines of product rollout, citing the need for further testing and calibration of equipment.

Kyari, announced earlier in 2024 that the refinery received 450,000 barrels of crude oil and would begin operations in April.

While appearing before the Senate in July, Kyari boasted, “I can confirm to you, Mr Chairman, that by the end of the year, this country will be a net exporter of petroleum products.

“Specific to NNPC refineries, we have spoken to a number of your committees, and it is impossible to have the Kaduna refinery come into operation before December, it will get to December, both Warri and Kaduna, but that of Port Harcourt will commence production early August this year.”

When the August deadline failed, the oil giant set a new deadline of September and failed again.

Eventually, on Tuesday the much-anticipated Port Harcourt refinery came on stream as about 200 trucks offloaded petrol at its gantry.

New competitive chapter

Before the coming on-stream of Port Harcourt refinery, Dangote refinery had become fully operational in the country. The refinery, located in the Lekki axis of Lagos State, also suffered some delays to its full production.

On Tuesday, September 3, the refinery finally commenced the rollout of its first Premium Motor Spirit (petrol) from its 650,000 barrels per day facility, after an announcement by the excited President of Dangote Group, Aliko Dangote, during a press conference with journalists.

However, after scaling the technical hurdles, the refinery is still struggling to survive Nigeria’s landscape. It has faced many obstacles and market hostilities. On the inaugural loading day, Dangote had boasted of the quality of the refinery product.

The response was for the Nigerian Midstream and Downstream Petroleum Regulatory Authority, which had earlier claimed that the refinery was producing products of low quality.

Dangote, reacting to the allegations, said the refinery’s products not only complied with set standards but had also surpassed those of its contemporaries, with a parts per million measurement now at 32. The business mogul said the refinery was initially producing around 665ppm of product, which was considered the best quality at the time. He then fired a shot at the NMDPRA, accusing the agency of allowing importation of dirty fuel into the country.

Debunking Dangote’s claim, the Executive Director of Distribution Systems, Storage and Retailing Infrastructure at NMDPRA, Ogbugo Ukoha, said there was no dirty fuel being imported into the country, adding that its mandate was to ensure that only quality petroleum products were supplied and consumed in Nigeria.

After the quality issue was laid to rest, the controversy over the naira for crude sale reared its head. The Federal Government, in July, said it would sell crude priced in naira to local refineries for an initial six months, starting in October, with Dangote as the main beneficiary.

Nigeria officially commenced the sale of crude oil to refineries in naira on October 1, forcing the Dangote refinery to focus on local supply. The refinery received four cargoes of crude oil from the NNPC under the naira-for-crude sale agreement, but the refinery had been forced to look to the United States for crude.

Vice President of Dangote Industries Limited, Edwin Devakumar, on Friday, November 22 said the refinery and other local refiners had been unable to secure enough crude oil supplies despite the Federal Government’s plan to sell crude priced in the local currency.

“We need 650,000 barrels per day, (NNPCL) agreed to give a minimum of 385,000bpd but they are not even delivering that,” Devakumar told Reuters.

Another issue is the sale of products to marketers and pricing. At inception, the NNPC arranged itself as the off-taker of Dangote petrol. It announced a pricing template which increased the price of petrol to final consumers. Nigerians, who had expected a reduced cost of petrol, were disappointed as they had to pay more for the product. The arrangement later changed as major marketers were allowed to lift products from the Dangote refinery. The Lagos-based refinery also recently signed a pact with other marketers to supply products directly to them.

However, with the rollout of products at the NNPCL Port Harcourt Refinery on Tuesday, competition in the market has intensified. The two main operating refineries in the country – the Port Harcourt Refinery and Dangote refinery, which began petrol rollouts on September 3 – will now compete in pricing strategies, product availability and crude oil sourcing.

Speaking at the loading arm of the Port Harcourt Refinery on Tuesday, the CEO of NMDPRA, Ahmed, said, “What is important is that there is no competition and there is a choice, and we will see the prices of the products come down. With the Port Harcourt Refinery coming on board, we will go from net importer of PMS to net exporter.”

In his contribution, a Professor of Petroleum Economics and Policy Research and the Director, Energy Information Division of the Centre for Energy Studies, University of Ibadan, Wumi Iledare, said, “Well, first of all, I want to congratulate NNPC for bringing the Port Harcourt refinery into existence. The refinery capacity is about 11.1 per cent of the total supply of NNPC refineries in the country, so that’s the positive news.

“That’s going to at least put less pressure on the foreign exchange. I think they won’t have to import, and NNPC won’t have to support any import. That’s the equivalent of what 60,000 barrels can produce.

“It’s going to be complementary to Dangote refinery. So, congratulations to NNPC for bringing these 60,000 barrels into the market and they don’t have to export any of their products.”

Speaking on the potential rivalry between NNPCL and Dangote refinery, Iledare said, “They (NNPC and Dangote) are more like competitors. That’s a better word to use when you are looking at the downstream market. They are not rivals, but they are increasing the market, especially in the refinery sector.

“This welcome development will also put Dangote in a position not to be a monopoly because Dangote is still going to be a dominant firm that can influence the product market because of its large size.

“You have Dangote, which is 650,000bpd, then you have other refineries that are about 50,000bpd, so that’s 700,000 and then plus this 60,000, that’s about 760,000bpd.

“So, Dangote is still a dominant firm and unless the petrol authority stands in the gap, it can easily influence the pricing of the petrol products because of its size. The regulator must make sure that nobody is dictating the price of petroleum products.”

A former lawmaker, Shehu Sani, in his X.com post, said “Glad to hear that Port Harcourt Refinery has commenced production. We hope this will impact on reducing the price of petroleum products and make life easier for the masses. We are anxiously waiting for a similar gesture to Kaduna Refinery. A country that cannot process its natural resources is still a colony. Kudos to Kyari.”