Obasanjo And The NNPCL Refineries

Obasanjo And The NNPCL Refineries

In an unexpected turn of events, Nigeria’s refineries are back in operation, reports SIMBO OLORUNFEMI.

Former President Olusegun Obasanjo’s deep emotional investment in the publicly owned refineries managed by the NNPCL is well-known…READ MORE…

His attachment can be traced back to his role in establishing two of the country’s four public refineries. The decision to build the second and third refineries in Warri and Kaduna was made in 1974, but escalating fuel shortages prompted an expedited construction schedule shortly thereafter.

The Warri Refinery, for which contracts were awarded in 1975—prior to Obasanjo taking office—was completed and commissioned in 1978 during his tenure. The Kaduna Refinery followed, with contracts awarded in 1977 and commencement of operations in 1980.

Notably, the construction of these refineries was overseen by Muhammadu Buhari, who served as Federal Commissioner for Petroleum and Natural Resources in 1976 and as Chairman of the Nigerian National Petroleum Corporation (NNPC) from its establishment in 1977 until 1978.

So, it must have been disheartening for Obasanjo to discover the refineries in a state of disrepair upon his return to the presidency in 1999. Despite significant funds spent on maintenance during his administration, the refineries were still underperforming, leading him to consider their sale just weeks before leaving office.

For the Port Harcourt Refinery, a consortium led by Blue Star—comprising Nigerian companies like Zenon Oil and Dangote Oil—outbid UK-based Lakshmi Mittal, offering $561 million for a 51% stake. Other bidders, including Oando Plc and Sahara Energy, were disqualified in a process conducted by the Bureau of Public Enterprises (BPE). Blue Star subsequently aimed to acquire a majority stake in the Kaduna Refining Company.

In an ironic twist, it was Obasanjo’s chosen successor, President Umaru Yar’Adua, who quickly opposed the refinery sales after taking office, prompting Blue Star to withdraw from the agreement. Obasanjo, visibly affected by this reversal, tried unsuccessfully to persuade Yar’Adua to reconsider. “The refineries are old and Dangote and other investors paid $750 million for two of the refineries. My successor reversed the sale because of pressure, which makes me question whether that pressure was prioritized over the national interest,” he lamented.

Even though the sale’s annulment occurred over 17 years ago, Obasanjo remains unwilling to accept that any strategy other than his own can succeed. He believes the refineries failed during his tenure and will not thrive under any subsequent administration.

While Obasanjo argues that his decision to sell was pro-Nigeria and the cancellation was detrimental, opposing views emerged at the time. Much of the public criticized the sale for lacking transparency and due process; both the NNPC and Labour unions raised concerns that the Port Harcourt refinery’s value was grossly underestimated at $5 billion, significantly exceeding its sale price. The controversy surrounding the sale even contributed to a widespread strike in June 2007 that severely disrupted Nigeria’s economy.

While the reversal of the sale is often cited as a major setback, not everyone agrees on the necessity of the sale itself. In media discussions, Obasanjo often references a conversation with top Shell executives who were invited to invest in the refinery. According to him, Shell expressed four main reasons for declining the offer: the greater profitability of upstream operations, the small size of Nigeria’s refineries, subpar maintenance, and pervasive corruption in refinery operations.

However, Shell’s objections are not as conclusive as Obasanjo suggests, as the refinery sector is generally less profitable than upstream activities. It is not surprising that Shell, which does not operate in Nigeria’s downstream sector, would choose not to engage in refinery management, corruption aside. It is ironic that Shell’s observations left such a strong impression on Obasanjo, leading him to dismiss alternative viewpoints.

Following years of inconsistent efforts under various administrations, including ineffective maintenance attempts, President Muhammadu Buhari—who previously worked with Obasanjo—made a pivotal decision in 2021 to shut down the refineries for comprehensive rehabilitation, distinct from mere turnaround maintenance (TAM). NNPCL CEO Mele Kyari remarked that the plants had deteriorated significantly over the past two decades, emphasizing that the work being done now was aimed at restoration, not just maintenance.

At the time, there were voices suggesting that building new refineries would be more beneficial than rehabilitating the old ones, but Kyari countered that constructing a new refinery would cost around $7 billion to $12 billion and would take four years to begin production.

Critics like Atedo Peterside argued that NNPC would only worsen Nigeria’s financial situation with another investment, while Prof. Pat Utomi characterized the $1.5 billion expenditure on the rehabilitation of the Port Harcourt refinery as imprudent.

Amid skepticism regarding NNPCL’s ability to rehabilitate the refineries, recent months have shown a positive shift, with the Port Harcourt and Warri refineries resuming production, and the Kaduna Refinery expected to follow soon. Disillusionment among critics is beginning to wane.

Despite this progress, Obasanjo remains unconvinced, stating, “I’ve heard over $2 billion has been wasted on the refineries, yet they still aren’t functioning. If a company like Shell expressed these concerns to me, I’d have no choice but to believe them.” He seems to view the recent rehabilitation efforts as insufficient, unaware that many experts consider the current conditions of the plants to be akin to those of new facilities.

In a positive response, NNPCL’s Chief Corporate Communications Officer, Olufemi Soneye, has invited Obasanjo to visit the refurbished refineries to observe their operations firsthand. Known for his candidness, one would hope Obasanjo accepts this invitation and shares his impressions with the public afterward, as that would be both a fitting and honorable action.

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