Why govt’s refineries are not working, by Ojulari

The Group Chief Executive Officer, Nigerian National Petroleum Company Limited (NNPC Ltd), Bayo Ojulari, yesterday said operations of the government-owned refineries had to be stopped after it was glaring that continuing to operate the facilities was destroying value and draining public resources.

The NNPC boss, while speaking at a fireside chat at the Nigeria International Energy Summit (NIES), said after an internal review by the NNPC, it discovered that continuing to run the refineries amounted to monumental losses, low utilisation rates and the absence of a credible path to profitability, despite huge financial commitments sunk into them; hence the decision to shut down the refineries temporarily.

“There’s no way in NNPC, with the structure we are in, we can run it positively. We don’t have the capacity right now. We need to bring in additional capacity to complement what we have,” Ojulari said.

He blamed the state of the facilities on a fundamental flaw in the operational model which placed excessive focus on financing and engineering, procurement and construction (EPC), while neglecting long-term operational excellence.

“To make a refinery work, you need three things: financing, a competent EPC contractor, and world-class operational capacity. Unfortunately, we focused on the first two and ignored the third,” Ojulari explained.

He explained that financiers and EPC contractors are paid and exit, while the refinery must be operated for 20 to 50 years — a responsibility that NNPC was not adequately equipped to handle on its own.

“The system was designed for everyone to take from it, not to put anything into it,” he said.

According to him, crude oil cargoes were supplied regularly to the refineries, but utilisation hovered between 50 and 55 per cent, while operating and contractor costs continued to rise. Yet, the refined products coming out were often of lower value compared to the crude fed into the system.

“At the end of the day, we were leaking value with no clear line in sight on how losses would turn into profits,” he said.

The NNPC boss disclosed that it is no longer looking for contractors to run its refineries but experienced global operators with proven track records. This, he noted informed the NNPC’s Board to take a major decision to “stop the rot” by halting refinery operations and conducting a comprehensive review.

Admitting political pressure to keep the refineries running was intense, Ojulari said the firm insisted on applying strict commercial logic.

He disclosed that the commencement of operations by the Dangote Refinery provided critical breathing space which has allowed the NNPC to reassess its assets and pursue a more sustainable strategy.

“Whether you love Dangote or not, thank God it is a Nigerian refinery, built in Nigeria and working in Nigeria,” he said, adding that NNPC is also a shareholder in the Dangote refinery.

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For now, investors have continued to show interest in the refineries. “They are visiting one of the refineries as we speak, one of them is a major Chinese company with one of the largest petrochemical plants in China and there are a few other companies as well. Negotiations on equity size are still ongoing; I won’t tell you more than that for now.

“What matters to us is not just that the refinery works; but it must work sustainably. We are not selling Nigeria, but we are open to selling some equity, as much as required, to secure sustainability.

“Our solution is to put a sustainable structure in place, one where the refinery can finance itself and run like a proper business,” he concluded.