We have to think out of the box to fix refineries —NNPC GMD
Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr Maikanti Kachalla Baru, met with Energy Editors on the sideline of the recently-concluded Offshore Technology Conference (OTC) in Houston, Texas, United States and shared with them challenges faced in executing his transformation agenda for the NNPC. He also stated the model he has adopted in finding lasting solution to moribund refineries. OLATUNDE DODONDAWA was there. Excerpts.
NNPC transformation has been on the table for long. Since you came on-board, you have shown lots of interest in it, especially in the ways NNPC does business. What are the challenges that you have faced within this period you come onboard and what are we expecting in terms of results?
Thank you very much. The transformation agenda is essentially to streamline the operations of the corporation and to ensure that issues related to corruption are dealt with. Also, we started by outlining our primary functions and secondary functions. By limiting our functions, that’s our primary functions, secondary functions and of course the peripheral functions. Our intention is to spring up the peripheral functions and make them survive on their own or die as the case may be.
The core functions, we look at how best to put the various processes and procedures that are required to ensure that those lofty ideas of the government in relations with ensuring transparency and integrity within our works and delivering to ensure that the customer is the focus (custmer-centric) is reinvigorated.
For instance, if I take Nigerian Petroleum Development Company (NPDC) as an example, we looked at various aspects of their operations and segregated their various activities into Joint Ventures where they are the operators and where they are non-operators. We also segregated it into deep water, shallow water as well as onshore. In the process, we also recognised our obligations as government entities to ensure that gas supply is assured to various entities that require gas, particularly the power sector.
And put together various procedures to ensure that gas is delivered in the right quantity and to the right off-takers. Focusing fully that we need to develop our reserves, exploration is ongoing with the NPDC and followed by aggressive development.
Knowing fully well that financing could be challenging, we look to various means of ensuring that financing does not become a problem and we look at issues surrounding raising finance to make sure that NPDC operates optimally.
Some of these required tough decisions because you first sell your crude oil, it’s not something you can do easily. You know you can get the benefit now but you make sure that the projects you are investing in will definitely yield sufficient volumes that will be able to repay these debts that you have incurred. So there are things you have to do structurally, you look at where your strength is in terms of staffing and ensure that such costs are focused as much as you could noting fully well that the skills set required for these activities will be disseminated across the areas and prioritise which ones require greater focus.
So the transformation agenda is something you can go on to talk about but we have limited time so I could just talk on only one sector. We have the gas companies, the supply and distribution of petroleum products and the whole value chain. In those, we see the ones with challenges and regulated products and we also focus on them.
For years, our refineries have been operating below name-plate capacity and you see government proposing varying models regarding solving the challenges confronting the refineries. What really is the way forward for our refineries?
Our refineries have suffered a lot of neglect and bureaucratic issues. And most of them had their last turn around maintenance (TAM), which is supposed to be done every two years, in the late 1990s. Some had it in 1998, while Port Harcourt refinery had its own in 2004. But because of the fiduciary powers and other limitations, the maintenence in every two years was not achieved.
Obviously, when you have continous neglect in terms of not doing full rehabilitation job through turn around maintenance of refineries but you only carry out the palliatives, you will get the dilapidation. That really is what affected our refineries.
But what we got as turnaround is a complete empowerment by Mr. President (Muhammadu Buhari) who said “look, go and fix the refineries. Whatever that you need to do, just do and fix the refineries.” Unfortunately, there is no funding attached to that. So, if there is any funding that we sourced, it’s internal to NNPC, through our other operations, to be able to do other activities. So we have to think out of the box and see how best we can carry out total rehabilitation. It’s not a matter of TAM.
So we came up with the procedure to say that we would first of all do a detailed scoping of what needs to be done in each of the refineries, and we got a firm to participate with our own company, NETCO, to carry out a thorough assessment of our refineries, and come out with what needs to be done to the last spot and subsequently cost these activities.
We then approached the original refinery builders. For Port Harcourt refinery, we have Japan Gas Company (JGC), Saipem for Warri refinery and Chouder Corporation together with Saipem for Kaduna refinery. We engaged them, though there was an initial reluctance, but after discussion with them, they knew we are serious about it this time around. They are ready to revalidate the scoping that we have done as well as bring in modern technology into some of the process unit that are already installed, to bring them to operate like modern refineries.
The next challenge we have is finance because government does not have the money to do it. On that, we went through a bidding process whereby we advertised and sought expression of interest and worked out a model whereby the refineries will be up and running. They will be able to pay the debt that we used in funding the rehabilitation program.
The Board of NNPC met in London on Monday (30th April, 2018) with some of the shortlisted groups that we had for all the refineries to go the last lap and clear their fears and also address whatever anxiety they may have towards sustainable funding and debt service process.
Based on that, once those are done, we expect we sign off the agreement and expect these financiers to bring the fund and the original refinery builders will come in and rehabilitate or refurbish the refineries to guarantee us 90 per cent production. The financiers also have technical arms that are working with them. They will also participate in ensuring that the operations of the refineries, after rehabilitation, are in sustainable manner. We have worked this far and we ensured we involve other arms of government including the infrastructure concession commission. Once we are ready to go, we will shut down the refineries and fully refurbish them and bring them back.
Is there any role for indigenous contractors and service providers in these arrangements?
Yes. There will be opportunities for contractors in terms of getting Nigerian companies to support the contractors so that they will be able to use the services of various service providers.
I know that NNPC has exited cash calls programs, how far have you gone in settling the accumulated outstanding to your JV partners?
We agreed on payment plan for repayment of the restructured debt with our joint venture partners between two to five years period and the intention of how we repay is to come up with project that will develop certain assets to be able to generate appropriate cash flows that will be used in servicing those debts. Government will still receive taxes and royalties from those production and the aspect that will be used in paying the debt will be the equity and oil proportion that emanate from that.