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Bayo Onanuga
@aonanuga1956
A must-read:
Baba Obasanjo and the NNPCL refineries
By Simbo Olorunfemi
That Baba Obasanjo has an almost child-like emotional attachment to the public-owned refineries under the trust and care of the NNPCL is not in doubt. It is also not difficult to explain why that appears to be the case. He can indeed assert some claim/credit for constructing two of Nigeria's four publicly owned refineries.
The decision to construct the second and third refineries in Warri and Kaduna, respectively, was taken in 1974, with construction on the 3rd set only to commence “whenever the projection of the consumption of petroleum products justifies it” by early 1975, fuel shortages made it necessary to proceed with its construction soon after.
The Warri Refinery, whose contract was awarded in 1975 before General Obasanjo became Head of State, was completed and commissioned in 1978 while he was in office. The contract for constructing the Kaduna refinery was awarded in 1977 and commissioned in 1980.
One interesting fact is that Muhammadu Buhari directly supervised the construction of these refineries. He was appointed Federal Commissioner (Minister) for Petroleum and Natural Resources in March 1976 and Chairman of the Nigerian National Petroleum Corporation when it was created in 1977, a position he held until 1978.
So, it must have been heartbreaking for Baba Obasanjo to meet the refineries in a state of much disrepair when he returned as president in 1999. Such was the state of the refineries that even with so much money expended on ‘turn-around maintenance’ of the refineries while he was in office, there was no turn-around in fortune for the refineries that he had to put them up for sale a few weeks to the end of his administration.
For the Port Harcourt refinery, Blue Star, a consortium of Nigerian companies Zenon Oil, Dangote Oil, and Gas & Transnational Corp., outbid UK-based Indian steel baron Lakshmi Mittal, who had offered $550 million. The Dangote-led Blue Star made up of Baba Obasanjo’s associates, paid $561 million to acquire 51% of the government-owned stake in the refinery. There were two other bidders – Oando Plc and Sahara Energy in conjunction with Refinee PetroPlus, but the two were disqualified in a process conducted by the BPE. Bluestar will follow up with the buy-in in Port Harcourt to, soon after, also take a 51% stake in the Kaduna Refining Company.
In what was a strange twist of irony, it was Baba Obasanjo’s anointed successor in office, President Umaru Yar’Adua, who, within only a few months of assumption, took a different position on the sale of the refineries, which prompted Blue Star to pull out of the deal. Baba, who never hid his pain and tried to prevail over his successor without success, could not get over the turn of events.
He often recoils at how Yar’Adua baulked under pressure and cancelled the sale. “The refineries are old, and Dangote and some investors paid $750 million for two of the refineries. My successor came to the office and reversed the sale. He even refunded the money they paid. So I went to him and asked him why he did this. He said it was because of pressure. So I wondered if the pressure by some people was more important than the interest of the whole nation,” he recalls.
Even though the Obasanjo sale was reversed over 17 years ago, and the administrations that succeeded further moved in the opposite direction, Baba Obasanjo has refused to accept that any approach other than his will ever work. To him, the refineries did not work with him, and they can never work under any other dispensation, no matter what is done, which is quite intriguing.
Whereas Baba anchored his decision to sell as pro-Nigeria and the reversal of the sale as anti-Nigeria, those who cancelled the sale thought otherwise. In the first place, the sale was greeted by widespread criticism from the public, with the primary accusation being that the sale did not follow due process. Indeed, NNPC and DPR spoke up against it, just as the Labour unions, especially NUPENG and PENGASSAN, were up in arms against it. They claimed that “the sale of the two firms was completely lacking in transparency," that no due diligence was carried out, and that the Port Harcourt refinery was worth about US$5 billion, roughly nine times the amount it was sold for. Indeed, the sale of the refineries to Bluestar was one of the grounds for a general strike that paralysed the Nigerian economy for four days in June 2007.
So, while the sale reversal is often cited as a major setback, not everyone agrees with that. Not everyone saw the decision to sell the refineries as the right one. In his interviews with the media on the subject, Baba Obasanjo usually anchors his argument that the refineries can never work on the conversation he said he heard with top Shell executives whom he had invited to take a stake in the refinery and manage it. Shell, he says, gave four reasons for declining his offer. According to Baba, the Shell Executive said: ” First of all, they make a major profit from upstream, not downstream. He said they run downstream to keep their head above water.
“Two, our refineries were too small: 60,000 barrels, 100,000 barrels, and I think 120,000 barrels. He said the average refinery was going for 250,000 barrels then.
“Three, he said our refineries were not well maintained. Fourth, he said that there was too much corruption around the activities of our refineries, and they would not want to get involved in that.”
However, none of these reasons said to have been given by Shell, are novel or suggestive that Shell saw the refineries as beyond redemption, as Baba Obasanjo concluded. Indeed, it is well known that the refinery business is not the most profitable and that upstream is more profitable than downstream. It is easy to understand why Shell, not even a player in the Nigerian downstream sector, would not be interested in running a refinery, even if corruption were considered.
Ironically, Shell's observations will make such a lasting impression on Baba Obasanjo that he will shut out any suggestion that does not endorse the impression he formed.
It is instructive that following years of fits and starts under different administrations, with efforts at ‘turnaround maintenance’ not yielding lasting results, President Muhammadu Buhari, who had worked with President Obasanjo in the past, will then take the bold step of shutting down the refineries and commissioned a complete rehabilitation of the four refineries, as different from the TAMs, in 2021. At the time, the NNPCL CEO, Mele Kyari, said: “I have said it over and over that we have not taken care of these refineries over the years, that we have mismanaged the turnaround maintenance work over time in the last 20+ years, these plants have degenerated to a level that today, we are not turning around but resuscitating them, which is different from TAM.”
Many didn’t understand the difference then, even as many still don’t understand it now, thus going off tangent in their expectations of what the refineries can deliver. At the time the contract for rehabilitation was awarded, some people had also made the point that a new refinery could have been built instead of rehabilitating the old ones, but Mele Kyari explained then:
“We have people saying, why not build a new one; why will you repair an old refinery with $1.5 billion? The fact is available even by Google search, what it takes to build a refinery of this status today.”
“It will be difficult for the country to build a new refinery, as it will take four years to commence production. It is around $7 billion and $12 billion to construct a refinery of this nature (Port Harcourt refinery),” Kyari argued.
Atedo Peterside submitted then that NNPC would only “enmesh Nigeria into a deeper financial mess by throwing $1.5 billion at a problem it created." At the same time, Prof. Pat Utomi argued, "The decision of the Federal government to invest $1.5 billion in the repair of Port Harcourt refinery is unwise, unreasonable, and has no basis.”
Indeed, only a few gave the NNPCL a chance with the rehabilitation of the refineries, and trust was further eroded by multiple failures to deliver on schedule. But things have turned around in the last two months, with the commencement of production in the old wing of the Port Harcourt Refinery and last week’s resumption of production at the Warri Refinery. There are also indications that the Kaduna refinery will soon go on stream. The club of cynics and sceptics is fast thinning out.
Baba Obasanjo appears unconvinced, though. “I was told not too long ago that more than two billion dollars have been squandered on the refineries, and they still will not work. If a company like Shell had told me what they had told me, I would have believed them. But here we are, over $2 billion squandered, and the refineries still won’t work,” Baba Obasanjo declares. It might be that Baba is of the mind that the rehabilitation work that was done at the refineries is of the standard that was presented to him as having been done in the past, not realising that this is clearly beyond that, with experts positing that what we have now is virtually a new plant.
NNPCL has responded appropriately, with its Chief Corporate Communications Officer, Olufemi Soneye, inviting the former President to tour the newly completed refineries and see the state of operations there. President Olusegun Obasanjo has a reputation for being forthright and candid. One expects him to honour this invitation and share his impressions with Nigerians. That is the right and honourable thing to do.
-Simbo Olorunfemi works for Hoofbeatdotcom, a Nigerian communications consultancy and publisher of Africa Enterprise. Email: Editor@enterpriseafrica.ng
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