The Nigerian National Petroleum Company Limited (NNPC) says it is changing its approach to refinery rehabilitation by requiring technical partners to take equity stakes in the facilities and share responsibility for their performance.
Gatekeepers News reports that Bayo Ojulari, Group Chief Executive Officer (GCEO) of NNPC, said the company would no longer rely on a model where contractors are paid to rehabilitate refineries without having a financial interest in their subsequent performance.
Ojulari spoke on Tuesday at NNPC’s media parley in Abuja.
NNPC operates three government-owned refineries: the Port Harcourt Refining Company in Rivers State, the Warri Refining and Petrochemicals Company in Delta State, and the Kaduna Refining and Petrochemical Company in Kaduna State.
He said the new approach was based on lessons learnt from previous rehabilitation projects, where contractors and other parties involved had no financial stake in the facilities after completing the work.
“What we have learned from the past rehabilitations of the refineries was multiple. But I’ll remind you again of the two of them that I’ve always talked about,” Ojulari said.
“One was that the model we have used before meant that we were incentivising people who work on the refinery, and there was no skin in the game. We pay for contractors, we pay for financing, we structure and pay for O&M, everything we pay for. Right?
“And then none of those parties that were working with us had a stake in the performance of the refinery after their work.”
According to the NNPC chief, the company now wants technical partners to have equity in the refineries, giving them a direct interest in the facilities’ performance and profitability.
He said prospective partners would be required to demonstrate a proven record of operating refineries or petrochemical facilities, as well as the capacity to provide the necessary technical expertise.
“What we want going forward is to have a refinery that is self-sustaining, that is profitable, and is sustainable,” Ojulari said.
Chinese investors complete refinery assessment
Ojulari also disclosed that a team of Chinese engineers had completed a three-month due diligence assessment of the Port Harcourt and Warri refineries.
The assessment followed a May 4 memorandum of understanding (MoU) signed between NNPC and two Chinese companies to explore a partnership for the completion and operation of the two refineries.
He said the assessment was carried out to enable the prospective investors evaluate the condition and requirements of the facilities.
Ojulari, however, said NNPC had not reached a final agreement with the Chinese investors.
He said the team would submit its report and proposal, after which both sides would commence commercial and technical negotiations.
“There are strong indications and commitment of their interest as of now in Port Harcourt and Warri Refinery,” he said.
The GCEO said the Kaduna refinery had yet to undergo the same process, but NNPC was hopeful of commencing work on the facility under the technical equity partnership model.
He added that relatively small refinery margins meant that profitability would depend heavily on factors such as production volume, operational efficiency and petrochemical output.
Ojulari said NNPC was also exploring newer technologies and petrochemical opportunities as part of efforts to improve the long-term sustainability of the refineries.
