NNPC says replacing PH refinery will cost $12 billion
The Nigerian National Petroleum Corporation (NNPC) has shed more light on the reason for opting to rehabilitate the Port Harcourt, PH refinery for $1.5 billion stating that constructing a new refinery will cost the federal government $12 billion.
According to the Group Managing Director of the corporation, Mallam Mele Kyari, decision to revamp the PH refinery was taken because of the following reasons:
The GMD said constructing a new refinery will take a period of four years, during which Nigeria must continue to import products.
He argued that there was no basis for comparison between the PH refinery and the one sold by Shell in America for $1.2 billion in terms of capacity disclosing that the actual cost of the project is about $1.34 billion also noting that the additional expenses include taxes and other duties that could come up.
“The real cost is $1.34 billion. Even then you could argue and say why you wouldn’t build a new refinery. We have also seen some curious comparisons that shell sold one of its refineries for $1.2 billion and that it’s even better than our own.“
“This is mundane. Even a Google search will reveal that it was built in 1915 and it’s a 107,000 barrels per day refinery. It has been shut down by the regulators since early last year. Not only that, when you buy a refinery you buy its assets and the liabilities”
He maintained that many people do not know the financial transactions that go into some negotiations, saying that it is needless to compare a combined refinery of 210,000 barrels to a much smaller and much older refinery which has many issues with regulators.
“Simple due diligence was not conducted before those comments were made. They have asked why we don’t just build a new one. What does it take to build a refinery of this status today? It’s anywhere between $7 billion to $12 billion to construct a refinery of this nature. This is what we call battery limit construction. That’s the estimate you see in the public space.”
“There are things you do outside the battery limits like the tank and other utilities that are never accounted for when the estimates of this nature are done. That’s about 25 percent of the total cost. So, when you say refineries can be built for $6 billion or even $10 billion, you should also think about the 25 percent you will add to it,” Kyari said.
He said that another option would have been to scrap the current one and build a new one, but added that the resources are not available while the banking sector is not ready to put in the money because they no longer fund oil projects of that magnitude.
The GMD stated that the current huge cost of rehabilitation was because the last turn-around-maintenance 21 years ago was badly carried out.
Kyari said that the borrowing angle was introduced because typically, lenders will give conditions, one of which is an Operations and Maintenance contract arrangement, meaning that NNPC will not operate the plant, as it will be done in consonance with what he described as the best global practice.
“More than that, the contractors will give a guarantee that it will work for such a period of time. That’s part of the requirements which was absent in previous ones under the TAM arrangements,” he said.