Tinubu’s Pact with Labour on Refineries’ Repair

Whether President Bola Tinubu’s promise to fix the Port Harcourt Refinery was a mere bait to end last week’s protest by the organised labour or not will be determined by the year-end, the timeline set for the resumption of local refining of crude oil, writes Festus Akanbi

It is certainly a trying period for the current administration which has been buffeted with a range of socio-economic and political problems in its less than three-month span. Last week, the government had to contend with the fury of the Nigeria Labour Congress(NLC), and the Trade Union Congress (TUC) which led their members in a one-day nationwide protest against the harsh economic situation in the country brought about by the sudden removal of subsidy on the pump price of petrol.

Analysts said although it is to the credit of the federal government that a compromise was reached with the organised labour which restricted the protest to one day, they, however, pointed out that the symbolism of the protest which reverberated in most state capitals last Wednesday cannot be over-emphasised.

They said that given the fact that the workers’ protest was suspended with a promise to return to the negotiating table with the federal government on measures to cushion the effects of the removal of petrol subsidy on Nigerians based on President Bola Tinubu’s promise to fix the Port Harcourt Refinery, (a key demand of labour, this year), his government will be put under very serious pressure to break the jinx hovering over the nation’s refineries within a limited time frame. 

Repair of Port Harcourt’s Refinery

Speaking while meeting with the leadership of the NLC and TUC at State House, Abuja, Tinubu assured them that the Port Harcourt refinery would start production by December. He said this would be after the completion of the ongoing rehabilitation contract between the Nigerian National Petroleum Company Limited (NNPCL) and Italian firm, Maire Tecnimont SpA.

A statement jointly signed by the President of NLC, Joe Ajaero, and Osifo said “On the strength of the president’s pledge and commitment, we have decided for a return to a new and reinvigorated dialogue process to allow for full implementation.”

The joint statement by the two labour unions added, “It is pertinent to inform Nigerians that the extent of the success of the protest is underlined by the request of the President of the Federal Republic of Nigeria, Senator Ahmed Bola Tinubu, to meet with the leadership of the organised labour.

“He committed to an immediate restructuring of the framework for engagement in line with the input of the labour leaders.”

Crude oil prices have surged above $100 a barrel on coordinated production quotas by the Organisation of the Petroleum Exporting Countries (OPEC)  as a result of Russia’s invasion of Ukraine although it traded at $86.79 per barrel as of last week.

Despite being the top oil producer, Nigeria does not process its crude oil due to non-functional refineries.

As such, it exports crude oil and exchanges it for refined petroleum products through the Direct Sale, Direct Purchase (DSDP) scheme. The scheme is a contractual agreement, carried out through third parties, to meet Nigeria’s petrol needs. Oil industry analysts explained that because of this development, Nigeria is vulnerable to the volatility of global oil prices as it is a net importer of refined petroleum products — a status which the coming onstream of the Dangote Refinery promises to change.

Analysts who expressed delight over the government’s pledge to ensure the Port Harcourt Refinery comes alive again before the end of the year are optimistic that by doing so, Nigeria will be on the verge of tackling the current crises in its foreign exchange market. This optimism came on the heel of a report that Nigeria’s crude oil and gas import costs grew by more than 21% annually over five years to about $25 billion in the fiscal year 2022.

Rising Importation and Pressures on FX Market

Today, rising importation bills remain one of the drivers of foreign currency outflow in Nigeria as analysts maintained that oil import, which has proven to be a disadvantage to the level of FX inflow, occurs as a result of low crude oil refining capacity by local infrastructure following years of neglect by the government.

In a recent market review, analysts at Afrinvest Limited attributed rising crude oil and gas imports to local refineries’ inefficiencies and other supply chain bottlenecks. The report pointed out that the Nigerian government has been unable to solve the supply chain equation that reduces the country’s upside advantage as an oil-exporting nation.

In their macroeconomic note, Afrinvest Limited analysts said they expect the federal government to reduce its import bills on fuel, thereby reducing FX pressures.

“Over the last five years, Nigeria’s crude oil and gas imports rose by a cumulative annual growth rate of 21.1% to $24.9 billion in 2022 due to inefficiencies of local refineries among other factors,” Afrinvest said in its macroeconomic note.

Dangote Refinery’s Factor

It is believed that fixing oil refineries would help solve the issues around forex supply for importation, and high importation costs due to the depreciation of the naira, among others. Already Nigerians are hoping to gain some mileage after the completion of the Dangote Refinery– which is set to produce 650,000bpd of refined product.

According to plans, production from Dangote’s refinery will exceed domestic consumption levels and subsequently export excess refined products to neighbouring African countries. Alhaji Aliko Dangote, in confirmation of the gains from local refining, was quoted as saying that the planned commencement of the refinery could save up to $10 billion in foreign exchange (FX) and generate another $10 billion in exports when the facility begins operation.

While this has brought major benefits to many businesses, Dangote explained that more prosperity could be created by locally refining Nigeria’s resources, with the refinery being a major step in this direction by reducing the country’s dependence on imported refined petroleum products.

Nigeria’s Refineries

Operated by the Port Harcourt Refining Company – a subsidiary of the Nigerian National Petroleum Corporation Limited and located in Alesa Eleme just to the south-east of Port Harcourt, the company operates two oil refineries, including an old plant inaugurated in 1965 that can process 60,000 barrels per stream day, as well as the new plant commissioned in 1989, which has a capacity of 150,000 barrels per stream day. Both oil refineries possess a combined capacity of 210,000 barrels per stream day making PHRC the “biggest oil refining company in Nigeria”.[

The Warri Refinery: Located in Warri, it is the country’s first government wholly owned refinery. With an initial capacity of 100,000 bpd, later debottlenecked to produce 125,000 bpd of crude oil, the Warri refinery is the eighth largest in Africa. It has positioned Nigeria as a West African downstream leader. 

Kaduna Refinery: The refinery was inaugurated in 1980 to supply petroleum products to Northern Nigeria with a capacity of 50,000 B/D. In 1983, the capacity was expanded to 100,000 B/D by adding a second 50,000 B/D crude train dedicated to the production of lubricating oils (lubes). In 1986, the capacity of the first crude train was expanded to 60,000 B/D. The expansions have increased the current nameplate capacity of the refinery to 110,000 B/D.

Nigerians are waiting for President Tinubu to deliver on his promise of the planned repair of these refineries as his ability to break the jinx on local refining of crude oil within the set timeline will etch his name in the minds of the people as a man of his words.