NNPC justifies $1.5 billion Port Harcourt refinery rehabilitation cost

The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, has moved to justify the $1.5 billion contract cost for the rehabilitation of the Port Harcourt refinery, saying a new one may cost up to $12 billion to build.

A statement by the Corporation on Tuesday said the scope of contract goes beyond just turn around maintenance of the refinery to entail replacement of key components of the plant.

Kyari described the approved rehabilitation contract of the 210,000 barrels per day capacity refinery as a worthy undertaking embarked upon after diligent consideration and in strict adherence to industry best standards.

He explained that in arriving at the decision to award the Engineering, Procurement, and Construction (EPC) contract to Tecnimont spA of Milan, Italy, after a competitive bidding process, the Corporation observed an unprecedented level of transparency and due diligence which consists of a governance structure and tender process that included key independent external stakeholders.

He said: “We have people saying why not build a new one; why will you repair an old refinery with 1.5 billion dollars?

“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 for it to commence production.

“It is around seven billion dollars and 12 billion dollars to construct a refinery of this nature (Port Harcourt refinery). This is the estimate you see in public space and there are things you do outside the construction battle-limits like the utilities that are never accounted for when estimates of this nature are done.

“Typically, there is an additional 25 per cent cost for construction battle-limits, so, when you say a refinery can be built at seven billion dollars or even 10 billion dollars, also think of that 25 per cent”, he added.

He continued: “With today’s estimate, you cannot build a refinery at any cost below these amounts, that means that the option you have is to scrap this and build a new one, and we all know that we don’t have that resource.

“If we start a new refinery of this nature today, it can’t work in less than four years, therefore, it means we will continue to import petroleum products in the next four years or more”.

Kyari explained further that in terms of outlook and job scoping, the rehabilitation project is different from the routine Turn-Around Maintenance which was last carried out on the Port Harcourt Refinery 21 years ago.

Kyari explained that unlike TAM which should normally be executed every two years but was neglected for many years, the rehabilitation project would involve comprehensive repairs of the plant with significant replacement of critical equipment and long lead items to ensure the integrity of the plant on the long term.

On the financing for the project, the NNPC helmsman said that African Export-Import Bank (Afreximbank), as a reliable lender, has agreed to raise $1billion towards the rehabilitation project.

He argued that a credible and capable lender like Afreximbank would never agree to put such huge amount of money where there would be no value.

He noted that having learnt from the failure of previous models, NNPC would adopt the Operate & Maintain (O&M) Model as a strategy in the execution of the rehabilitation project, which is also one of the key requirements by the lender.

On the choice of TecnimontSpA as the contractor to handle the project, he explained that the company is a representative of the Original Refinery Builder (ORB) and is one of the top 10 global Engineering, Procurement, Construction, Installation and Commissioning (EPCIC) Contractor in refineries, adding that it has requisite experience in similar jobs across the globe.

He said the National Engineering and Technical Company (NETCO) and Kellogg, Brown & Root (KBR) and are acting as NNPC Engineering Consultants to the project with support from Wood Mackenzie to ensure that the project is delivered on schedule, within budget and at the right quality.