Engr. Alexander O. Ogedegbe, has delivered a stark assessment of the industry’s historical decline and offered a clear path forward through privatization.
Speaking at the Nigerian Academy of Engineering’s induction ceremony for new fellows in 2009, Ogedegbe, a veteran engineer with extensive experience in the sector, detailed the systemic issues crippling the nation’s refineries and advocated for a decisive shift towards private ownership.
Ogedegbe, who participated intensively in the execution of Nigeria’s three refinery projects and served as Chief Executive of two, began by outlining the historical context of the refineries’ establishment.
“Exploration for crude petroleum oil in Nigeria first began in 1908,” he noted, “but serious and sustained efforts did not happen until Shell Darcy Petroleum Company commenced operations in 1935.” He traced the evolution from the Nigerian Petroleum Refining Company (NPRC) in 1960 to the eventual takeover by the Nigerian National Petroleum Corporation (NNPC), highlighting the pivotal shift from a commercially driven entity to a bureaucratic cost center.
“NPRC was allowed to continue to operate commercially and profitably, without any interference from government,” Ogedegbe recalled, contrasting it sharply with the later NNPC era. “Within a few years, the NPRC management’s commercial culture had been replaced with a more bureaucratic style of the NNPC management. In fact several management changes occurred within the first five years which fully entrenched the bureaucratic style and structure.”
The engineer meticulously detailed the construction of the Warri, Kaduna, and new Port Harcourt refineries, emphasizing the government’s initial rationale for investment. “The Federal Government financially buoyed by these large earnings from oil had embarked on a very large number of projects including a lron & Steel Industry, road and bridge construction projects, and two grassroots refinery projects,” he explained. He defended the government’s initial decision, stating, “I believe the Federal Government took the correct decisions at that time, to undertake the projects because; a) The investment and operating costs of any refinery project were too high for any local private company to undertake.”
However, Ogedegbe was critical of the government’s continued ownership and management. “It is a completely different matter to continue to own, manage and operate such strictly commercial assets as cost centres,” he asserted. “With the benefit of hind sight, the Federal Government should have divested all or majority of its equity to a competent private company at the earliest opportunity.”
His analysis of the refineries’ performance painted a grim picture of declining capacity utilization and operational inefficiency. “On the basis of the parameters described above I have reviewed the performance of the Nigerian Refineries from inception up till the recent times,” he stated. “Some of the results of my findings are presented in the attached Tables and Graphs. As a result of capacity underutilization, the yield, hence production efficiency also declined.” He presented data showing average capacity utilization for all NNPC refineries between 1997 and 2008 fluctuating wildly, often dipping below 30%.
Ogedegbe identified several key problems plaguing the refineries, including inadequate funding and autonomy. “From the inception of each of the NNPC Refineries, the Managing Director and his management team have faced serious perennial challenges in terms of: 1) Securing adequate Working Capital from the NNPC Corporate Headquarters. 2) Their autonomy to commit the required funds, as when necessary to procure chemicals, and catalysts, equipment spare parts, other plant consumables and sub-contract services from outside experts. 3) The bureaucratic process of approvals, which in some instances required as many as 27 signatures to get critical maintenance spend signed off.”
He also highlighted the detrimental effects of excessive political interference and a lack of proactive governance. “The ultimate driving force for any products manufacturing company is the profit motivation for the company and its shareholders,” he argued. “This crucial incentive which was quite noticeable in the NPRC slowly vanished when the NNPC took over the company. The NNPC Refineries became cost centres instead of a profit centres and were operated like Federal Government ministries.”
The engineer pointed to the critical issue of delayed turnaround maintenance (TAM) as a major contributor to equipment failures and unscheduled shutdowns. “Turnaround maintenance is normally recommended in the industry to be carried out after every 24-36 months of continuous operations,” he explained. “However, subsequent TAM’s were delayed for several years (up to 6 years in some cases). These delays have resulted in serious equipment wear and failures experienced on the run.”
Ogedegbe’s proposed solution was unequivocal: privatization, modeled after the successful privatization of Eleme Petrochemical Company Ltd. (EPCL). “In my humble opinion, the only solution that can bring a profitable outcome to the ownership as soon as possible,” he declared. “This is by no means a new suggestion, this is a successful precedent. That is why I am recommending what I will call the EPCL Privatization Model.”
He detailed EPCL’s transformation under Indorama’s ownership, noting the significant increase in production and efficiency. “Products sold after the first 3 months under private ownership was more than the quantity produced for the previous 28 months under the NNPC [Government] ownership,” he emphasized. He also pointed to the improvement in management policies and procedures, particularly the increased autonomy granted to the Managing Director. “The MD is allowed to spend as necessary to operate and maintain the plant. The approvals for major expenditures are obtained from the Chairman in Indonesia, by email and telephone.”
Ogedegbe concluded with a strong call to action, urging the government to resume the privatization process. “I therefore strongly recommend the use of this model for the privatization of all the Nigerian Refineries as soon as possible,” he stated. “I further recommend that as a minimum and in order to avoid the political interference that arose during the last privatisation exercise that at least the Port Harcourt and Warri refineries should be slated for simultaneous sale.”
He expressed confidence in the refineries’ potential for restoration, stating, “All the foreign experts and I who toured and inspected the plants for several days were convinced the PHRC could be restored back to full capacity utilization within 12 to 18 months after privatization.” His lecture served as a powerful reminder of the urgent need for reform in Nigeria’s critical petroleum sector, advocating for a shift towards private enterprise to unlock the refineries’ true potential.