Why Nigeria’s refineries failed

The Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPC Ltd), Bayo Ojulari, has disclosed that they halted operations at the country’s state-owned refineries after discovering that continued operation was destroying value and draining public resources, despite huge financial commitments.

Speaking during a fireside chat at the ongoing Nigeria International Energy Summit (NIES) on Wednesday, he said the company took the difficult decision to shut down the refineries temporarily after an internal review revealed monumental losses, low utilisation rates and the absence of a credible path to profitability.

“We were under extreme pressure. Nigerians were angry, a lot of money had been spent and expectations were very high,” the official said. “But the reality was that we were just wasting money, ” Mr Ojulari added.

According to him, crude oil cargoes were supplied regularly to the refineries, but utilisation hovered between 50 and 55 per cent, while operating and contractor costs continued to rise. Yet, the refined products coming out were often of lower value compared to the crude fed into the system.

“At the end of the day, we were leaking value with no clear line of sight on how losses would turn into profits,” he said.

Moribund refineries

Over the past decades, Nigeria’s state-owned refineries have recorded suboptimal operation due to deep-rooted challenges, including corruption, poor management of funds designated for maintenance, and the decay of essential infrastructure.

Nigeria has four major refineries, two in Port Harcourt, Rivers State, which combine to form the Port Harcourt Refining Company (PHRC) with a combined installed capacity of 210,000 barrels per day (bpd); the Kaduna Refining and Petrochemical Company Limited (KRPC) with an installed capacity of 110,000 bpd; and the Warri Refining and Petrochemical Company Limited (WRPC) with an installed capacity of 125,000 bpd.

All the refineries have a combined installed capacity of 445,000 barrels per day.

For decades, the refineries have performed below optimal levels despite the huge resources earmarked for their rehabilitation. In May 2023, the House of Representatives ad-hoc committee on the state of refineries in the country said the federal government spent over N11 trillion on the rehabilitation of the refineries from 2010 to 2023.

The breakdown of the local refineries pushed Nigeria to depend solely on importation of petroleum products for domestic use for many years, constituting a major drain on the nation’s foreign reserves.

For decades, successive administrations have promised and made moves aimed at reviving the nation’s refineries to reduce dependency on petrol importation but have failed.

Political interference, obsolete technology, pipeline vandalism affecting crude supply, and alleged sabotage by groups benefiting from imported refined products are also significant factors.

Stopping the Rot

On Wednesday, Mr Ojulari explained that the first major decision of the current leadership under his watch, was to “stop the rot” by halting refinery operations and conducting a comprehensive review.

Political pressure to keep the refineries running was intense, he noted, but the company insisted on applying strict commercial logic.

“You cannot sleep when you have been trained for decades to look at profitability and commerciality. It’s not possible,” he said.

He added that the commencement of operations at the Dangote Refinery provided critical breathing space, allowing NNPC to step back, reassess its assets and pursue a more sustainable strategy.

“Whether you love Dangote or not, thank God it is a Nigerian refinery, built in Nigeria and working in Nigeria,” he said, noting that NNPC is also a shareholder in the facility.

Why Refineries Never Worked

The NNPC Boss identified a fundamental flaw in Nigeria’s refinery model: excessive focus on financing and engineering, procurement and construction (EPC), while neglecting long-term operational excellence.

“To make a refinery work, you need three things: financing, a competent EPC contractor, and world-class operational capacity,” he said. “Historically, we focused on the first two and ignored the third.”

He explained that financiers and EPC contractors are paid and exit, while the refinery must be operated for 20 to 50 years — a responsibility that NNPC was not adequately equipped to handle on its own.

“The system was designed for everyone to take from it, not to put anything into it,” he said.

New Strategy

Under a new board-approved strategy, Mr Ojulari said it is no longer looking for contractors to run its refineries but experienced global operators with proven track records.

He explained that NNPC plans to relinquish part of its equity in the refineries to such partners to ensure they have “skin in the game” and a vested interest in long-term performance.

“We are not selling Nigeria,” he clarified. “But we are open to selling some equity — as much as required — to secure sustainability.”

He said the partners would lead operations while also helping to rebuild local capacity, skills and institutional knowledge within NNPC.

“Our solution is to put a sustainable structure in place — one where the refinery can finance itself and run like a proper business,” he said.

Investor Interest

NNPC confirmed that discussions with potential investors are already underway, revealing that a major Chinese company with one of the largest petrochemical plants in China is among firms inspecting the refineries.

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“They are visiting one of the refineries as we speak, and there are a few other companies as well,” the executive said, adding that negotiations on equity size are still ongoing.

For NNPC, the goal is no longer just to restart refineries at any cost, but to ensure they operate profitably and sustainably for decades.

“What matters to us is not just that the refinery works,” he said. “It must work sustainably.”