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This paper measured the significant factors leading to performance challenges across state-owned refineries in Nigeria based on experts’ views. The study was carried out with a view of making policy recommendations to help address these issues and thereby improve performance. A quantitative approach was adopted to sample the viewpoints of the professionals who work across the NNPC refineries. Using a Likert-type questionnaire, the professionals’ expert opinions were ranked across four main categories covering political, economic, social, and technical (PEST) factors. A Cronbach alpha test was performed to certify the consistency and reliability of the sub-category factors included on the Likert scale. In addition, a multivariate analysis of variance (MANOVA) was carried out to check for any statistically significant differences in the respondents’ opinions as a result of their different years of work experience. The study revealed that while all four PEST factors are cru- cial to the performance of the state-owned refineries in Nigeria, political, economic, and technical factors were viewed as more significant than the social factors. A comparative analysis of the sub-category factors using the relative significance index (RSI) and the respondents’ mean scores of importance (RMSI) revealed that government interference, funding issues, political indecision, theft and pipeline attacks, cost of spare parts, maintenance issues, operating capital, feedstock supply, staff training and competence issues are some of the significant factors that affect the performance of the refineries. The identified performance challenges from this study were used to inform policy recommendations to help address the problems of the refineries. Keywords Nigerian refineries · Performance challenges · Capacity utilisation · Policies · Relative significant index Introduction cost of living in Nigeria. This is because the non-availability of locally refined petroleum products (RPPs) in Nigeria usu- The poor performance of state-owned petroleum refineries ally result in their costly imports, thereby raising the cost of in Nigeria has been the subject of much academic discourse transportation and commodities with the consumer at the [1, 26, 47, 71]. The interest generated by this industry is receiving end [64]. Essentially, the efficiency of this industry understandably underpinned by its impact on the average will positively contribute to the national economy by help- ing to stabilise the cost of businesses and save the nation unnecessary costs from imports [46, 61]. * Obinna Iheukwumere Nigeria has four State-owned refineries operated by its o.e.iheukwumere@rgu.ac.uk National Oil Company—Nigerian National Petroleum Cor- David Moore poration (NNPC). These refineries have a total installed d.moore2@rgu.ac.uk capacity of 445,000 barrels per stream day (BPSD) and are Temitope Omotayo strategically located across the country at Kaduna, Warri, t.s.omotayo@leedsbeckett.ac.uk and Port Harcourt. The Port Harcourt refineries comprise Scott Sutherland School of Built Environment, Robert the two refineries built in 1965 and 1989 with a current Gordon University, Aberdeen, UK capacity of 60,000-bpsd and 150,000-bpsd, respectively. Scott Sutherland School of Architecture and Built The other two refineries were built in 1978 in Warri and Environment, Robert Gordon University, Aberdeen, UK 1980 in Kaduna with current capacities of 125,000-bpsd and School of Built Environment, Leeds Beckett University, 110,000-bpsd, respectively [69, 71]. Leeds, UK Vol.:(0123456789) 1 3 184 Applied Petrochemical Research (2021) 11:183–197 With the total demand of RPPs in Nigeria in the range from the figures for other African OPEC member States like of 600,000–700,000 barrels per day (bpd) [47], it is sur- Algeria and Libya with per capita refining capacity of 15 prising that the local refineries only function at less than and 9 bpd, respectively, for every 1000 persons [51]. It is, 20% of their combined installed capacity [39]. According therefore, no surprise that Nigeria’s imports of RPPs are far to Iheukwumere et al. [24], for more than 2 decades, the more than those of other OPEC member States. low productivity of these refineries has gradually created a Clearly, Nigeria’s standard falls far below industry expec- significant gap of about 500,000–600,000 bpd of RPPs in tations and demands urgent corrective action. Expectedly, the country. This gap is currently being filled by imports this issue has received much attention from the Nigerian from northwestern Europe, the United States, and the Mid- government and certain efforts have equally been made in dle East [54]. the past to address these problems, albeit without much By comparison, the performance of NNPC refineries lags success [21, 26, 71]. Some of the efforts made include the significantly behind even by the standards of the Organisa- occasional refurbishment of the refineries, the award of tion of Petroleum Exporting Countries (OPEC) [54]. For licences to the private sector for the construction of small- instance, the data obtained from NNPC Annual Statistical to-medium-scale modular refineries and the attempted sale Bulletins from 2001 to 2019, illustrate the extent of this or acquisition of the refineries by the private sector [4 , 37]. decrease over time. Figure 1 shows that the average com- The failure of these initiatives has been linked to several bined capacity utilisation (percentage ratio of production factors, mainly within the categories of political, economic, to installed capacity) of the four NNPC refineries has been social, and technical (PEST) issues [47, 54, 71]. below 20% since 2013. The few spikes in the chart repre- Using the findings from research, this study identified the sent occasional periods of improved performance brought relevant performance challenges of the refineries as indi- about by short-term technical interventions in some of the cated by Table 1. refineries [11]. The identified factors as shown in Table 1 were measured This decline is quite untypical for other State-run refin- using a Likert-type questionnaire to obtain the professional eries within OPEC member states, such as Kuwait, Saudi opinions of experts who work in the four State-run refiner - Arabia, Iran, and others, with better utilisation rates [51]. ies. The study was limited in scope to the effects of the PEST According to reports from Oil and Energy Trends [48], the factors on how they affect the performance of the refineries. average capacity utilisation for Middle East refineries in PEST is a recognised tool for the analysis of relevant issues 2018 was 86.4%, which is more than the global average of affecting an organisation’s performance with regards to its 83.5%. This implies that NNPC’s average refinery utilisation business environment [30]. According to Yuksel [73], the rate is only about 24% of the global average. PEST framework helps focus research questions around rel- In addition, Nigeria’s per capita local refining capacity evant feasible issues. is currently the least amongst OPEC countries, except for In context, political factors (P) imply the various Equatorial Guinea, which currently has no refineries [51]. forms of government interventions, applicable national Data obtained from OPEC statistical bulletin for 2019 show legislations, expert regional projections, and outlook. that while countries in the Middle East lead with impressive It also includes identified political factors from pub- per capita ren fi ing margins, Nigeria lags signic fi antly behind lished sources, which directly or indirectly impact on the with about 0.04 barrels of locally refined petroleum prod- refineries’ performance. Economic factors (E) involve ucts (RPPs) for every 1000 persons. This is a sharp contrast the macroeconomic conditions, such as project costs Fig. 1 Combined Capacity 50.00 Utilization of NNPC refineries 45.00 (2001–2019). Source: Author 40.00 generated from: NNPC ASB: 35.00 2001–2019 30.00 25.00 20.00 15.00 10.00 5.00 0.00 20002002 2004 2006 2008201020122014201620182020 Year 1 3 Percentage Ulizaon Applied Petrochemical Research (2021) 11:183–197 185 Table 1 A summary of PEST factors affecting NNPC refineries Factors References Political factors Govt interference Ogbuigwe [47], Akinola [1], Wapner [71], and Sayne et al. [63] Funding issues Chima et al. [13] and Ambituuni et al. [2] Political indecision Chikwem [12] Government commitment/political will Iwayemi [26] and PwC [54] Managerial appointments Sancino et al. [60] Economic factors Cost of spare parts Kennedy-Darling et al. [33] Subsidy issues Akinola [1], Iwayemi [26] and Ambituuni et al. [2] Operating capital Eti et al. [17] Exchange rates Wapner [71] and Gary et al. [20] Profit margins Gary et al. [20] Social factors Theft/attacks on pipelines Siddig et al. [64], Iwayemi [26], Wapner [71] and Onuoha [50] Illegal refining Ikelegbe [25] and Boris [9] Security issues Boris [9] Compensations Izere [27] Collusion and sabotage Akinola [1], Siddig et al. [64], Bazilian and Onyeji [5] and Wapner [71] Grievances and community disputes Ikelegbe [25] and Obi [45] Technical factors Maintenance issues Iwayemi [26], Bazilian and Onyeji [5] and Siddig et al. [64] Ageing facilities Iwayemi [26], Ambituuni et al. [2] and Eti et al. [17] Facility design Eti et al. [18] and Turner [69] Feedstock supply Eti et al. [18] Staff training Chima et al. [13] and Turner [69] Staff competence Chima et al. [13] and expectations, competing factors for government built by a consortium of Shell-BP and initially had a shared resources and their implications on the refineries’ per- ownership structure of 50% government stake and 25% stake formance. Social factors (S) include the various social, each for Shell and BP. However, the facility was acquired by cultural, behavioural, and other demographic factors of the Nigerian government in an outright buyout in 1979 due the external environment which bear direct or indirect to geopolitical reasons [47]. consequences on the refineries, while technical factors According to information from NNPC website, NNPC (T) refer to the various technologically related activities, [41], the Port Harcourt refineries houses several process infrastructures, training, skills, including gaps in local units across five process areas 1–5. Some of the key units capacity, which present challenges to the refineries’ include the Crude Distillation Unit (CDU), Vacuum Distil- operations. lation Unit (VDU), Naphtha Hydrotreating Unit (NHU), the To understand the challenges of the NNPC refineries, Catalytic Reforming Unit (CRU), the Kero Hydrotreating it is necessary to present brief information about these Unit (KHU), and the Fluid Catalytic Cracking Unit (FCCU). assets, including their process units. The PHRC produces a wide range of refined petroleum products (RPPs), such as Premium Motor Spirit (PMS), Liq- Port Harcourt Refining Company (PHRC I and II) uified Petroleum Gas (LPG), Automotive Gas Oil (AGO), Kerosene (aviation and domestic), Low Pour Fuel Oil The Port Harcourt refinery comprises the old refinery (LPFO) and High Pour Fuel Oil (HPFO). (PHRC I) with 60,000-bpsd and the new refinery (PHRC II) According to data from NNPC Annual Statistical Bul- with 150,000-bpsd. According to Turner [69], PHRC I was letins (ASB) (2001–2019), PHRC I has remained mostly 1 3 186 Applied Petrochemical Research (2021) 11:183–197 inoperative for the past 10 years while PHRC II continues to Catalytic Reforming, and Sulphur Recovery unit [42]. KRPC run at low capacity. Unfortunately, since 2019, these facili- was designed to process Nigerian crudes at the Atmospheric ties have been mostly under a shutdown for a maintenance and Crude Distillation Unit (CDU) of its Fuels plant and pre-inspection [58]. imported heavy crudes at its Lubes plant. The Fuels plant of the refinery processes LPG, PMS, kerosene, and fuel oil. Warri Refining and Petrochemical Company (WRPC) On the other hand, the Lubes plant, was designed to process heavy imported crude from Kuwait, Venezuela, Saudi Ara- The Warri ren fi ery (WRPC) is the r fi st Nigerian government bia, and Russia. It also has a capacity to produce lube-based wholly owned refinery [69]. Built in 1978 by the Italian oils, asphalts, and waxes [42]. Snamprogetti at a cost of US $478M, WRPC has a current However, according to Reuters [58], KRPC has also installed capacity of 125,000-bpsd [71]. Chima et al. [13] been under a shutdown since 2019 for a maintenance note that WRPC was installed as a complex conversion plant pre-inspection. to process LPG, PMS, kerosene, AGO and fuel oil. It also Based on these characteristics, the complexity of NNPC produces propylene pellets from propylene-rich feed as well refineries may be classified using Gary et al. [20] complexity as carbon black from fuel oil. The facility was set up to take table as shown in Table 2. crude oil from a blend of Escravos and Ughelli crudes [40]. Table 2 shows that the PHRC I can be classified as a sim- According to Chima et al. [13], the main process units at ple topping/hydro-skimming refinery, while WRPC, KRPC the Warri refinery include the Crude Distillation Unit, Naph- and PHRC II were built as complex refineries with catalytic tha Hydrotreating Unit, Catalytic Reformer Unit, Kerosene cracking capabilities. None of the NNPC refineries can be Hydrotreating Unit, Vacuum Distillation Unit, and the Fluid classified as very complex facilities as none is equipped with Catalytic Cracker Unit. coking capabilities. Recently, WRPC has experienced significant production interruptions due to several challenges arising from attacks on its crude oil supply pipelines and constant breakdown due Experimental methods to technical difficulties [47, 71]. Consequently, the capacity utilisation of this plant has fluctuated currently to sub-20% This study was designed to identify the significant fac- levels over the last decade (NNPC ASB 2001–2019). tors that lead to the performance challenges across all the state-owned refineries in Nigeria. Using the findings from Kaduna Refining and Petrochemical Company literature and other relevant documents, the identified fac- (KRPC) tors were categorised across political, economic, social, and technical (PEST) issues. The factors were first used The Kaduna refinery (KRPC) was built in 1979 by the Japa- to develop a pilot questionnaire to obtain the professional nese Chiyoda Engineering and Construction Company at a opinions of 25 senior staff members of the NNPC Group. cost of US $575M [71]. The facility has a current installed The findings led to an improvement of the questionnaire, capacity of 110,000-bpsd. The refinery comprises two which was later deployed across the NNPC refineries plants—a Fuels plant of 60,000-bpsd and a Lubes plant of (PHRC I and II (PHRC), WRPC and KRPC). The ques- 50,000-bpsd capacity. The main process units at the KRPC tionnaire targeted at least 200 personnel with a minimum include the Crude Distillation Unit (CDU), Vacuum Distil- of 3-year experience. This was to ensure that the survey lation Unit (VDU), Fluid Catalytic Cracking Unit (FCCU), respondents have a good grasp of knowledge about the Naphtha Hydrotreating Unit (NHU), Kerosene Hydrotreater, challenges of the refineries. It is important to note that Table 2 Refinery classification based on types and complexity Complexity Refinery types Process technology Type of output products NNPC refineries Simple Topping Atmospheric distillation (AD) Naphtha and middle distillate fuels PHRC I Hydro-skimming AD + catalytic reforming PMS or gasoline Complex Cracking refinery AD + vacuum distillation and Light and middle distillates, such as PHRC II, WRPC and KRPC catalytic cracking jet fuels, heating kerosene and gas and diesel oils Very complex Coking refinery AD + residue destruction Light, middle and heavy distillates Currently, no govt-owned refin- (PMS, kerosene, diesel, jet fuels ery in Nigeria has this level of and heavy fuel oils) complexity Source: Author generated (adapted from Gary et al. [20]) 1 3 Applied Petrochemical Research (2021) 11:183–197 187 PHRC I and II are treated as a single unit (PHRC) given Table 3 Participants’ demographics that the facilities are co-located and are managed as a sin- Participants Size gle company by NNPC. Targeted population 200 A five-point Likert-type questionnaire was designed to Respondents 118 obtain the experts’ views of these professionals on which Department PEST factors have more significant impact on the perfor - Engineering/technical 83 (70%) mance of the refineries. Likert-type scale was used because Administration (HR/Finance/Accounts) 28 (24%) they have been proven useful for evaluating interactive expe- Managers 7 (6%) riences of respondents to obtain quantified data regarding Years of experience their attitudes, behaviours, and judgements [29, 32]. 3–9 years 65 (55%) The questionnaire, which dealt on generic performance 10 + years 53 (45%) issues across the refineries, was deployed from 10 December Refinery 2018 to 30 June 2019 via an online platform using Google PHRC 69 (58%) forms for ease of access. It was cascaded to members of the KRPC 27 (23%) organisation using a purposive and snowballing sampling WRPC 22 (19%) approach. This was to ensure that only the relevant experts, Qualifications who are more familiar with the refinery issues were targeted BSC/HND 64 (54%) [10]. MSc 54 (46%) Respondents were asked the following questions: How would you rank the impact of political, economic, social, and technical factors on the performance of your hold at least a BSc/HND degree, while 46% hold a master’s refinery? How would you rank the impact of the following sub- degree. political factors on the refinery’s performance? [Govt inter - ference, Funding issues, Political indecision, Government Multivariate analysis of variance (MANOVA) commitment/Political will, Managerial appointments]. How would you rank the impact of the following sub- To ensure there was no variation in the responses of the participants because of their different years of experience economic factors on the refinery’s performance? [Cost of spare parts, Subsidy issues, Operating capital, on the job (3–9 years and 10 + years), a MANOVA test was carried out. Exchange rates, Profit margins]. How would you rank the impact of the following sub- Also, to ensure the equality of variance across all the variables, a conservative alpha level of 0.01 was used for social factors on the refinery’s performance? [Theft/attacks on pipelines, Illegal refining, Security determining significance [65]. To check for any statistically significant difference across issues, Compensations, Collusion and sabotage, Grievances and community disputes]. the responses of the age groups, the Wilk’s Lambda value is calculated [53] using Eq. (1), as shown: How would you rank the impact of the following sub- technical factors on the refinery’s performance? [Maintenance issues, Ageing facilities, Facility design, Λ= , (1) i=1 1 + Feedstock supply, Staff training, Staff competence] The options for ranking these factors ranged from Least where Λ is equal to Wilk’s lambda, and Π is the multipli- Impact representing 1 and Highest Impact representing 5 cation equivalent of sum, while 1 + is the proportion of on the Likert scale. However, 118 respondents (59%) of the variance in the dependent variable. targeted sample size completed the questionnaire. Overall, With the aid of the Statistical Package for the Social Sci- these respondents were made up of engineers/technicians ences (SPSS) software, the Wilks’ Lambda value was found (70%), administrators (24%), and Managers (6%). In addi- to be 0.965 with a corresponding significance level of 0.400 tion, 65 (55%) of the respondents have 3–9 years of experi- (which is above 0.01) as shown in Table 4. ence, while 53 (45%) have 10 + years of experience on the The result from Table 4 shows that there is statistically job as shown in Table 3. no significant difference across the participants’ responses Further indications from Table 3 reveal that 58% of the because of their different years of experience on the job [53, respondents were from Port Harcourt refineries (PHRC), 65]. 23% from Kaduna refinery (KRPC) and the remaining 22% from Warri refinery (WRPC). Most of the respondents (54%) 1 3 188 Applied Petrochemical Research (2021) 11:183–197 � � Cronbach alpha test Y + Y 4 5 RMSI = × 100, ∑ (3) i=1 To certify the consistency and reliability of all the sub-cat- egory factors in the questionnaire, the Cronbach alpha was where Y is the participant’s score of importance for each calculated using Eq. (2), as shown. This is because, accord- category/sub-category factor on the Likert scale, and n is ing to Santos [62], Cronbach alpha is useful for determining the highest degree of ranking for items on the Likert scale the internal consistency or average correlation of items on a (n = 5, for a Five-Point Likert Scale). multi-point survey instrument to gauge its reliability. Relative Significance Index (RSI) NC 𝛼 = , (2) ̃ ̂ V + (N − 1)C The Relative Significance Index (RSI) is a useful statistical measure for determining the most important criteria from a where α equals to the Cronbach alpha, N is the number of set of variables based on the participants’ responses [7, 28, items, Ĉ is the average inter-item covariance among the 59]. It is also an appropriate tool for prioritising indicators items and Ṽ equals the average variance [66]. Using the rated on a Likert-type scale [31]. According to Gündüz et al. SPSS, the results for were determined as shown in Table 5. (2013), the values for RSI lie in the range of 0 ≤ RSI ≤ 1 with Table 5 shows Cronbach alpha values of 0.808, 0.796, the higher values, especially greater than 0.6, as the more 0.903, and 0.874 for the political, economic, social, and significant index. In this study, RSI is applied to obtain the technical factors, respectively. Having exceeded the mini- more significant factors amongst the PEST factors as well as mum acceptable value of 0.7, it then implies that all the cat- their sub-factors. The formula for RSI is as shown in Eq. (4): egory factors meet the acceptable level of reliability [44, 62]. Participants’ opinions RSI = (5n5 + 4n4 + 3n3 + 2n2 + 1n1)∕5N, (4) A × N This study adopted two approaches for measuring the signifi- where µ the weighting given to each factor by the respond- cant factors of the PEST variables based on the participants’ ents, ranging from 1 to 5, A highest value weight, which is opinions. The first approach was to determine the Respond- 5 in this case, and N total number of respondents, which ents Mean Scores of Importance (RMSI), while the second is 118, and n5, n4, n3, n2 and n1 = highest impact, high was to calculate the Relative Significance Index (RSI) of the impact, moderate impact, low impact and lowest impact, responses. These two approaches were considered necessary respectively. to improve the level of detail for the results of the findings [22]. Results Respondents Mean Scores of Importance (RMSI) Following the responses from the questionnaire, the Boateng et al. [8] applied the RMSI to determine the sig- Respondents’ Mean Scores of Importance (RMSI) were nificant socio-technical risks in the construction industry. computed as demonstrated in Table 6. For example, follow- RMSI can be calculated by a weighted quantitative scoring ing the question on the questionnaire: (WQS) method using the respondents’ higher scores on the How would you rank the impact of the following PEST Likert scale. In this study, the higher scores on the Likert factors on the refinery’s performance? scale for High Impact represented by 4 and Highest Impact The weighted responses from the participants across the represented by 5 were used to calculate the RMSI of the refineries are as shown in Table 6. PEST variables as well as their sub-category variables. Using Eq. (3), RMSI can be calculated as shown: Table 5 Cronbach alpha calculations Factors No. of items Cronbach’s alpha Cronbach’s alpha based on standardized items Table 4 Multivariate test Political 5 0.808 0.824 Effect Wilks’ Lambda’s value Sig Economic 5 0.796 0.804 Social 7 0.903 0.904 How many years have you worked in 0.965 0.400 this refinery? Technical 6 0.874 0.875 1 3 Applied Petrochemical Research (2021) 11:183–197 189 The results from Table 6 were plotted as shown in Figs. 2, WRPC. This is followed by Government commitment with 3, 4, 5 and 6 to show the percentage weight of the levels of 51%, 59% and 54% at KRPC, PHRC and WRPC, respec- importance of the PEST factors and the sub-factors accord- tively. Lastly, Managerial appointments scored 44% at ing to the participants’ opinions. KRPC, 49% at PHRC and 45% at WRPC. Figure 2 shows that across the refineries, the respondents For the economic factors, Fig. 4 represents the plot for the scored political factors highest at above 80%. For economic participants’ responses. factors, respondents from KRPC scored it 59.26%, those The plot for the sub-economic factors as shown in Fig. 4 from PHRC scored it 56.52% while those from KRPC scored reveals that Cost of spare parts scored high across the refin- 63.64%. Social factors appeared to score less with 48.15% eries with approximately 70%. Operating capital appeared for KRPC, 56.52% for PHRC and 54.55% for WRPC. On to score high as well with PHRC leading with a score of 69% the other hand, technical factors appeared to score high above KRPC and WRPC with 62% and 63%, respectively. with 62.96% for KRPC, 60.87% for PHRC, and 72.73% for Exchange rates appeared to score high as well with scores of WRPC. 60%, 63.77% and 63.64% across KRPC, PHRC and WRPC, For the political factors, the same process was repeated respectively. Profit margins also scored 55%, 47% and 54% with the results for the three refineries plotted as shown in for KRPC, PHRC and WRPC, respectively. While Subsidy Fig. 3. issues scored 44% (KRPC), 42% (PHRC), and 45% (WRPC). Glancing at Fig. 3, reveals that the higher scoring sub- For the social factors, the plot for the respondents’ rank- political factors across the refineries were Government ing on the refinery’s performance is as shown in Fig. 5. interference with 66.67% for KRPC, 81.16% for PHRC and Figure 5 shows that scores for Theft/attacks on pipelines, 77.27% for WRPC. Also, Funding issues with 62% (KRPC), varied across the refineries with 66.67% at KRPC, 73.91% 73% (PHRC) and 72% (WRPC). Similarly, Political indeci- at PHRC and 81.82% at WRPC. Similarly, the scores for sion scored 70% for KRPC, 75% for PHRC and 72% for illegal refining were 14.81% at KRPC, 42.03% at PHRC and Table 6 Weighted RMSI responses of participants across the refineries ∑ � � Y +Y Political factors Y + Y 4 5 4 5 Y Y i i i=1 × 100 i=1 Rankings 1 2 3 4 5 Cols (4) + (5) Grand total % Weight factors KRPC 5 4 18 22 27 81.48 PHRC 2 2 7 15 43 58 69 84.06 WRPC 2 4 16 20 22 90.91 ∑ � � Y +Y Economic factors Y + Y 4 5 4 5 i i i=1 × 100 i=1 Rankings 1 2 3 4 5 Cols (4) + (5) Grand total % Weight factors KRPC 6 5 7 9 16 27 59.26 PHRC 4 6 20 22 17 39 69 56.52 WRPC 2 2 4 8 6 14 22 63.64 ∑ � � Y +Y Social factors Y + Y 4 5 4 5 i i i=1 × 100 i=1 Rankings 1 2 3 4 5 Cols (4) + (5) Grand total % Weight factors KRPC 3 4 7 9 4 13 27 48.15 PHRC 3 15 12 26 13 39 69 56.52 WRPC 2 4 4 6 6 12 22 54.55 ∑ � � Y +Y Technical factors Y + Y ∑ 4 5 4 5 i i i=1 × 100 i=1 Rankings 1 2 3 4 5 Cols (4) + (5) Grand total % Weight factors KRPC 2 2 6 5 12 17 27 62.96 PHRC 4 3 20 24 18 42 69 60.87 WRPC 6 10 6 16 22 72.73 1 3 190 Applied Petrochemical Research (2021) 11:183–197 Fig. 2 Overall RMSI for PEST 100.00 factors 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 Polical Factors Economic Factors Social Factors Technical Factors KRPC PHRC WRPC Fig. 3 RMSI for political fac- 90.00 tors 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 Govt InterferenceFunding issuesPolical Indecision Govt CommitmentManagerial appointments KRPC PHRC WRPC Fig. 4 RMSI ranking for eco- 80.00 nomic factors 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 Cost of spare partsOpera ng capitalExchange ratesSubsidy issues Profit margins KRPC PHRC WRPC 45.45% at WRPC. Security issues scored 55.56% (KRPC), disputes also registered a varied score of 29% (KRPC), 52% 66.67% (PHRC) and 68.18% at WRPC. Scores for Compen- PHRC and 54% (WRPC). Lastly, Stakeholder involvements sations were all below 20% across the refineries. Collusion registered a moderate score that fell between 25% at KRPC and sabotage also ranked between 25% (KRPC) and 28% and 31% at PHRC. (PHRC) across the refineries. Grievances and community 1 3 RMSI (%) RMSI (%) RMSI (%) Applied Petrochemical Research (2021) 11:183–197 191 Fig. 5 Weight ranking for social 90.00 factors 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 The/Aacks Illegal refiningSecurity issues Compensaons Collusion and Grievances & Stakeholder on pipelines sabotage community involvements disputes KRPC PHRC WRPC Fig. 6 Weight ranking for tech- 90.00 nical factors 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 Maintenance Ageing refinery Limited plant Feedstock supply Staff trainingStaff competence issues plants capacity KRPC PHRC WRPC For the technical factors, the rankings of the respondents Table 7 shows that while all the main PEST factors appear are tabulated and plotted as shown in Fig. 6. significant with values above 0.6, political factors scored Figure 6 indicates that Maintenance issues scored 74% 0.8864; technical, 0.7814; economic, 0.7136; and social, at KRPC, 71% at PHRC and 81.8% at WRPC. Ageing refin- 0.6847. ery plant scored between 70% (KRPC) to 73% (PHRC) across the refineries. For Limited plant capacity, the scores were 59% for both KRPC and WRPC, and 53% at PHRC. Discussion and analysis Feedstock supply registered a score of 81%, 72% and 81% for WRPC, PHRC and WRPC, respectively. Staff training The overall results show that the refinery experts view scored between 51% (KRPC) to 63% (WRPC), while staff political factors as the most significant factor leading to competence registered a score of 70% (KRPC), 65% (PHRC) the performance challenges of the refineries. This is fol- and 72% (WRPC). lowed by the technical, economic, and social factors. To provide an overall comparison of the relative sig- nificance of the entire sub-factors, the RSI is employed to Political factors calculate these values. First, we compute Table 7 for the main PEST factors as well as the sub-factors using the RSI All the political factors measured by this study appeared formula shown in Eq. (4) (Sect. 2.4). to have much significance to the refineries’ performance, The result of the RSI for the PEST factors and sub-factors except managerial appointments. The leading political fac- is as shown in Table 7. tors appear to be government interference, funding issues 1 3 RMSI (%) RMSI (%) 192 Applied Petrochemical Research (2021) 11:183–197 and political indecision. Ogbuigwe [47] report that since the suggest many opportunities have already been lost because refineries lost control of their self-governing authorities in of this delay [34, 54]. According to projections from McK- the early 1990s, they have struggled with funding issues for insey [35], demand patterns for RPPs vary across regions. regular repairs and maintenance. This is further supported While Europe and North America are likely to continue by Wapner [71], who suggests that there is a high level of on a decline of about 0.3% per annum in RPP demand up government interference with its multilayer of administra- to the year 2035, demand for RPPs in developing regions tive bureaucracy required to obtain funding approval for like Africa, Asia and Latin America will likely continue to any major repairs/maintenance at the refineries. Essentially, grow at about 2% per annum for the same period. These interference from the government on the refineries usually projections appear to be consistent with global develop- delays decision-making processes and prolongs intervention ments around refinery projects across Middle East, Asia, and time. The consequence of this is the eventual breakdown of Africa [68]. For example, the ongoing construction of Dan- the plants, which could otherwise be avoided. It is important gote refinery in Nigeria, is expected to add about 650,000 to note that these factors appear to affect all the NNPC refin- bpd of capacity to the country by 2022 [54, 56]. eries significantly, given the nature of their central control To address political issues on the performance of Nige- by the government via the NNPC Group. ria’s refineries, some studies have suggested privatisation as Unfortunately, the Petroleum Industry Bill (PIB) drafted an outright solution for the NNPC refineries [1 , 47]. How- by the Nigerian government more than a decade ago to ever, this move has been previously opposed in 2007 by the address these lapses failed for 17 years to secure parlia- Nigerian public and some civil society groups like the Nige- mentary approval [15, 34, 47, 49]. This provides evidence rian Labour Congress, when the refineries had been put up why Political indecision also ranks high on the significance for outright sale [55]. A review of this option is worth inves- scale. Although a re-worked version of a segment of the PIB tigating, including suggestions to adopt the operating model is to be reconsidered by the Nigerian parliament, experts of the Nigerian Liquefied Natural Gas (NLNG) Company in which the ownership of the assets would be shared by multi- nationals. As in September 2020, there were talks within the Table 7 Relative Significance Index of PEST and sub-PEST factors management of NNPC to give up a controlling stake of the Factors RSI refineries to private foreign and local investors [54]. This Political 0.8864 could be a viable alternative, especially when regulations on Govt interference 0.8864 the Nigerian downstream market for fixed petroleum pump Funding issue 0.8458 price is fully lifted. Although this initiative could further Political indecision 0.8271 raise the prices of refined petroleum products in the country; Government commitment 0.7119 however, it appears to be an appropriate way a private sector Managerial appointments 0.6847 can profitably run the assets on a sustainable basis. Technical 0.7814 It should be noted, however, that contrary to common Ageing refinery plants 0.8475 views that state-owned enterprises generally lack efficiency Maintenance issues 0.8169 because of their bureaucratic nature, which informs their Feedstock supply 0.8068 poor management and lack of coherent strategy [36]. More Staff competence 0.7695 recent studies have, however, contended these views with Staff training 0.7017 the evidence that some state-owned enterprises have over- Limited plant capacity 0.6966 come some of these shortcomings and have rather emerged Economic 0.7136 as global leaders in their business sector [14]. For example, Cost of spare parts 0.8068 state-owned Chinese refineries operated by Sinopec, Petro- Operating capital 0.7932 China, CNOOC and SinoChem have continued to dominate Exchange rates 0.7254 most of the regional East Asian market and have continued Subsidy issues 0.6763 to perform well above 80% utilisation rates (S&P Global Profit margins 0.7085 2020). In addition, Brazil’s Petrobras owns a 100,000-bpd Social 0.6847 refinery in Texas; 100,000 bpd refinery in Okinawa, Japan Theft/attacks on pipelines 0.7831 and another 30,000-bpd refinery in Bahia Blanca, Argentina. Security issues 0.7169 Saudi Aramco, on the other hand, owns about 1.2 mn distil- Grievances and community disputes 0.6542 lation capacity through outright ownership or joint ventures Collusion and sabotage 0.6220 in Japan, South Korea, and the United States. Kuwait Petro- Stakeholder involvements 0.6220 leum International (KPI) owns about 200,000 bpd refin- Illegal refining 0.5864 ing capacity in Italy and Vietnam [48]. It is, therefore, not Compensations 0.5220 impossible for NNPC to also operate in the multinational 1 3 Applied Petrochemical Research (2021) 11:183–197 193 arena by expanding its operations first to neighbouring West and replacement/repairs of affected parts. The cooperation African countries where there is an additional 39 billion of the OEMs must, however, be required to facilitate this. litres (245 million barrel) annual demand for RPPs [54]. To achieve this leap, however, a major restructure of NNPC Group incorporating partnerships with multinational organi- Economic factors sations would be essential. Using the plot for the economic factors (Fig. 4) alongside Technical factors the RSI Table (Table 7), it can be observed that the most significant economic performance challenges are spare parts A glance of the chart for technical factors (Fig. 6) may reveal cost, operating capital, exchange rates and subsidy issues. some of the sub-factors with more significance, except for While profit margins rank the least. Although NNPC does their order. However, Table 7 indicates that the leading not normally publish their financial accounts in the public, technical factors with significant performance challenges fortunately, the organisation released its first audited account are ageing refinery plants, maintenance issues, feedstock to the public in mid-2020 for the years 2018 and 2019. It is (crude oil) supply and staff competence and training, while important to note that this was the first time the company limited plant capacity appears the least. It is important to released such documents in its 47 years of operations and note that except for slight variations across the refineries was reportedly done to initiate transparency and accountabil- (Fig. 6), these factors appear to mainly affect the refineries ity in its operations [38, 42]. The released accounts validate in much the same way. This observation is quite consistent operating losses across the refineries. For example, the three with the views of Eti et al. [18], and Ogbuigwe [47] that refineries reported a combined operating loss of 170 billion ageing refinery equipment accompanied by a lack of regular naira (bn) (US $404.2 m) for the year 2018 and 147bn (US maintenance leads to frequent breakdowns of the facilities. $439.47) for the year 2019 [58]. Specifically, PHRC made a In addition, Akinola [1], Ambituuni et al. [2], and Ogbuigwe loss of N45.5bn (US $119.5 M) in 2018 and N46.9bn (US [47] note that difficulties in accessing crude oil supplies via $123 M) in 2019. The KRPC lost some N80.095bn (US pipelines constitute a major challenge for the refineries. $210 M) in 2018 and N51.3bn (US $134.5 M) in 2019, while A robust maintenance culture across the entire organisa- WRPC recorded a loss of 44.43bn (US $117 M) in 2018 and tion will be crucial to run the refineries effectively. Eti et al. 49.28bn (US $129.6) in 2019 [43, 52]. It is equally important [19] suggest that a condition-based maintenance (CBM) in to note that the naira to the dollar exchange rate at the time which the plants receive the required intervention when fail- the documents were released in June 2020 was about 380 ure is imminent, will be a more cost-effective approach to naira to a dollar. All these losses were accrued despite the manage the refineries. For this to be effective, there must, refineries not producing up to 5% of their installed capacity. however, be a scheduled approach for equipment monitor- Particularly, KRPC did not record any production in 2018 ing and inspection on a regular basis. It may be worth re- and had a reported zero revenue for that year. The same situ- engaging NNPC refineries with their original equipment ation was applicable to PHRC in 2019 with a reported zero manufacturers (OEMs) on a new contractual arrangement, revenue for the year [52]. Although not many inferences can such that their operations can be supported on an ongoing be drawn with just a 2-year financial record; however, it is basis with their foreign manufacturers. The Nigerian Liq- important to note that these refineries lost nearly a billion uefied Natural Gas (NLNG) company have such arrange- dollars in combined operating expenses in the 2 years from ments in place, whereby their operations are continually 2018 to 2019, which is quite significant. technically supported by their OEMs. Some OEMs, such For exchange rates, Wapner [71] and CBN (2020) report as GE and Rolls Royce, have advanced technologies that that the Nigerian naira fell more than 90% from 199 naira implement digital twins (remote electronic replica) of their per dollar in 2015 to about 380 naira per dollar presently. onsite equipment that receive signals in real time, which help Since NNPC buys its crude oil in dollars and sells the refined provide informed decisions on the mechanical conditions products in naira, it implies the company also incurs net of operating equipment [16]. This arrangement has particu- losses due to currency fluctuations with time. larly helped NLNG to perform at optimum levels in meeting Subsidy issues and profit margins were observed to have their business expectations. It would be beneficial for future scored a bit less. This may be because subsidy issues do not contracts for building refineries in Nigeria to consider the have much direct impact on the refineries performance but incorporation of such arrangements over the useful life of escalates as a result of the poor performance of the refiner - the assets. ies. Although high figures for petroleum subsidies may com- In addition, the training of refinery engineers and techni- pete with the refineries for government funds; however, clear cians can be upgraded from mere operational capabilities to government priorities targeted at increasing local production target more expertise for troubleshooting, fault detection, of RPPs will eliminate the need for such expenses. 1 3 194 Applied Petrochemical Research (2021) 11:183–197 Some of these initiatives have already been championed by Social factors Nigeria’s Petroleum Technology Development Fund (PTDF) and should be improved to benefit more Nigerian youths. On social issues, the experts appear to consider attacks on pipelines, security issues and grievances and community Security over pipelines can be stepped up with modern technology. Aside from the use of military checkpoints to disputes to be the most challenging factors. These factors are particularly important to the operations of the refineries monitor encroaching vandals. The use of CCTV cameras, drones and satellite technologies can also be deployed to given their design to be supplied crude oil through pipelines. As such, the findings appear to be consistent with a McK - defeat the hoodlums. Yaacoub and Salman [72] report that drones have been proven effective as a faster and cheaper insey report [35], that supply chain issues associated with NNPC pipeline breakdown accounted more for the shutdown means of responding to crimes. More importantly, the effec- tive enforcement of laws to investigate and punish offenders and low-capacity utilisation of the refineries with 53% of the cases, while equipment failure accounted for 47%. This when caught in such practices will be crucial to stemming the tide. Though the suggested technologies may be more implies that security of product movements via the pipelines is as vital as routine maintenance checks to keep the refinery expensive, the savings accruing from plugging the losses from oil pipelines in Nigeria will justify their cost over time. equipment fully functional. However, the chart for social factors (Fig. 5), further The issue of compensations may have ranked low since the refineries have hardly suffered from any forms of com- reveals an important variation across the refineries for some of the sub-factors. Particularly, respondents from the two pensation payments in Nigeria because of their operations. The only recent rumour of such compensation claims refineries located in Nigeria’s Niger Delta region (PHRC and WRPC) appear to consider the effects of pipeline attacks, seemed to have stemmed from a leader in the Alesa-Eleme community and was eventually proven to be false by officials illegal refining, security issues and grievances and commu- nity disputes as much more significant than respondents from [67]. KRPC. For instance, the issue of illegal refining appears to be more significant for WRPC and PHRC with 42% and Conclusion 45%, respectively, as opposed to that for KRPC with only 14%. The same applies to Grievances and community dis- This study identified the significant factors leading to perfor - putes with 52% (PHRC) and 54% (WRPC) against 29% for KRPC. This may be because the incidents of pipeline attacks mance challenges across state-owned refineries in Nigeria. Using a framework of Political, Economic, Social and Tech- and its associated communal grievances, including illegal/ artisanal refining occur mostly in the Niger Delta region [ 6, nical (PEST) factors, the challenging factors identified from the literature were categorised and measured via a Likert-type 9, 23, 71]. As such, these incidents are hardly observed for the Northern Kaduna refinery. The effect of these occur - questionnaire. The result indicates that, although, the effects of all the PEST factors were considered important to the refiner - rences, however, is only felt at the KRPC through the inabil- ity to receive feedstock via pipelines due to breaches at the ies’ performance; however, political, technical, and economic factors, were viewed as more significant than the social factors. southern sections of the pipelines located within the Niger Delta. Overall, the emergent significant factors from the study include government interference, funding issues, political The seriousness of pipeline disruptions to the refineries’ operations is buttressed by the statement of former NNPC indecision, theft and pipeline attacks, cost of spare parts, maintenance issues, operating capital, feedstock supply, staff Group Managing Director (GMD) that only 2.4% of the company’s pipeline breakdowns occurred due to rupture training and competence issues. Considering these results, it will, therefore, be rational to while the other 97.5% were as a result of vandalization by hoodlums [47]. make the following recommendations: Although, there have been calls to legalise the practice of illegal/artisanal refining in the Niger Delta and assist the A structural change in the ownership and control of the refineries would be required to drive positive change. local artisans to upgrade their refining operations to achieve an increased yield of RPPs in Nigeria [3, 70]. Unfortunately, A transition from total government control to a private sector-led partnership arrangement between the govern- this debate has been hard to win given other efforts the gov - ernment is making with its support for private sectors to ment and industry would be essential to infuse the nec- essary technical, financial, and managerial capabilities build small-to-medium scale modular refineries, which con- form better to standard practice. 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Eti MC, Ogaji SOT, Probert SD (2006) Reducing the cost of pre- bution 4.0 International License, which permits use, sharing, adapta- ventive maintenance (PM) through adopting a proactive reliabil- tion, distribution and reproduction in any medium or format, as long ity-focused culture. Appl Energy 83(11):1235–1248 as you give appropriate credit to the original author(s) and the source, 20. Gary JH, Handwerk GE, Kaiser MJ (2007) Petroleum refining: provide a link to the Creative Commons licence, and indicate if changes technology and economics. CRC Press were made. The images or other third party material in this article are 21. Gillies A (2009) Reforming corruption out of Nigerian oil? Part included in the article’s Creative Commons licence, unless indicated one: Mapping corruption risks in oil sector governance. CHR otherwise in a credit line to the material. If material is not included in Michelsen Institute. Norway. 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Applied Petrochemical Research – Springer Journals
Published: Mar 26, 2021
Keywords: Nigerian refineries; Performance challenges; Capacity utilisation; Policies; Relative significant index
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