VZCZCXRO5209
PP RUEHMA RUEHPA
DE RUEHUJA #0549/01 0901526
ZNR UUUUU ZZH
P 311526Z MAR 09
FM AMEMBASSY ABUJA
TO RUEHC/SECSTATE WASHDC PRIORITY 5636
INFO RUEHOS/AMCONSUL LAGOS PRIORITY 1051
RUEHGB/AMEMBASSY BAGHDAD 0155
RUEHZK/ECOWAS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC

UNCLAS SECTION 01 OF 02 ABUJA 000549 
 
SENSITIVE 
SIPDIS 
 
DEPT PASS TO USTR-AGAMA 
DEPT PASS TO USAID/AFR FOR ATWOOD AND HUMBER 
USAID/EGAT FOR EISENDRATH 
BAGHDAD FOR DUNDAS MCCULLOUGH 
TREASURY FOR PETERS, IERONIMO AND HALL 
DOC FOR 3317/ITA/OA/KBURRESS AND 3130/USFC/OIO/ANESA/CREED 
DOE FOR PERSON, HAYLOCK AND SPERL 
 
E.O. 12598: N/A 
TAGS: EPET ECON EINV ENRG EAID PGOV NI
SUBJECT: NIGERIA: KADUNA REFINERY - NOT READY FOR PRIMETIME 
 
SENSITIVE BUT UNCLASSIFIED - PLEASE HANDLE ACCORDINGLY 
 
¶1. (SBU) Summary. On March 5, 2009 Engineer Olayinka Agora, the 
Managing Director of the Kaduna Refinery and Petrochemical Company 
(KRPC), described the ongoing saga of poor planning and neglected 
maintenance that has reduced the effectiveness and usefulness of the 
refinery.  He underscored that shoddy turnaround maintenance (TAM) 
has resulted in the refinery operating far below installed capacity, 
and that excessive government interference in the refinery's 
operations, and vandalisation of the Escravos to Kaduna pipeline has 
left the refinery dormant.  For the past two years, the refinery has 
not received crude oil via the pipeline.  Agora noted that the 
current TAM, which began in November 2008, should be completed by 
the end of March 2009.  The government placing economic resources in 
areas for political reasons and not focusing on minimizing costs and 
maximizing productivity wastes valuable GON resources. End Summary. 
. 
Kaduna Refinery Primer 
---------------------- 
. 
¶2. (SBU) EconDeputy and EconSpecialist met with officials of the 
Kaduna refinery on March 5 to discuss refinery operations.  The 
Kaduna refinery was commissioned in 1980, during former President 
Shehu Shagari's tenure.  Nigeria has four refineries - two others in 
Port Harcourt and one in Warri, which are all located in the Niger 
Delta.  The Kaduna refinery has a capacity of over 110,000 barrels 
per day and processes crude oil into refined petroleum products and 
manufactures linear allcyl benzene tins and drums for domestic 
consumption and export.  Officials told us that the Kaduna refinery 
is the only refinery which supplies petroleum products to the 
nineteen northern Nigerian states, when it is operating. 
. 
Politicization at the Kaduna Refinery 
------------------------------------- 
. 
¶3. (SBU) Managing Director Agora stressed that the past management 
of the Nigerian National Petroleum Company (NNPC) has contributed to 
the destruction of the refinery due to weak management and 
incompetence in awarding contracts.  He stated that problems started 
in 1985 during the Babangida administration, when the need to 
conduct TAMs every two years was neglected.  The Babangida 
administration used the refinery for political patronage purposes by 
hiring unqualified staff and signing contracts with political 
cronies unqualified to deliver products and services.    The last 
TAM took place in 1998, during General Sani Abacha's regime, in 
which a $215 million turn-around-maintenance contract was awarded to 
the French company TotalFinaElf to rehabilitate the refinery. 
 
¶4. (SBU) EconDeputy asked about labor conditions at the refinery and 
Agora lamented that the refinery has difficulty paying its 1,800 
current employees, due to low operational utilization of the 
refinery.  He pointed out that the majority of the trained staff had 
retired thereby leaving the refinery with few experienced staff. 
Agora hoped that with the new leadership changes at NNPC it would 
give him greater autonomy to "rightsize his staff to create better 
value and efficiency." 
. 
Privatization 
------------- 
. 
¶5. (SBU) For the past several years, media reports have speculated 
on the sale of the Kaduna refinery and other refineries in the 
country.  In early 2007 the Obasanjo administration began the 
process of privatizing the refineries.  In May 2007 the Yar'Adua 
administration reversed course and canceled the planned 
privatizations.  Regarding privatization of the Kaduna refinery, the 
management stressed that the refinery was not profitable and it was 
established solely for the political and strategic purpose of 
locating a refinery in the north.  According to Agora, northern 
elites did not want to rely solely on the refineries in the south 
and saw the refinery as a prized cash cow for patronage purposes. 
He commented that two factors make the Kaduna refinery unprofitable 
- considerable cost associated with transporting crude oil such a 
long-distance and repeated interruptions of crude oil supplies due 
to vandalization of the feeder pipeline from the Niger Delta.  If 
the refinery was sold to a private entity it would be chopped up, 
hauled to the Niger delta and rebuilt there, where a refinery would 
be more cost-effective, commented Agora.  In addition, he was not 
 
ABUJA 00000549  002 OF 002 
 
 
confident that the privatization process would be transparent 
considering the past examples of the Nigerian telecommunications, 
the National Fertilizer Company and the Ajaokuta Steel Company. 
. 
Comment 
-------- 
. 
¶6. (SBU) The history of the Kaduna refinery reflects poorly on past 
governance.  Ethnic divisions in Nigeria pose a major challenge in 
the location of economic resources because often these economic 
resources are not located in the most optimal areas for minimizing 
costs and maximizing productivity. 
The back and forth among the political leadership on whether the 
refinery should be privatized diverts attention to the main problem 
- access to a consistent supply of crude oil from the Niger Delta at 
a facility located so far from the source of the oil and in a 
country that lacks basic infrastructure to ensure alternative 
methods of transportation.  The Kaduna refinery is truly another 
"white elephant" sitting on the Nigerian landscape - a project 
initiated and maintained without regard to economic and business 
principles and which is wholly unsustainable without GON support. 
 
¶7. (U) This cable was coordinated with ConGen Lagos. 
 
SANDERS