fresh investment in nigeria's refining sector - july 2010

The NNPC had likewise recently entered into another agreement with India’s state-run Oil and Natural Gas Corporation and Mittal Group for the building of the Lekki Greenfield Refinery. Other partners in that project include Total, Eni and China’s Tianjin Energy Resources. Similarly, and not too long ago, the Director of the Department of Petroleum Resources (DPR), Mr. Billy Agha, had informed Nigerians that eight new private refineries, designed to contribute an aggregate of 483, 000 bpd to the country’s refining capacity, had also been registered.

That Nigeria, the world’s sixth largest crude oil producer and number one in Africa with proven reserve in excess of 38.5 billion barrels, has for several years been burdened by the yoke of perennial fuel scarcity clearly shows the extent to which its energy resources have been mismanaged. Unfortunately, the country’s existing four refineries even at full capacity of 445, 000 bpd can meet barely 25% of current demand presently put in excess of 30 million litres per day for premium motor spirit (PMS). To worsen matters, owing to low capacity utilization resulting from poor funding, obsolete equipment, inadequate maintenance and weak management, even the existing refineries have never been fully utilized. In fact, their combined capacity utilization has hardly exceeded 50% and in 2000 even dropped to as low as 22%, thus forcing the nation to depend almost entirely on fuel importation to meet local demand. 

While we commend the government’s efforts to attract fresh investments into the sector, we note also that earlier attempts in this direction had resulted in colossal failure. In fact, of the 18 firms initially licensed to build refineries in Nigeria a few years ago, only the Orient Refinery, situated in Aguleri, Anambra State, and the Amakpe International Refinery, in Eket, Akwa Ibom State, were able to meet the government’s stringent conditions. Others eventually lost their licences and deposits. The sudden upsurge in investors’ interest in the sector may perhaps have resulted from the government’s recent removal of the main impediment in the granting of refinery licences. Hitherto, investors had been expected to deposit $1 million for every 10, 000 bpd capacity refinery to be built in the country. In addition, they were expected to pay a statutory application fee of $50, 000 and a DPR service charge of N500, 000. In an economy where government control is relatively strong and cost of doing business is extremely high, perhaps only a desperate investor would dare to stake his money in such a highly risky venture.

Government needs to sustain the ongoing tempo in the industry. It is evident that for Nigeria to achieve its Vision 20-2020, the present crisis in its energy sector must be resolved. For instance, with increased investments in the construction of refineries, the country will be able to significantly minimize its heavy dependence on the importation of petroleum products. And following from this, it will also be possible to curtail the excesses of several over-night billionaires created through the importation of fuel, as well as the powerful oil ‘bunkerers’, whose illegal activities have continued to hold the country to ransom. We advise that government should promote the building of small refineries strategically located across the country, given that they are cheaper and easier to maintain. Furthermore, this is the right time to comprehensively address the persistent fear of investors in building refineries, revolving around the unsettled issue of deregulation as well as uncertainty concerning regular supply of crude oil at reasonable prices.

We wish to caution, as the salutary initiatives in the refining sector move into the implementation stage, that the process must strictly conform to the recently passed Nigeria Content Law, especially given that China is fond of importing its own labour in almost all its businesses, thereby truncating job opportunities for the local population. That these refineries will create approximately 20, 000 jobs for Nigerians is a welcome development, but it is also necessary to ensure that this projection is made real, in view of the fact that on completion, the refineries will be managed entirely by the Chinese until they have fully recovered the value of their financing. We take it for granted that proper Environmental Impact Assessment (EIA) must be undertaken prior to the construction processes, especially to minimize risks and future community conflicts. In fact, there must be transparency in the entire transactions.

Once more we welcome these developments and also salute governments renewed vigour in addressing some of the developmental challenges that have frustrated Nigeria’s progress over the years. Let the tempo be sustained.