Nigeria's leading business magnate, Aliko Dangote, early this month signed a $3.3 billion loan agreement with a consortium of 12 local and foreign banks to finance the construction of an oil refinery and a petrochemical-cum-fertiliser plant. The project, the biggest of such investment in the country, will gulp a total of $9 billion. This is cheery news for Nigeria’s 170 million people who have been marooned on an island of epileptic fuel supply for over two decades; and against the backdrop of the country’s infamy of importing fuel despite being the world’s sixth largest exporter of crude oil.
The paradox has been sustained by successive inept and corrupt administrations. The Dangote elixir, with the capacity to refine 400,000 barrels of crude per day, will help meet daily domestic demand when it begins operations in 2016. Together with the fertiliser and petrochemical plants components, the entire project will guarantee 9,500 direct and 25,000 indirect jobs as well as help to ebb the unemployment tide, officially put at 23.9 per cent. It will also boost agriculture.
The hopeless outlook of the downstream oil sector is not in any way different from the daily nightmare of power shortages Nigerians face from the Power Holding Company of Nigeria, which was unbundled, with majority stakes in 17 of its 18 successor companies sold to private investors. Nigeria’s four ailing refineries with a combined production capacity to refine 445,000 barrels of crude per day located in Port-Harcourt, Warri and Kaduna, have been emasculated to the point that their average utilisation capacity has been reduced drastically. The upshot is that the country annually doles out public funds as subsidies to a cabal that imports refined petroleum products. The scam and its template were best captured in the Nigeria Extractive Industries Transparency Initiative report that covered the oil and gas sector between 2009 and 2011. “During the same period, subsidy paid through the Petroleum Products Pricing and Regulatory Agency increased from N208 billion in 2009 to N278 billion in 2010, and astronomically to N1.12 trillion in 2011,” the Ledum Mitee-led agency stated.
The Federal Government has to adopt this policy and quickly sell these refineries. Private refineries had long been in the calculus for an efficiently managed downstream sector. This was why the government granted licences to 26 private refineries in 2004. But buccaneers within and outside government have not allowed them to succeed. The National Refineries Special Task Force, chaired by a former Finance Minister, Idika Kalu, which investigated the state-owned refineries, recommended in 2012 that they be sold within 18 months. We see no other way!
However, it seems the panel’s counsel fell on deaf ears as $1.6 billion (about N251 billion) has been set aside for Turn Around Maintenance of the refineries, according to Petroleum Resources Minister, Diezani Alison-Madueke. The exercise begins this year with foreign loans. This is a famished road the country had trodden before. Cost implications of TAMs carried out by every past regime, dating back to the late 1980s, and the productivity of the refineries thereafter, easily suggest that the current TAM programme is another needless drain on our resources.
The Kaduna refinery, with an installed capacity of 110,000 barrels per day, had its last TAM in 2008. Its production level is currently put at 25 per cent, while Warri refinery that underwent TAM in 1994, 2000 and 2008, has the same dismal output of 25 per cent. Port-Harcourt refinery has had TAM in 1991, 1994 and 2000. The Kalu-led panel findings suggested that it was not in anyway better. Two out of four of its plants were not operational just as four boilers were not functioning.
The nation requires enormous investment both in small and higher capacity refineries to be able to meet up with domestic demand for refined products, thereby placing less emphasis on importation. But steeped in double standards, the oil majors have persistently ignored calls by the Federal Government to establish refineries here as they have done in other parts of the world where they also operate. Unconvincingly, they reason that it is bad business to do so here. Oddly, efforts of local private investors in petroleum refining have not yielded appreciable result since 1996 when government policy of allowing private participation in crude oil refining was kicked-off.
However, there must not be any form of preferential treatment for Dangote’s project. National interest and not politics should be the overriding consideration in the opening up of the downstream sector for private refineries. What is needed is a level playing field for all investors. Dangote should not be the only beneficiary. The operating practices and strategies as well as the business inputs, infrastructure, institutions, and policies that constitute the environment in which private refineries will compete must be well defined.
From the Ministry of Petroleum Resources and the Presidency is the stock explanation that licencees are discouraged by fuel subsidy/price regulation. That is far from the truth, a blatant piece of deceit. Local investors have consistently complained about lack of documented incentives to encourage investors as obtainable in the gas sector, guarantee of crude oil supply and the international image of the country in terms of insecurity. Though the policy guidelines that fixed a deposit of $1 million for every 10,000 barrels capacity refinery to be established by the private sector was relaxed in 2009, other conditions such as the three-stage process of licence to establish, approval to construct and licence to operate, remain serious obstacles for apolitical investors.
The stringent requirements for establishing private refineries must be further reviewed. It is imperative that all barriers should be removed for more investors to embrace the business. The Federal Government needs to create an enabling investment environment to encourage the private sector, through various incentive packages, for the establishment of private oil refineries for domestic consumption and export.
As Ghana has done, all that should be required for a private refinery are proof of funding for the project; technical capability of the company; refinery configuration and products specifications for the refinery and evidence of land allocation. The four public-owed refineries have also been reduced to museum relics by corruption and stage-managed inefficiency. Prevailing socio-economic realities dictate that the country can no longer sustain this absurdity. Click to signup for FREE news updates, latest information and hottest gists everyday
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