Recently the Nigerian government entered a relationship with the neighbouring Niger Republic to build a 150 barrels capacity refinery in a border town in Katsina State, Nigeria. The development has left many wondering if the local refinery project has been abandoned. FESTUS OKOROMADU reports.
Nigeria is a country rich in oil production, however it’s strength in maintaining its refineries, is presently a bitter pill to swallow and leaves much to be said.
According to the latest the Nigerian National Petroleum Corporation (NNPC) Monthly Financial and Operational Report for March, 2018, the country consumed a total of 2,383.46million litres of premium motor spirit (PMS) commonly known as petrol. Similarly, a total of 27.21million litres of Diesel (DPK) was imported by the corporation and supplied to Nigerian markets in the month.
The is even as the country’s epileptic government owned refinery, was said to have refined a combined total of 153.37 million litres of PMS and DPK during the period. These figures are a pointer to the huge vacuum created by the absence of petroleum product refineries in the country.
While it remains a mystery to several Nigerians and global watchers, why it is successive governments have failed to either revamp the existing refineries, the current administration under President Muhammadu Buhari on Monday July 24, at the Aso Rock Villa, signed a memorandum of understanding with the Nigerien government on a pipeline and refinery project.
To buttress the importance of the project to both countries, the ceremony was graced by President Buhari of Nigeria and his counterpart the President of the Republic of Niger, Mahamadou Issoufou who oversaw the signing of the MoU for the Niger/Nigeria Hydrocarbon Pipeline and Refinery Projects as well as the inauguration of the steering and technical committees.
Speaking of the importance of the project at the ceremony President Buhari said, “Nigeria sees this cooperation on crude oil export from the Republic of Niger and construction of refinery facilities in Katsina State as a “win – win” for both nations.
“The initiative will not only provide a reliable market for the stranded crude from the Niger Republic but will also provide petroleum products for Nigeria, as it aggressively pursues its aspiration on petroleum product self-sufficiency,” he emphasised.
On his part, the Nigerien President, Issoufou had this to say, the initiative will further a mutually beneficial relationship between the two countries and strengthen economic development and political ties.
“The country sees the refinery as way of uniting with the country after being separated by the colonialism, he noted.
He however emphasised that such initiatives remained a long way growing intra-African relationship, stressing that African countries can not develop unless they work on processing raw material instead of exporting it.
But on a very serious note, President Issoufou stated that, ‘Nigeria must play a key role as the leader of the continent in ensuring that the oil and gas sector is developed,’ stressing that ‘Niger would rely on Nigeria to help grow its oil and gas sector.’
President Issoufou, further left some curious Nigerians wondering when he said that his country currently produces about 20,000 barrels per day (BPE) of oil and look to expanding to about 50-90 thousand as the refinery project comes on board.
The Place Of Nigerian Owned Refineries
Reflecting on the target set out by the Nigerien President for his oil industry, one cannot but agree with the slogan of the international electronic products giant, LG, which goes, “Good Thinking, Good Product.” How else can one explain that a country producing barely 20,000bpd is the one to supply that which produces 1.896bpd (as at June) with facilities to build a refinery?
But hope appears not to have been lost as the Minister of State for Petroleum Resources, Dr. Emmanuel Kachikwu is full of optimism that the country is on a course to capturing the huge potentials the Nigerian downstream industry provides and extend its tentacles across the continent of Africa.
Truth About The Refineries
The Group Managing Director, NNPC, Dr. Maikanti Kachalla Baru, is definitely in a position to know what the situation is. While speaking on the state of the refineries at the Nigerian Oil and Gas (NOG) in Abuja recently, he said the refineries operated at a loss with low limits of authority, long procurement cycles, restrictive funding, regulated cash margins and little autonomy, in addition to human capacity and supply chain challenges.
According to him, “All these led to gross inefficiencies and the need for new operations and marketing models. The current administration has approved the implementation of a new commercial model targeted at attracting investors in the restoration of the Nation’s three refineries.”
But in a podcast on the ministry of petroleum resources, the minister of state, while speaking on condition of refineries, up until recently, nobody actually knows what was wrong with the refineries.
His words, “A lot of work has also been going on in identifing what really need to be done in the refineries because no comprehensive structural rekit and revaluation required has been done to tell us what work needs to be done.
He added that to actually know what has been done, “We just need to know why the refineries weren’t performing? What exactly is wrong? Which of the units need to be worked on?
Speaking further he said, “As you go from Kaduna to Warri to Port Harcourt, the challenges are different in those refineries and so we need to have a comprehensive view.”
To solve this challenge, the minister said that apart from the in-house views which are not acceptable to financiers, the ministry in collaboration with NNPC brought in consultants to also take a look at the refineries.
Resolving Challenges Of The Refineries
According to Kachikwu, the government is taking a wholistic view to resolving the challenges at hand, pointing out that the refineries remain one of the areas were present administration has expressed serious concern when it took over the reign of governance in 2015.
Speaking to the situation in which the present administration met the refineries, he asked rhetorically in the podcast, “What was the state of the Refineries when we came in? Providing the answer, he said, First, our refining capacity was less than 10 per cent, we managed to elevate it to about 15 per cent, and that is where it has remained substantially.”
According to Kachikwu, having realised the gravity of the challenge, his team decided that they were going to intervene in the sector using different means.
He listed the intervention strategy being deployed thus, “The first is see how we can revamp our refineries, we wanted to look at Modular Refineries not just for the benefits it brings in terms of refining but the benefits it brings in terms of Niger Delta concerns.
“We also wanted to look at Greenfield Refineries which are brand new refineries, how do we encourage private investors to run Refineries without relaying on government to grow the sector but in the immediate we needed to look at the swap arrangements that were insistence then, and see how we can revamp the and at least save money on the short term.”
Addressing government’s initiative towards restoring the existing refineries, Kachikwu said his ministry sought and secured President Buhari’s approval to find third party funding through a debit structure to be able to get them back to working form.
Having gotten approval, he said, “We started sourcing for partners who will put in money and work with NNPC in a joint venture operational model and get these refineries back from a 10 per cent to about 90 per cent performance capacity.
“Today concept has been agreed and approved, financing structure is largely been agreed, the financiers has largely been identified, contractual processes are ongoing to reach the terms of those financing and we have also identified the initial builders of the refineries to be contractors using the financing that is going to be raised from the third party financiers.”
The process according to him is not smooth and easy. “But challenges continue to remain with this model. First, what is the certainty that by the time you finish, these financiers are going to be able to actually have the money to put on the table to go? We have spent one and a half years since this approval is given just going through very elaborate processes.
“Some of those processes we have to answer to the National Assembly. We have to answer to the board of NNPC, we have to go out and talk to the financiers. Alot of work is going into this, because order than just raising the money, we have to raise it in such a way that people will not be disappointed at the end of the day.”
However there is hope ahead, as the minister stated that the process is almost done and confident that by the end of October, the country should be in a position to have signed all the requisite agreements and be able to charter people to move in to work.
“If we can by the end of the year get to a point where at least we can begin the process of actual work, where at least shut down the refineries and begin, then I think we can say we have achieved in terms of revamping the refineries,” he said.
According to the minister, the country has achieved much greater success than the rehabilitation and revamping of the existing refineries. He stated that about 40 new modular refineries has been licensed stressing that 10 of them are right on point. “They have gotten to the point where they are getting to financial conclusion, serious engineering finalizations in such a way that they can go ahead,” he said.
“In fact two particularly which are 17,000 barrel per day, are at a stage now where they have started construction work and we are hoping that the commissioning of these two will happen anytime between the last quarter of this year and the first quarter of next year.
“We hope that other than those two the remaining eight that are fairly advanced in terms of processes will rise up in a way that they will feature in our 2019 and early 2029 calculation,” he submitted.
He added that the nice thing about the modular refineries is that they are located in the Niger Delta region, stressing that they commencement of operation will also provide government with the moral base to be able to say to those doing illegal refining in the region that the time has come to stop.
Dr. Kachikwu identified the Niger/Nigeria refinery relationship as one of the initiative embraced by the government in establishing Greenfield refineries. According to him the refinery which is expected to be a 100,000 barrels capacity will be private donations sector driven.
“The nice thing about this is its private sector driven, its government to government, provide petroleum products for the Nigerian market and get good governance in an environment where they can get money from taxes and from operations and great work, he told journalists at the MoU signing ceremony in Abuja.
Dr. Kachikwu is also very optimistic of potential of the 650,000bdp Dangote Refinery. He noted that the project will not only engage in refining oil but also include petrochemical plant.
According to him the project which is expected to be commission in the second quarter of 2020, will capture close to 70 per cent of the country’s current consumption capacity.
Speaking on the importance of accomplishing the Dangote Refinery alongside the other prospects, Kachikwu said, “If we succeed in revamping our own refineries of over 459,000 combined capacity refineries, we would have frankly met the national requirements in terms of 100 per cent supply of refined petroleum products and begin to look to an export model, so the Dangote equation is very key.”
Another project on the horizon is 150,000bpd capacity refinery the multinational corporation, Agip has agreed to build in Balyesa state. If the project sails through it will be the first multinational oil exploration company that will build a Refinery in Nigeria.
Policy Changes Ahead
Meanwhile Kachikwu has expressed that others will follow suit as time goes on. But the minister is not going to leave the pursuit to mere expectations.
He seems very determined to change the old order, his words, “I can tell you as we go through the Crude oil sales policy of this country we must get to a point where even those who produce crude as joint venture partners must take the responsibility in producing crude first for local refineries.
“We are going to get there through policy, it does not make any sense for us to ship out all the crude that we produce and live our citizens sourcing for imported refined petroleum products.”
The Economy Of Local Refining Of Crude
Kachikwu’s submission in this respect is simple, Hear him, “If we succeed in stopping the importation of petroleum products which is something am very committed to and his Excellency the President is signed on to and is committed to, we will be saving 39 per cent to 40 per cent of the foreign exchange consumption of the country which goes to importation of refined petroleum products.
“So the work is cut out for us, the importance is obviously there, the numbers speaks for themselves and its something we are going to be working on continuously.”
It obviously clear that the government is very aware of the issues at stake. Whether it has the political will to accomplish them remains a subject of speculation.
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