Government intervention Needed to Scale Modular Refinery Operations, Says Oyarekhua

Chairman of the Crude Oil Refineries Owner’s Association of Nigeria (CORAN), Mr. Momoh Oyarekhua, while addressing pressing concerns in the oil and gas sector, the removal of fuel subsidy, and issues bordering on the operations of modular refineries in Nigeria said that the federal government, led by President Bola Ahmed Tinubu, should urgently intervene to assist modular refinery owners scale their operation and to alleviate further hardships which may be faced by Nigerians due to the removal of fuel subsidy.

Speaking during Arise Morning Show interview with Rueben Abati and Rufia Oseni, Oyarekhua emphasized that there was an urgent need for the government to support and enhance the efficiency of the existing modular refineries, with the view to enabling them to effectively refine crude oil in the country in line with their installed capacity.

Oyarekhua reiterated the call by the association, CORAN, for an increased crude oil supply to the modular refineries while insisting that the provision of a special intervention fund is necessary to support and encourage modular refineries in the country to perform to meet their installed capacities.

Answering the question posed, Oyarekhua explained the critical role of modular refineries in Nigeria and how they can help the economy by reducing the high price of the Premium Motor Spirit (PMS).

He argued that refining crude oil in the modular refineries is more cost-effective than exporting the crude abroad for refining and then shipping the same back for sale as a finished refined petroleum products, with the increased cost of foreign and local shipping, terminal, ports, customs, inspectors and traders’ charges and margins, etc. being calculated as part of the landing cost which will then be passed on the consumers in Nigeria

He said: “The cost of exporting, refining, and shipping back can be eliminated if the modular refineries become efficient in crude refining in Nigeria because we are mostly situated near to the well-head of crude production which will require little cost

“More so, the issue of oil theft can be minimized by the modular refineries which are strategically positioned to tackle that challenge because there will be no need to transport crude using the pipeline because we are situated very close to production areas.”

Making the case for the sale of crude in naira instead of dollars, Oyarekhua said it makes no sense to have modular refineries pay in dollars to access crude in Nigeria. His point “let’s assume, just like I have just mentioned, if you have 40 modular refineries of 10,000 capacity for example, and you have to go into the market to look for an equivalent USD to pay for the crude

“Imagine, for a 10,000 barrel capacity refinery for example that we have, if the average price of crude is $100 just to make it very simple, we are going to require a minimum of $30,000,000 on a monthly basis to procure crude, so what you are going to have is that in a year, we are going to require about $360,000,000. So imagine you have 10 refineries of 10,000 barrels each, that’s going to be $ 3.6 billion that you will require to pay for crude.

“For me, I think it is going to mount pressure on the foreign exchange and it is going to drive the foreign exchange up. Hence, the sense in it is to sell crude in local currency to modular refineries and ensure the product goes into the market. If for any reason, any modular refinery actually exports any aspect of their crude, then, they should pay for that aspect of their crude in U.S dollars.”

With regards to existing government-owned refineries and whether it was still expedient for the government to continue with its turnaround maintenance with the associated cost,

Oyarekhua explained that there was a need to give the private sector a chance to run not just the modular refineries but the conventional refineries in Nigeria, noting that the private sector involvement can revitalize the Nigerian refining industry while ensuring massive productivity.

He insisted that the government had no business being in the petroleum refining business which is better managed by private sector interests. He said the government should only focus on regulation, saying privatizing crude refining is the best way to go.

“Allowing more private individuals to operate refineries in the country is imperative if the sector is to succeed because the bureaucratic decision-making process of the government significantly differs from the agile decision-making prevalent in the private sector.

“Harnessing the expertise, innovation, and efficiency of private enterprises, therefore, holds the key to addressing the challenges faced by the Nigerian refining industry.”

Speaking further, the Chairman of CORAN underlined the importance of government support in ensuring the success of modular refineries.

Oyarekhua called on the government to supply an adequate amount of crude oil to these modular refineries, which would facilitate their operations and increase their refining capacity.

He urged that the government should take a second look at the extra burden of levies placed on modular refineries, which according to him increases the cost of local production or refining of petroleum products, stating that for every liter of product refined, there is a five naira eighty kobo (NGN5.80k) levied on the refinery for products evacuated.

He said “Some of the cost that the regulators are putting on us, for example, for every liter of product that we produce today we have to pay about five naira eighty kobo (NGN5.80k), like a toll from the refinery before these products are evacuated

“We have one naira (NGN1) evacuation charge to Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), we have off-takers charge one Naira (NGN1), we have zero point five (0.5%) percent of our wholesale price that has to be paid, there is a recent one that has just been introduced – midstream, downstream, gas infrastructure charge of 0.5% of our wholesale cost, all of this comes to 5.80k. We are talking about bringing the cost of refined products down, why should we pay 5.80k”  

He revealed that the intervention and advocacy were not just for modular refinery owners but for conventional refineries also. He said “Even Dangote, although I know he is in a free trade zone, I don’t know if this charge is applicable to him but he has to pay this charge, if Dangote produces PMS today he has to pay NGN5.80k on each liter of fuel that comes into the market which will now make petroleum products more expensive, including petrol”

Additionally, he stressed the need for intervention funds to attract skilled professionals and modern technologies, to the sector, further enhancing the efficiency and output of the modular refineries. “Modular refineries have immense potential to contribute to Nigeria’s economy by reducing our dependence on imported petroleum products and creating employment opportunities

“However, without the necessary support from the government and the active involvement of the private sector, we will continue to face significant challenges in realizing this potential. Operating modular refineries in Nigeria would solve several issues bordering around middlemen cost, crude theft, cost of shipping, refining abroad, cost of transportation, and the general cost of petrol,” he posited.