Momoh Oyarekhua: Why FG Must Incentivise Indigenous Modular Refineries Operators

Chairman of the Crude Oil Refineries Owners Association of Nigeria, Momoh Oyarekhua, who is also the Chairman of OPAC Refineries, a wholly privately-owned indigenous company operating in Nigeria, recently, spoke on the need to encourage in-country refining. But beyond the long-paid lip service to the idea, he was of the opinion that government must back its support for the modular refineries operators with measurable actions. He spoke with Emmanuel Addeh. Excerpts:
Two years after OPAC announced that it refined its first products, how has the journey been?

It has been very tough. It’s been like the tide of the ocean: moving up and down. But what I always say to people is that when you start a business, you are expected to go through the incubation period of the business. For OPAC, it has been more or less like an incubating period for us. We have been one of the foremost companies in the refinery business in Nigeria. There have been challenges that we’d have to solve.
But part of the teething challenges is being able to navigate some of the government regulations and policies to achieve our goals, which I think we have been doing. Whether we have done that satisfactorily is another thing. We have not received most of the things that we thought we should get from the government side. Part of that is supply and sales of crude oil to our refineries by either the private sector or the government-run Nigerian National Petroleum Company Limited (NNPC). But yes, so far, so good.

Nigeria needs as much petrol as it actually could possibly get in the country. But it’s been observed that even the few modular refineries that are working, don’t produce petrol. What exactly is the problem with the production of petrol in-country?
The challenge with PMS is that the way modular refineries are configured, they are primarily meant to produce distilled products. And these products are usually diesel, naphtha, fuel oil and kerosene. So, naphtha is the source of petrol and what the refinery industry actually does is to refine or to crack naphtha or pass it through another process of reforming it to now get petrol. But the reformer unit is usually very expensive.
In another interview, I was asked how much does that cost? It is usually between the range of $100 million to around $150 million. So that’s a lot of money. Then we have installed a refinery and even getting the funds to install those refineries was through equity investment by partners or from debts. It’s not easy for an industry that has not been stabilised to access $150 million to put a reformer in place.

It is part of what we initially wanted to do, to add a reformer to our refinery immediately after completion so that we can supply PMS to the market to be able to support government, no matter how little it is, so that the current quantity will not be imported into the country. It will save the government the foreign exchange that goes into importation of that quantity, especially if crude oil was sold in naira. So, the challenge like you have asked is mainly that some of us don’t have that investment to put into a reformer (unit that produces PMS). We are going through all of these challenges. The government policies are not being supported by action and all of that. So it’s not making us want to put more money into the venture or go out there to raise money.

So, what we have advocated is an intervention fund just like you have for the gas sector, to be able to support most of these modular refineries and people that want to build modular refineries so that we can be self-sufficient in producing petroleum products in Nigeria, including petrol. If we are self-sufficient and we can produce some of this petrol in country, the price will be cheaper than what you have today, because you would have eliminated a whole lot of importation costs, and all of that. Starting from products that are coming all the way from Amsterdam, Singapore, Indonesia and all other parts of the world where you have refineries into Africa. All of those costs are passed to consumers in Nigeria. So, this is the advantage of government coming in to interface with us to see how we can support and make petrol available in Nigeria.

The argument used to be that operators could not invest so much money in reformers because the price of petrol was highly regulated and the chances of recouping investment were limited. Today, the market is deregulated. Are there chances some of your members may get to that level where they start producing PMS?
Obviously, you will see some efforts towards that. People are now making efforts. The market is now deregulated and it is now a free market. You may see efforts towards that, but basically the most important thing is that the government must show the will to support modular refineries, because funding for projects are not available locally. Most funding come from the commercial banks. Most of our banks will tell you that they are commercial banks, they are not investment banks. So the possibility of you having to raise $100 million from our commercial banks is very difficult.
And this is why we’re asking for some other kinds of funding, which may be either having access to development funds with CBN or creating a special intervention fund for refineries so that the country will be self-sufficient. Where you have more refineries come on-stream, the country can produce more and be self-sufficient with refinery products to the extent that we can export to our neighbouring countries and maybe as far as other countries in other parts of Africa. This is our aim. This is what we’re thinking to do to support  government to ensure that our people don’t suffer from limited supply of petrol in Nigeria.

One thing you have always advocated is that crude sales to your members or to operators within industry should be denominated in naira. If government actually accedes to that request, how would that impact the industry?
Good question again. You see, my argument is this: you know we are so dollar-dependent in Nigeria. And I have often said being dollar-dependent in Nigeria is not the way to go. There are a whole lot of things that when you want to do in Nigeria, they will require you to pay in dollar. And what happens is that, it puts pressure on the foreign exchange that the government gets. In the same vein, when modular refineries and even conventional refineries that will produce products in the country are asked to purchase their raw materials in dollars, the implication of that is you’re selling your product in naira? So, the currency you’re going to have at hand is naira, and they will now require you to go and exchange your naira with dollars and pay for your feedstock. For me, that will mount to additional pressure on CBN or on the foreign exchange that the government gets and the exchange rate between the naira and dollar will only go up.

I have said in another forum that if you have 10,000 barrels refineries and you have 10 of them today running in Nigeria and the average crude price is $100, for instance, you will require $3.6 billion yearly to purchase crude. And if these 10 refineries go to the market to look for $3.6 billion every year for feedstock for the refinery, the exchange rate between naira and dollar is going to hit maybe about N2000 if not more, because other industries are also coming to this FX market.
So, the sense it makes for us is that the raw material is here. You’re producing to sell in the local market, why not sell the same product in the same currency so that we don’t come and overcrowd the FX market and begin to look for money to buy and all of that, and that could also cause the refineries not to run efficiently. Because if you have your naira or you have a lot of it, you are not being able to aggregate the dollars to pay for your goods, what you have is that you will not be able to buy more feedstock, you shut your refinery down until you pay your supplier or feedstock and all of that. So, there are a lot of problems that the buying of crude in US dollars will cause because your income is in naira. So this should be properly evaluated and everybody will agree with me that what I’m saying is true, that naira to naira is the way to go, so long as the product is sold into the local market.

For someone, who heads CORAN, you must have had to sit down with the people on the other side – the regulators, government, stakeholders and all of them. What is the argument against your position that crude should be sold in naira?
The truth is that as Chairman of CORAN, I have even today (Thursday) had interactions with the authority chief, who heads the NMDPRA. I have met with the permanent secretary and yesterday some of the commissioners of the NUPRC. I have in the past met with the GMD of NNPC, and even the former Minister of State for Petroleum. What you see among all of them is the resolve to support, however, that resolve is not translated into action. So, what we require now is actual action. Support the cause, let’s see how we can move this thing forward, moving from where we have been, to the level of allowing modular refinery players to actually add value to the society, to add value to Nigeria as a country.
What we keep saying is that the aim of businesses or let me narrow it down to modular refineries, is to add value to the system. That is why government actually licenses modular refineries in the first instance, to be able to create additional value to support government effort and all of that. So, if this is the case, why can’t some of these conversations translate into value transfer, translate into actionable things that everyone will see that it is creating more solution to the challenges that we have with the importation of petroleum products today.

In terms of economies of scale, one would think that conventional refineries actually would sell cheaper PMS than modular refineries. But you have argued elsewhere that the reverse can actually be the case. What’s the sense behind this?
My argument has been that in support of local refining in general, not just modular refineries, but because our company is playing in the modular refinery space, I will speak to that. What it is today is that my thinking of modular refineries is that they should be located close to wellheads, they should be located close to marginal fields, areas where crude is trapped, by the reason of vandalism and theft and where they cannot go properly into a pipeline or they will be stolen. Those pipelines will be broken and all of that. So, you can put modular refineries at those locations.

You will refine those products and bring them into the market. Trucks will come, load and supply into the market. You see this is the very key purpose for modular refineries. Where you are located close to your feedstock and the product is produced, sold into the local market to solve the problem and ameliorate the challenges that we have with the importation of product. It’s not just supply; the quality of product we produce in our modular refineries today is far better than the products that are imported into the country. So you get more quality product from these refineries. Second, is cost reduction. Because you are located at the wellhead, cost of transportation of your crude is zero or is almost insignificant. So you find that the only cost you now run is the cost of refining that product. How much is the cost of refining a barrel of crude? From our experience, it is between $2 to $3 today, which is far cheaper than what a conventional refinery probably will spend on refining crude.

And if you look at some, apart from the government refinery, I think the only conventional refinery that has been built is the Dangote refinery. It hasn’t come on stream. The cost of refining one barrel of crude in some of these conventional refineries is more than $3.
Even in our own case, this $2 to $3 we’re talking about also include continuous maintenance of the refinery, whether periodic or occasional maintenance and all of that, and even taking care of the people or workers and everybody that is working with us. We have put these costs on a monthly basis or even yearly basis into this cost. And it comes to between $2 to $3. So you find that that it’s more or less an insignificant cost.
 So we believe that supporting modular refineries and all of that will produce products that are cheaper into the market if we are well supported and we are given the necessary push that we require at this point in time.

Managing host communities is a major concern in Nigeria, especially in the Niger Delta. You have been operating in that space for a while now. How has it been for you, and what would you advise that companies do to create that atmosphere of peace?
As somebody who grew up in the Niger Delta, I have lived there for the better part of my life. I’m from there, all my activities when I was growing up were in this area.  Truth is that the people have not had value from oil production in their areas. And what value are these people asking for? Create employment for our people, let our people have jobs which will create other ripple businesses that people can benefit from. First and foremost, locating our refinery in Delta State has created employment for people there and caused other smaller businesses to spring up in that environment. And also in our own case, for peace with the community, we involved the state government and we negotiated a Memorandum of Understanding (MoU) where we ensure that the community will benefit from our activities. And as a result of that, we have had peace.

And this is what should be advocated in all oil and gas communities to ensure that all communities in the Niger Delta, where petroleum exploration and refining and any other petroleum activity is taking place, should be given a chance to benefit from the activities of the companies. Number two, create value for that community. Let people see themselves as stakeholders in what you are doing, even though you cannot actually expunge the greedy people from any community, who will say it’s not enough for them and want to be involved in some illegal activity. But for the genuine people, let’s create value.

At the last count, about 40 licenses had been issued, just about five are operating many years after.  How do you think the government can incentivise these license holders to begin operations?
I’m not sure how many licenses are out there. Speculatively, maybe about 40. By the time we came here, I think we had about 37 licenses. And this was 2017. And immediately we got our license, we hit the ground running and that has brought us to where we are today. We understand the challenges that go into wanting to install a modular refinery. And we could see that some of the people that have all your core License to Establish (LTE) which is the first level of licensing, they have their own separate kind of challenges.

Some are approaching the banks and all of that and banks are requesting them to get offtake for the products they are going to produce, get feedstock supply guarantee and all of that. At that level, this could be some of their challenges to be able to raise funds to actually establish their refinery or to go to the next stage where you get the Authority to Construct (ATC). Modular refineries are not things we cannot actually fabricate locally. So, government needs to stimulate all of these things. Modular refineries are not that complex that we cannot actually fabricate in Nigeria, but you see us go abroad.
We fabricate abroad in America, China, Russia and all these advanced technology places in the world. Then when you finish there, you have to ship these things. And then you have to now access waiver because modular refining is just a novel thing in this part of the world, so there is a government waiver which of course, we also had to fight for. We had to push through the office of the then Minister of State, Ibe Kachikwu.

And I must say a very big thank you to Alhaji Rabiu Suleiman who was very supportive to get that waiver through the Ministry of Finance, through customs and all of that. So you have to go through all of those stages to bring in the equipment, then put a team together to install the equipment. So it is a tedious process.
So the government needs to understand all of these, every little part of this process to understand the challenges that people face, from LTE stage, ATC and even at LTO, including the crude supply that I’m talking about now. They ask, what are the challenges, how they can support to create that enabling environment and regulate in a manner that you encourage these people to succeed.
But most of the problems today with people that have LTE is that they need to have access to funding. They need to have feedstock supply guarantee. These are very key to moving forward for some of these license holders.

Crude oil supply to the modular refineries has been a major problem. You touched on it earlier. Has the situation improved now?
It has not improved. We are still where we were. And that is why you see when this conversation is being held, we are still talking the same old way we were talking, otherwise the tone of the music would have changed by now and the dance would have also changed. So we have not changed it because we have not really moved from where we are. Like I said, we have had people in authority pay lip service to what we are doing, but there is no action. So our expectation is that there should be more action than talk.
So some of the talk should be translated into action points and we should see this action also turn to value. What people want to see is the solution that you have provided, not the effort you put in.  What matters most to Nigerians is the outcome, not the effort. Let’s see the results. So we keep hammering on how do we translate everything that in quote is being done today with modular refinery or conventional refinery to an outcome that will benefit the populace of this country. So our interest first and foremost is Nigeria before any other interest.
So, let’s all work together, whether in business or in government to ensure that we satisfy the need of the average Nigerian.

Do you see the Dangote refinery as a threat to modular refinery owners?
Conventional refineries, like I’ve consistently said, are not a threat. We are all in the business to provide solution to the challenges that we have with refined products. Dangote is no threat. Modular refineries will be located mostly in the Niger Delta area, where you have them close to trapped crude and all of that. If that is the case, those areas will become their first catchment. So, what happens is that as of today, you have about six states within the South-south area of the Niger Delta. And these modular refineries will first and foremost feed this product into all of these states. So, the consumption that is required in all of those areas will be gotten from these modular refineries. So, what it means is that trucks will not travel far to Lagos, where you have Dangote, to go and load product because the cost of even going to Lagos in the first instance or today is about N25 per litre, whereas, they can come to our refinery at a cost between N5 to N10 era and they will lift the products that they want to lift. Now talk of the adjoining states to the Niger Delta, for example, you look at even Ondo, Kogi states and all of that. As of today, we have people coming all the way from the north to come and take products because it’s a straight road all the way from north to most of the Niger Delta states, mostly Edo, Delta and all of that.

People don’t have to go through all of these corner roads and all of that, to go to Lagos, so they just come straight to the Niger Delta, they load their products and they go. So if the road between Benin and Lokoja or Okene is good enough, it’s a straight road all the way to the north. What I am saying is that, look, there is a niche market for modular refineries, you know, states around the South-south, states around the South-east and all of that will have quick feed of products to all of these states, because these are very close locations to all of these states, which as of today, I think the South-east has about five states, plus the six states of the Niger Delta which come to about 11 states.

But if you have products coming out from this, you will feed them and states also close, Kogi and the rest can come straight to all of these areas, just like we notice it as at today. So, Dangote for us is not a threat. We think Dangote can even focus on international supply while it sells just some little product into the country while the modular refineries, if they are encouraged, if they are more in number, can satisfy the local needs of Nigeria with Dangote also supporting. Or it can be the other way round, while Dangote supplies, the modular refinery will also support. So it will help also not to create monopoly, to create a bit of competition where pricing will be to the favour of the final consumer of this product.

What is the problem with feedstock supply from your interaction?
There is no problem. The only problem is the will by government to mandate everybody that is within the value chain of the feedstock supply to give the supplies to us. The PIA and recent regulations have also captured domestic crude supply. So, the domestic crude supply, the will of those in authority to enforce it, will ensure that crude is made available to us for purchase.

Are the operators satisfied with this new regulatory environment? Is there something that should change?
For us, as players in the industry, we’re not just players in the refining industry, we have some stake in some exploration and production companies too and we have also been playing in the downstream aspects of the industry. There are some few grey areas that we want government to look at. I mean, I in another interview, I made mention of some fees that are being charged more or less like toll. From the point of taking the refined products from the refinery and all of that. So if you look at these fees, who bears the brunt? It’s the consumer at the end of the day.
So why do we have to levy petroleum product whether in the name of off-takers’ fees, evacuation fees, 0.5 per cent of wholesale and all of that. These are companies that will eventually pay tax. So why don’t you allow these companies to run as legal entities and at the end of the day, let them be assessed for tax which they pay tax to the Federal Inland Revenue.

Do you know when you levy them, at the end of the day, they pass those costs to the consumers of the product. What you’ll find is that the consumer will be buying at higher price. There are other levies that we pay, we already pay for License to Operate (LTO) for the refineries. So if you pay for that, why pay the other fees. Even our pipelines that run across our facility, we pay a yearly fee for them.
There are also other smaller fees and all of that for doing one thing or the other. So you find that all of all these costs, who pays it at the end of the day, who bears the brunt of it. It is the final consumer. So we are saying even with the PIA and all of those regulations that follow, we are saying they should be revisited. I mean players in the industry should be engaged in a way of ensuring that some of these fees that are not very relevant are removed for the benefit of Nigerians.

The power sector and the oil and gas sector are very closely linked. Right now, the power sector is on its knees. What do you think can be done differently by this administration?
I think in Nigeria, we have a lot of emphasis on gas right now. The oil and gas being able to support with gas is one aspect. But we also know that in some countries of the world that fuel oil-powered turbines are also used to generate power. So what can happen? Most of these modular refineries produce fuel oil, that currently we are even exporting, rather than it being used in-country. The industries that are supposed to use some of them, they are not even patronising us or they tend to import. We advocate that we also try to install turbines with the fuel oil we are currently exporting out of the country or that some of the modular refineries are currently exporting, is deployed to power some of these turbines that will be installed to generate electricity. So it’s not only gas that generates electricity. So you find that if you deploy fuel oil to generate electricity, it’s also cheap.

You might say it’s not a very clean source of energy, but the world is not going to very soon extinguish the use of fossil fuels. In some countries which are still preaching renewable energy and all of that, they are still burning coal, and they might continue on this path in the next 20 to 30 years, if not even 50. We cannot be holier than the Pope. The Western world is actually preaching all of these things, but yet they are still doing it. And then, we will want to not be holier than the Pope and say we’re doing gas. I do not believe in that. I believe as much as we’re transiting gradually into renewables, we should use what we have to deliver the result that is required by our people.
So, I will advise the government to also look at this option. These are options that can also support providing reliable energy supply for the populace.

It’s been almost two months of the Bola Tinubu administration. He has collapsed the black market rate and official rate of forex and has removed fuel subsidy. What else should he be doing?
Okay, on the policy side, sincerely if I were to be the president of this country, the first thing I would have done is to evaluate what the impact of all of these measures will be on Nigerian citizens and find a way to surmount those impacts before going on the route of doing all of these. However, this has been done and since this has been done, we have to look at those measures quickly as fast as possible to support the average Nigeria. And I keep saying that the first place to start when you want to impart an environment is to look at the businesses, mostly the small scale businesses and all of that. I think there are a lot of registered small scale businesses which are paying taxes. They have employees who also pay tax. The first good thing to do is for government to look at measures to support all of these businesses, to stimulate them to ensure that they find a way to employ more people, sustain the people that are employed. This is because otherwise with some of these measures, you can see some of these small businesses will start to close. They will retrench people.
For instance, during COVID in the UK, the UK government because they wanted businesses to recover from the impact of COVID on every business closing down, they introduced furlough, where the government assisted businesses to pay salaries up to 80 per cent and in some cases 60 per cent. And they gave grants to businesses. They also gave loans to businesses, interest free for one year to ensure they stimulate businesses.

So, in the case of Nigeria, we can look at some of these options. Today, the minimum wage in Nigeria is about N30,000. That cannot afford a bag of rice. Once these measures have been taken, immediately increase the salary of the average civil servant so that they can survive, so that they can live. Then find a way to support the private sector, whether it’s through tax cuts or expanding businesses. Help companies pay salaries, but they must show evidence of tax payment.
There are different kinds of measures. We’ve heard of the palliative and wanting to pay N8,000 into people’s accounts. It’s been criticised, because I think it doesn’t really make enough sense to just pay money to people’s account that you cannot even determine whether the money goes to these people or not. So, there are other creative ways to support people to ensure that the suffering of the common man is be ameliorated.

Finally, where do you see OPAC in the next two years?
It depends on the encouragement we get. Our intention when we started off this journey was to install a 60,000 barrels refinery within a space of six years. Now, this OPAC refinery is about six years old now. We’re still at the 10,000 barrels level. Why? Because we’ve not had any form of encouragement and we do not intend to stop hoping.
From the onset, our intention was to look at those clusters, where crude used to go to Forcados or Brass and because those two lines were always challenged, we would say let’s put a refinery, let’s solve the problem.  But the way it is today, there’s frustration. We’re not encouraged. So, until we see that kind of encouragement, I cannot tell you today that this is what is going to be in 2025. So, we just keep watching and keep engaging to see how we improve.