Rescuing Nigeria Local Refineries from Mafias

Seriki Adinoyi

Recent developments in Nigeria are gradually revealing that the repeated cries over Nigeria’s inability to refine its own crude oil were mere pretense as it seems that players in the industry are the same frustrating the efforts.

For years, the state refineries in the country had been rendered redundant just so that importation of refined oil will continue at the detriment of the country and to the benefit of the few with vested interests.

Nigerians were beginning to hive a sigh of relief with the intervention of the Modular refineries and recently Dangote refinery that have come to the rescue, but the cartel seems not to have given just yet.

Modular refineries are simplified refineries that require significantly less capital investment than traditional full-scale refineries. With their scalable and flexible design, they are particularly suited to the Africa and Nigeria’s unique economic and logistical challenges. They offer a cost-effective and efficient solution to meet local fuel demands, reduce dependency on imported refined products, and contribute to regional economic development.

For instance, Waltersmith Petroman operates a modular refinery which was commissioned in 2020. The refinery aims to produce diesel, naphtha, heavy fuel oil, (HFO), and kerosene. Refined petroleum products from Petroman’s modular complex target primarily for states in the south east zone. Anambra, Enugu, Abia, Imo and Ebonyi states are therefore the primary beneficiaries of the Petroman, 5000 barrels per day modular refinery. When upscaled to a processing capacity of 40,000 barrels per day, more states will benefit.

 The profitability of modular refineries is influenced by several factors including production capacity, capital expenditure, operational costs, and market prices for refined products.

They have been the ones filling-in the gap for fuel demand before the recent coming of the Dangote Refinery, but not without regulatory, operational, and market challenges.

In Nigeria, modular refineries also mitigate the risk of pipeline sabotage as these refineries become an evacuation system that is completely independent of pipelines. They also have a quick return on investment of approximately two years, enabling developers and their investors the ability to recoup their invested capital in a short period of time, while the country benefits.

Modular Refineries have various benefits to all stakeholders in the market. For the dwellers in the remote locations where the refineries are constructed, they are able to access and purchase the products at a much cheaper price. 

Furthermore, since Modular Refineries can be constructed in different locations within a short time span of about 15 to 20 months for a refinery of 20,000bpd, this ultimately eradicates the need for expensive transportation of crude oil through pipelines covering long distances, which in many cases, would still be susceptible to vandalism.

But Aliko Dangote, Chairman of Dangote Petroleum Refinery recently raised serious concerns on the fact that some mafias in the oil sector were hell-bent at frustrating local refining of crude oil possibly for personal gains.

Confirming the concerns raised by Dangote, Modular refineries said that they had raised same concerns severally in the past but received no positive response.

Indeed, major challenges that hinder the development of Modular Refineries in Nigeria include regulatory uncertainties and shortage of feedstock access.

With regards to the problem of regulatory uncertainties, Nigeria allegedly loses an estimated $15 billion yearly in foreign investments due to regulatory uncertainties, which in turn discourages various institutional and individual investors from setting up and developing innovations like Modular Refineries in Nigeria.

Crude Oil Refinery-owners Association of Nigeria (CORAN), a registered association of modular and conventional refinery companies in Nigeria, recently observed that the merchants in the oil sector have held the country hostage; especially in the area of our domestic petroleum products’ supply thereby crippling the whole economy.

 CORAN explained that the rise in food inflation in Nigeria could also be attributed to the hike in the pump prices of petroleum products, especially PMS, stressing that in-country refining would have helped in tackling these costs.

It explained that the reason Nigerian government hasn’t been able to tackle inflation, especially food inflation, in the country is because of the prices of petroleum products.

CORAN argued that the mafias in the oil sector were fighting Nigeria from attaining self-sufficiency in the domestic refining of crude oil because these persons were profiting from petroleum products’ importation into the country.

Publicity Secretary of CORAN, Eche Idoko recently said, “And if they don’t believe us because we are an association of smaller refineries, at least they have heard Dangote say it now. Who are these people fighting the self-sufficiency in the refining of petroleum products in Nigeria? The Minister of Petroleum, who is actually the President, should speak about this.

“He should tell Nigerians what his principle is. Is he looking at creating self-sufficiency in domestic refining of petroleum products or that he wants to continue the regime of petroleum importation? The presidency may need to speak to Nigerians directly, telling us what their policy thrust is on this matter.”

The truth is there has been the existence of a system where, for 35 years, people benefitted immensely from importation. The system will certainly fight against bringing it to an end with local refineries. That seems to be the current challenge.

A recent report also alleged that international financiers that were meant to fund the construction of about 20 modular refineries in Nigeria had withheld their funds due to the challenge of getting guarantees for crude oil supply to the facilities when they are completed.

Producers of crude oil in Nigeria, who are largely international oil companies, have not been able to provide guarantees to assure the financiers that crude would be supplied to the modular refineries when the plants are set to produce refined petroleum products.

With this, funders of the facilities would rather hold onto their funds pending such time that the Federal Government would be able to impress it on IOCs to provide the guarantees required for crude oil supply to modular refiners.

Although Nigeria prides itself as the largest crude oil producer in Africa, it exports bulk of its crude to earn foreign exchange, starving domestic refiners who find it tough to source the United States dollar required for the purchase crude.

Nigeria currently has 25 licensed modular refineries. Five of them are operating and producing diesel, kerosene, black oil and naphtha. About 10 are under various stages of completion, while the others have received licences to establish. Aside from the five that were in operation currently, the remaining plants were allegedly embattled due to the major challenge of crude oil unavailability, a development that has stalled funding from financiers.

It is heartwarming to see that prominent Nigerians have risen in defense of Dangote refinery and other local refineries. Nigerian Upstream Petroleum Regulatory Commission should also look into the concerns raised by the refinery operators such that they are not suffocated into extinction.