In a desperate race against the clock, the Department of Petroleum Resources is about to unveil fresh guidelines for the establishment of modular refineries in the country. Although behindhand, the policy, if properly implemented, can serve as the platform to end the perennial scarcity afflicting Africa’s largest oil producer, whose daily output is estimated at 2.3 million barrels.
“To facilitate the process of setting up modular refineries, the DPR will pre-qualify a number of original equipment manufacturers, thereby eliminating/minimising the process of verification of engineering,” said Alfred Ohiani, DPR’s Deputy Director of Engineering and Standards. The DPR, established in 1970, has wasted too much time already. It should immediately allow private investors, including major international players like Shell, Chevron, Total and Texaco, to contribute in reviving our downstream sector.
Already, the DPR has taken a major step by reducing the licensing fee for new refineries from $1 million to $50,000. By concentrating on the task at hand and initiating other liberal measures, it can make the dream of constructing modular refineries a reality. As it is done in some other climes, the government, through the DPR, should woo investors with tax holiday, an initiative that grew the telecoms sector in 2001, while granting waivers to import equipment and facilitating access to land.
The DPR says mini refineries can cost between $1 million and $15 million to construct. These outfits operate in many countries of the world, including Africa. While Senegal runs one with a 27,000bpd capacity, Cameroon has one with 42,600bpd, Congo, 21,000bpd, Niger Republic, 20,000bpd, Chad, 20,000bpd, Zambia, 34,000bpd and Gabon, 25,000bpd.
According to an international consortium comprising the National Standard Finance of the United States and Omega-Butler Refineries of the United Kingdom, which is trying to set up a 20,000bpd modular refinery in Rivers State, the project will initially cost $480 million, provide 1,500 jobs, and be completed in 12 months. Apart from producing petrol, diesel and gas, it will also produce bitumen, with Rivers providing 40 hectares of land for the project.
Nigeria, with its corrupt successive administrations, has fallen far behind in the downstream sector. All the governments since 1989, a period of some 26 years, have only paid lip service to reforms in the oil industry. They have failed to add to the four public-owned refineries. This is grossly irresponsible. How can a country neglect such a critical sector of its economy for so long, opening itself up to the vagaries of international trade?
On account of this, the economy has suffered massive disruptions due to bouts of fuel scarcity, with the latest one lasting over a month, mainly because of the disagreement over subsidy payments between the Federal Government and importers. But other societies, through technology, are using modular refineries to a great effect. With effective implementation of the modular model, Nigeria can bridge the gap between demand and supply in a short period.
However, because of stringent guidelines, corruption and a harsh business climate, only the Niger Delta Petroleum Resources has bucked the trend of establishing a refinery since the DPR issued licences to 18 private refiners in 2002. The NDPR refines 1,000bpd into diesel. The DPR should critically examine the reasons why the 17 other companies have yet to build theirs.
It is curious that though the public refineries, being run by the Nigerian National Petroleum Corporation, have the capacity to refine 445,000bpd, they have consistently under-produced. By NNPC’s latest account, the refineries are producing at 10.4 per cent, yet in 2012, the Petroleum Ministry took a loan of $1.6 billion purportedly for a turnaround maintenance project. The NNPC should be made to account fully for the 445,000bpd allocation it receives and culprits in the racket, who have been fleecing the taxpayer, prosecuted.
Corruption and lack of transparency have attenuated progress and performance in the oil industry. President Muhammadu Buhari should move quickly to institute far-reaching reforms that will purge the cabal feasting on the NNPC. We are concerned that even countries that are not as endowed as Nigeria, have consistently outperformed us in the downstream sector.
For instance, a few African countries are refining to meet their needs through the regular and modular refinery models. Apart from oil-producing countries like Algeria and Libya, which refine 499,000bpd and 380,000bpd respectively, South Africa and Egypt do 626,500bpd and 1,102,550bpd in that order. These figures indict the past and present NNPC managements. So, too, the heads of state and ministers that supervised this crookedness.
Their dereliction of duty is costing the country dearly. In 2011, Nigeria supported the economy of other countries by paying a subsidy of N2.5 trillion on petrol, while it wasted N971 billion each in the two subsequent years after the outcry and protests of January 2012. The NNPC is a modern contraption being milked for selfish interests. The new government should break it up and force it to surrender its downstream operations to the private sector through a transparent privatisation exercise.
To maximise the benefits of modular refineries, they would have to be sited near crude oil production fields, with facilities like roads and railways to evacuate refined products as integral parts of the project. It does not make economic sense to construct modular refineries far away from crude oil sources and use resources to build pipelines to service them.
These mini refineries will not only reduce – or even eliminate depending on their number – Nigeria’s dependency on imported products, subsidy and traffic congestion, it will also revive the local economy, make roads to last longer and be safer, and returns Nigeria to exporting refined petroleum products. Nigeria is overdue for modular refineries, and every effort and support the operators need to make this succeed should be provided by the government.
