-By Teddy Nwanunobi
Nigeria is one of the world’s largest producers of crude but the country has lacked adequate refining capacity for decades, despite owning four state-run refineries-the Port Harcourt I & II refinery, Warri and the Kaduna refineries.
For decades, Nigeria which is Africa’s biggest crude producer, has remained stuck on imported fuels. In fact, the Federal Government has been running at a loss operating the refineries, because importing the refined petroleum products draws on scarce foreign exchange resources.
Old Opaque Era
No thanks to the four refineries that have long run at a fraction of their capacity. The newest is almost four decades old.
Over the years, the country has made great efforts to put the refineries to utmost use. But the efforts may not yield the desired fruits due to some obvious reasons. First, there are some powerful individuals that are profiteering from the non-functionality of the plants.
This group of people could be called the outside cabal. They are so called, because they are not staff of the Nigerian National Petroleum Corporation (NNPC). This cabal is made up of Nigerians who have been receiving subsidy payments on petroleum product importation. It was alleged that sometimes, they go as far as making use of their cronies in the NNPC to sabotage the refinery assets so as to achieve their purpose.
Second is the insider group. This group is also no less powerful than the first group. Of course, members of this group are made up of the bad eggs in NNPC who carry out internal sabotage of the refineries for personal gain. It was also alleged that this group, who cut across all the hierarchy in the corporation, are responsible for the perpetual delays of the Turn Around Maintenance (TAM) of the nation’s refineries for almost two and a half decades even though monies were spent every year on maintenance prior to this era.
Kyari’s Transparent Era
This is the sad story of the unproductive refineries of Nigeria. Of course, it will not be totally right to say that NNPC, as an institution, is outrightly responsible for the ugly state of the nation’s refineries. With over 5000 workforce, the Corporation cannot be an exception to institutions that have saboteurs on its payroll.
In the past, most of NNPC’s activities have been shrouded in secrecy. Even the National Assembly has often accused the Corporation of failing to remit oil revenues to the Federation Account from its operations. Successive Group Managing Directors (GMDs) have made sure that the Corporation’s books were kept watertight secret.
However, it took the coming, on board, of the current GMD, Malam Mele Kyari, to publish the audited financial statements for 2018 financial year for the first time ever. Kyari, who was appointed as the GMD of the NNPC in July 2019, did not shy away from making public the audited financial statements, which disclosed that three refineries recorded N154 billion loss within the period. The audited financial statements further revealed that the Kaduna refinery recorded zero revenue. The Corporation said that it made the statements public in a bid to improve transparency around its operations.
Sale or Repair of Refineries
After his appointment, Kyari, made fixing the plants a key part of his agenda. He said that President Muhammadu Buhari is the country’s first leader, in years, to be committed to the revamp.
Kyari went on to revive a target to upgrade the plants, and end fuel imports by 2023, after the company missed a previous goal for the end of this year.
In an interview in London in October 2019, the Minister of State for Petroleum Resources, Timipre Sylva, expressed optimism that the overhaul should be successful this time because Nigeria was asking the owners of the refinery technology to get more involved in the work.
To this end, the Federal Executive Council on March 17, 2021 approved the plan to rehabilitate the Port Harcourt Refinery with $1.5bn.
Sylva, who disclosed this after the Council meeting said that the rehabilitation of the refinery will commence in three phases. The first phase is to be completed in 18 months, which will take the refinery to a production of 90 percent of its nameplate capacity.
“The second phase is to be completed in 24 months and all the final stage will be completed in 44 months”.
However, there are those who are opposed to the idea of selling the refineries. The question is, if the NNPC should go public in post PIB era, it is only wise that the refineries should also go public, too. The sale of the refineries is something that should be encouraged, but the big question is, should the country spend its huge scarce public resource on fixing the moribund refineries before disposing them off or sale them outrightly?
Dangote to the Rescue
The ugly story of Nigeria’s refinery is about to change, with the near-completion of a new, privately owned 650,000 barrels per day (bpd) refinery project on the outskirts of Lagos State.
There is a very strong belief that some of Nigeria’s challenges to become more self-sufficient in fuel production and distribution may soon be alleviated for another reason. Of course, that would largely depend on how soon it is due to come on stream. It is believed that it has the capacity of meeting all of the country’s fuel needs, and has enough left over for exports.
Owned by Africa’s richest man, Aliko Dangote, the Dangote Refinery is expected to be Africa’s biggest oil refinery, and the world’s biggest single-train facility. Its pipeline infrastructure is the largest in the world, and it is sustained by a 400 megawatts (MW) power plant.
Although it took years of hopes and delays, it, however, became a rekindled hope when, in December 2019, an ambitious refinery project in the remote Ibeju-Lekki suburb of Lagos, Nigeria, took delivery of the world’s largest single crude distillation column to much fanfare.
There is no doubting what the Dangote Refinery complex, which will also produce fertilizer and petrochemicals, will do for Nigeria’s economy.
The refinery is expected to reverse the decades-old system of exporting crude oil and importing refined petroleum products such as gasoline, diesel and lubricating oil.
No wonder the Federal Government’s well-documented import substitution policy direction has Dangote Refinery front and centre of it.
It is expected that the coming of Dangote Refinery should ease pressure on the Naira by freeing up some $8.7 billion used to import refined petroleum products each year, as well as create jobs in services and manufacturing around the project.
The real estate boom around the refinery points to the optimism about the project. It is meant to be a catalyst for local development plans in the Ibeju-Lekki area such as a new international airport, a deep sea port and a free trade zone.
Despite the positive sentiment towards the refinery, however, few people have tried to calculate the measurable impact of the refinery on Nigeria’s economy, and the Ibeju-Lekki area in particular.
How far will the refinery cut Nigeria’s fuel import bill, and boost exports? Beyond the cash, what will be the effects of siting the new nexus of Nigeria’s downstream petroleum industry in a fast-growing and densely populated area of the country’s commercial capital?
Who Believes the Refinery Story?
The National Assembly believes that the refinery will strengthen the Nigerian currency, and prevent economic doom when it finally comes on stream.
The Chairman, Senate Committee on Petroleum Industry Bill, Senator Sabo Nakudu, said this last February during an inspection visit by the legislature to the site of the Dangote Refinery, Petrochemicals Complex, Fertiliser Plant and subsea gas pipeline projects at Ibeju, Lekki area of Lagos.
“With the new PIB (Petroleum Industry Bill) coming up, we intend to visit all the other refineries, not only Dangote Refinery.
“We were in Kaduna yesterday (Monday, February 22). We are going to Port Harcourt and Warri so that we know what the industry entails and what needs to be done to be captured in the bill so that there will be ease of operations,” Nakudu said.
Commenting on the refinery, he said, “I’m totally overwhelmed. And looking at this investment here, it is unbelievable that a single individual can confront this kind of project at this time of our economic life.”
Nakudu said apart from the jobs being created by the projects, “I’m sure that by the time this refinery comes on stream, even the local currency is going to be strengthened because we spend millions of dollars importing finished petroleum products.”
He said the National Assembly would give the project the necessary support.
“If you don’t help this industry, this refinery to come on stream, then, it means the Nigerian economy is going to be doomed,” he added.
Femi Otedola, who described the massive project as the 8th Wonder of the World, expressed optimism that the refinery would be ready soon.
“For the benefit of those who haven’t been keeping up, the fertiliser plant is the second largest in the world and it is expected to become a major boost for the Nigerian agriculture sector. Perhaps the facility will be commissioned just in time for the farming season in Nigeria which starts off in April.
“The project is now 75 per cent completed. In the same vein, the petrochemical unit is also 60 per cent completed. Recall that the facility was initially projected to be ready by 2020. However, the completion date was shifted to H1 2021,” he said.
But the main allure for the Central Bank of Nigeria (CBN) Governor, Godwin Emefiele, is how the facility will help to conserve foreign exchange, and strengthen the local economy.
Emefiele, who spoke during an inspection tour of the sites, revealed that arrangement was being made to enable the refinery sell refined crude to Nigeria in naira when it commences production.
He added that the first shipment of Urea from the Dangote Fertiliser Plant would begin in March to help boost agriculture in the country.
The CBN governor noted that the $15 billion projects being constructed by the Dangote Group would save Nigeria from expending about 41 per cent of its foreign exchange on importation of petroleum products.
”Based on agreement and discussions with the Nigerian National Petroleum Corporation and the oil companies, the Dangote Refinery can buy its crude in naira, refine it, and produce it for Nigerians’ use in naira. That is the element where foreign exchange is saved for the country becomes very clear.
“We are also very optimistic that by refining this product here in Nigeria, all those costs associated with either demurrage from import, costs associated with freight will be totally eliminated. This will make the price of our petroleum products cheaper in naira.
“If we are lucky that what the refinery produces is more than we need locally you will see Nigerian businessmen buying small vessels to take them to our West African neighbours to sell to them in naira.
“This will increase our volume in naira and help to push it into the Economic Community of West African States as a currency,” Emefiele said.
Emefiele expressed optimism that the refinery would be completed by the first quarter of 2022, adding that this would put an end to the issue of petrol subsidy in the country.
“I am saying that by this time next year, our cost of import of petroleum products for petrochemicals or fertiliser will be able to save that which will save Nigeria’s reserve. It will help us so that we can begin to focus on more important items that we cannot produce in Nigeria today,” Emefiele said.
The CBN had given a N100 billion intervention to the projects, adding that the apex bank was ready to support Nigerian businesses set up to uplift the country economically.
Conclusion
The most important question for Africa’s richest man, no doubt, is how the refinery would make profit for him. It may be that the refinery could end up being subsidised by the Federal Government. Government subsidising his businesses has been an accusation that has trailed his rise to business supremacy.
For example, if the refinery is guaranteed 650,000bpd at a fixed and favourable (naira) price, there is nothing stopping it from satisfying the local consumption quota, then selling the extra circa 179,000bpd worth of product to buyers anywhere in the world – at higher international prices.
In other words, Nigeria could end up exchanging a corrupt and opaque fuel subsidy programme that purports to assist ordinary Nigerians with a hidden corporate subsidy that assists a multibillion dollar business entity. And that is just one half of the bigger picture.
Dangote may have already summed up the situation. According to him, the fertiliser and petrochemicals plants are capable of generating $2.5 billion annually, while the refinery would serve Nigeria and other countries across the world.
Perhaps Otedola was not wrong in describing the project as the 8th Wonder of the World. The sheer size of the refinery, which sits on some 6, 180 acres (2,500 hectares) of land, is worthy of admiration. Now, when one thinks about how this could transform the Nigerian economy, it begins to dawn on one that it is really the 8th Wonder of the World.