• FG considering giving oil fields to modular refinery owners
• NMDPRA hoards data as transparency, accountability concerns worsen
• Stakeholders accuse refinery licence holders of failing capacity test
• Lack of deregulation, hostile environment may cripple refinery operations in Nigeria
Nigeria’s continued dependence on importation of petroleum products remains a concern despite awarding over 57 refinery licences in the last 18 years and an additional five recently. To many, the country appears to be comfortable with the practice despite the effect it has on the economy.
This comes as the Minister of State for Petroleum Resources (oil), Heineken Lokpobiri, told The Guardian that the Federal Government is considering issuing oil field licenses to refinery owners to tackle the challenge of crude oil feedstocks to refineries.
About 18 years ago, private investors had rushed to apply for refinery licenses under former President Olusegun, former President Muhammed Buhari during his tenure offered other licenses as well as the others that the new government has offered.
These licenses should be in the region of 62 pushing the country’s refining capacity on paper to over 2.3 million barrels per day. This is about one million barrels higher than the country’s total crude oil daily production and an indication that the upcoming refineries are designed to fail or have the deep pockets to import crude oil into the country if the nation cannot increase crude oil production.
Going by the licences, the current refining capacity includes Dangote Refinery with 650,000 bpd capacity, BUA Refinery with 200,000 bpd capacity, NNPCL has a combined capacity of 445,000. OPAC refinery, the Walter Smith refinery, the Aradel refinery and the Edo refinery, which are already in operation, have a combined capacity of 27,000 barrels per day.
This brings the refineries that are either in operation or close to starting production to about 1.322 million barrels per day. The other refinery licences, mainly modular refineries with unknown status have close to one million barrels per day capacity.
Although the global petroleum products market appears to be shifting to Africa, especially Nigeria, as refineries begin to shut down in Europe, stakeholders told The Guardian that many of the people who currently own licences do not have the intention to refine crude oil.
The Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPCL), Mele Kyari, had stated that the Port Harcourt refinery will start working in December 2023.
Ahead of the planned resumption of production at the Port Harcourt Refinery Company in December 2023, the federal government says it will continue to hold NNPC Ltd responsible for the timeline announced to Nigerians.
Lokpobiri told The Guardian that the government is now looking at revocation in a situation where people have no financial and technical capacity to justify the conditions for the licences in their possession.
There are three levels of approval for setting up private greenfield or modular refineries in the country. They are Approval to Establish (LTE); Approval to Construct (ATC) and Licence to Operate (LTO). Licenses also have terms and conditions and a period for renewal or revocation, the NMDPRA has been silent on the issue.
Lokpobiri said the Nigerian market is vast and with the onboarding of the PIA, there is need for the government to encourage independent refineries operating modular and monolithic refineries by giving them marginal fields, contiguous to their location to guarantee access to feedstock.
“Having liberalised the licensing process for interested investors, everything is now guided by the extant laws and as such, we also liberalised the process of revocation for investors who do not meet the conditions of the licence.
“While encouraging the investors to build partnerships with NCDMB and BOI for credit facilities, we expect that they show capacity to build the refinery within the timeframe stipulated in the licence because the Government remains committed to the policy on improving local refinery to serve Nigeria,” he said.
The last time Nigeria published a status report on the refinery was in 2021 by the defunct Department of Petroleum Resources (DPR). Under the Petroleum Industry Act (PIA), the Nigerian Midstream Downstream Petroleum Regulatory Authority (NMDPRA) is expected to periodically publish such reports but reverse has been the case.
For over five months, The Guardian repeatedly requested for the information from the agency but the agency had declined the request.
During the period, sources at the agency confirmed that the government had embargoed the release of such public records to the public. They also noted that the agency is rather selling such details in a direct manner that rubbishes Nigeria’s supposed commitment to transparency and accountability in the corruption-ridden extractive sector.
As of 2021, a defunct DPR report showed that 40 refinery licences are dormant in the country. The total number of licenses as at May 2021 is 68 and 40 of them were inactive.
Some of the refineries with active Licence to Establish are BUA Refinery & Petrochemicals, Ogini Refinery Limited, Excel Exploration & Production, Lowrie Refinery Limited, NPDC/ND WESTERN OML 34 JV, Eghudu Refinery and Kingdom Global Trading Petroleum & Gas Nig.
Some of the refineries with active Approval to Construct/Relocate include Dangote Oil Refinery Company, OPAC Refineries, Waltersmith Refining & Petrochemical Company, Niger Delta Petroleum Resources, Edo Petrochemical Refinery, Etopo Energy Plc, Resource Petroleum & Petrochemicals International Incorporated, Duport Midstream and Conodit Refinery Nigeria.
Others are Lowrie Refinery, Excel Refinery, Gasoline Associates International, Frao Oil Nigeria, Alexis Refinery, Allegiance Energy and Power, Atlantic International Refineries and Petrochemical, Amakpe International Refinery Inc, Gazingstock Petroleum Company, Azikel Petroleum, and Clairgold Oil & Gas Engineering.
President of Crude Oil Refinery Owners Association (CORAN), Momoh Oyarekhua, had earlier said as of today, Nigeria has about four modular refineries that are in operation: OPAC refinery, the WalterSmith refinery, the Aradel refinery and the Edo refinery,” adding that the four have a combined capacity of 27,000 barrels per day.
Group Chairman and Chief Executive International Energy Services Limited, Dr. Diran Fawibe noted that the Obasanjo administration had offered licences for refineries as solutions to the shortage of petroleum in the country or to increase refining of oil in the country.
He regretted that none of the licences issued by Obasanjo translated to actual refineries due lack of conducive environment and particularly the regulated prices of petroleum products.
Diran said the regulated price of petroleum in the country makes the economics of refining unviable for many investors.
“And the consideration was that if you want to spend millions of dollars to establish refineries, then you should have freedom to reflect the cost of production, that’s capital equipment and cost of production, including crude oil in the price of fuel that you are going to turn out in the refinery; and since the petroleum products price was fixed, it was not considered viable for most investors,” Fawibe said.
Admitting that he was a consultant to one of the refineries that was established in Lagos to refine 100,000 barrels per day and that he had followed the association of local refineries to meet the then President Obasanjo, Fawibe said most refineries canvassed discount in the price of crude oil.
“But President Obasanjo said he could not guarantee that because the crude oil belonged to the federation and on no account will he operate a charity and that investors operate refineries and are producing; therefore, they could export to be able to have enough revenue to cover their cost of refining and maybe fund their investment.
“But the rest is history whereby none of the investors were able to establish and as you know many of the licensees were Nigerians who do not have the cash. They’ll have to rely on foreign investors who will partner with them but not many foreign investors or financial institutions are ready to put money in that kind of investment Where the price of the product is regulated,” Fawibe noted.
He noted that revoking licenses is not the solution to the problem, stressing that the government could invite those holding the licenses to sit down and find out from them why precisely they were unable to come into operation with their refineries.
Fawibe noted that a number of the owners must have been working on their refineries, adding that before licenses were awarded, the investors must have met certain conditions in terms of business plan, viability studies, environmental impact assessment and made certain documentation available to the government.
“One of the basic problems of this country is that we don’t do policy impact assessment to really know why policies were not successful so that we can be able to amend the policies to achieve the objectives that it was set out to achieve,” Fawibe said.
He noted that the idea of modular refinery may not also help the country in the real sense apart from being a political arrangement against oil theft.
Fawibe stated that the environment in the country is a very challenging and competitive environment, stressing that the refineries need a conducive environment.
While the Federal Government has been unable to take specific steps on the deregulation of the downstream segment of the petroleum industry, most of the operating refineries in the country only focus on diesel and aviation fuel, whereas over 95 per cent of the petroleum product demand is premium motor spirit.
The President of the Nigerian Economic Society (NES), who is an energy scholar at the University of Ibadan, Prof. Adeola Adenikinju said most of the refineries’ licenses were not operational because of the regime of controlled prices.
“Nobody goes into a business when you cannot determine your prices in relation to the costs of production,” he said.
Noting that revocation of the licenses wouldn’t solve the challenges, Adenikinju said there’s a need to implement the PIA and allow the market to function the way it is supposed to.
Renowned energy economist, Prof. Wunmi Iledare stated that people with political connections obtained licences to operate refineries in an attempt to qualify for crude allocation.
“I stand corrected that most of the holders of these licenses had no intention to build anything but to just get crude to sell. It makes sense to them because NNPC then gets 445,000 per day for its moribund refineries.
“Since licences are not perpetual and usually have a term with milestones attached to it to remain valid, like having an exploration license, prospective or mining licence in the upstream, revocation may remain an option if the licences are not performing.
“Hopefully political expediency, which literally seems to be driving everything in Nigeria against the traffic of progress since the last decade, will not scuttle these ministerial noble ideas on these issues,” Iledare said.
Former President of the Chartered Institute of Bankers of Nigeria (CIBN) and professor of Economics at Babcock University, Prof. Segun Ajibola said the licences are expected to carry some basic conditions, one of which should be circumstances under which the licence could be revoked.
“I expect failure to operate the business as one of the conditions. So, if a licence has been issued to operate a refinery for 15 years without any evidence of such, revocation should be seamless,” Ajibola said.