Between Private Refineries and Access to Crude Oil Feedstock


Ifeanyi Izeze

The problem with this country is that when we know the truth, we pretend by giving it another name to deceive not only other people but even ourselves. In this deceit, government and government people are the worst culprits.

Every Nigerian including people in Government truly believe that involving private sector participants in the petroleum refining aspect of the critical energy sector will greatly resolve the current problems of availability and supply of fuels for domestic consumption.  This informed the issuance of private licenses by the Obasanjo administration to about 18 companies to refine crude oil in the country.

However, five years after the first set of licenses were issued none of the prospective private investors could boldly say he has successfully recorded any tangible progress.

Recent directive issued to the licensees by the Department of Petroleum Resources (DPR) of the Energy Ministry (Petroleum) clearly show that all may not be well with the nationís dream of building and operating privately-owned refineries as an intervention to the persistent fuel crisis that has characterised the economy.

Frankly, the efforts of the DPR to actualize the nationís dream of privately-owned refineries have been genuine towards encouraging the now obviously frustrated private interests in the refining sub-sector.

However, these efforts are yet to yield any result and may not truly yield any within the next five years, that is if both the licensees and government start being serious about the initiative as from today. So for the next five years, supposing we start today, Nigeria will depend on fuel importation particularly petrol to bridge the current over 70 percent shortfall in domestic need.

Our refineries, according to NNPC, if on full capacity utilization would produce 15 million litres of petrol per day (that is on full capacity). The nationís daily consumption rate is 30 million litres. So the nation must continue to import at least 70 percent of its petrol needs (matching the NNPCís theoretical performance with the current reality at the refineries). This may continue until new refineries are built not sooner than 48-60 months from commencement of the procedures including design, final investment decision and front end engineering.

Truth be told, the hostile operating environment has remained the major, if not the only obstacle faced by licensees in the nationís quest to establish privately-owned and operated refineries. No investor is ready to put money in dangerously volatile environments as we have today in the Niger Delta and some other related regions of the country. Also, no financial institution anywhere in the world even in Nigeria would want to sink its funds into ventures in such areas.

When the immediate past President Gen Olusegun Obasanjo was busy ceding away licenses for private refineries to both himself and his cronies with funny Asian partners, it never occurred to him and his gang that the most critical consideration to such sensitive projects will be the access security of the crude oil feedstock supplies to the sites.

Where else can anybody build a refinery outside the Niger Delta that would be feasible and make economic sense? It would be very difficult, or unreasonably expensive to site such facilities in areas that are very far from where the crude oil feedstock is expected to come. And if you do, what is the guarantee that such facilities would have access to the source of the crude oil feedstock?

With the widespread awareness even within communities hosting pipeline right of ways, the former or maybe the ongoing carefree attitude of the authourities to the plight of the people had given rise to very serious problems of relationship between oil companies including the NNPC and the owners of lands where these facilities were built.

Basically, this has been the problem of Kaduna Refinery even with all the noise about importation of Venezuelan heavy crude grade. The pipeline communities of the Kaduna refinery which cuts across different cultures and geopolitical interests have been resisting and/or sabotaging the right of way in their respective places. So the issue still comes down to the over-sung campaign for sincere engagement and dialogue with all strata (old and young) of oil producing and now, the pipeline communities.

More importantly, how many foreign engineers/technicians would be ready to go into the Niger Delta area as it is today with all its kidnap and killings, to carry out construction work which may span up to 36 months or more? And how many of the refinery construction firms would be ready to use an all-Nigerian workforce for their projects? And even if the firms agree to employ an all-Nigerian workforce, what makes anybody think that the militants wonít change their definition of expatriates from the present whites-only concept? These are real issues and the Federal Government need to address the root causes of the Niger Delta agitation which is gradually expanding into a nationwide question because of the pipeline routes.

This scenario means that the plan to have private refineries in the country to complement the 445,000 barrels per day (bpd) Ďname plateí refining capacity of the NNPC would remain a mirage in actual sense unless the federal government go beyond the current lip service to the crux of the resource control agitation of the Niger Delta people- sincerity of purpose.

The federal government would be surprised to know that everybody- old and young, men and women, in the Niger Delta is a militant dormant or active. If they are not directly involved in arms struggle, they provide sympathy and support services to the active youths.

A direct engagement of all strata of the society may just be the elixir Nigeria needs for peace to harness its oil and gas resources. Individuals, states and local governments, of these areas should be involved as shareholders in the proposed refinery projects as they know their people better. The federal government can empower some serious-minded people from these areas to enable them participate.