Making a Case for Modular Refinery Operators
As President Muhammadu Buhari settles down to the serious business of governance, one key area that should quickly engage his attention is the petroleum industry. The reason for this is not farfetched. As a major player in the global oil market by the virtue of our natural crude endowment, it is ironical that the country is not only an importer of petroleum products, but also, experiences acute shortage on a constant basis.
Due to the heavy dependence on the importation of petroleum products to augment local production, marketers have exploited the situation to perpetrate massive fraud as the subsidy fraud imbroglio showed. At will, they also hold the nation to ransom by withholding products from the market.
To address the ugly situation, it has been suggested over the years that local refining of the crude oil is the most sustainable option. However, the combined capacity of the four refineries in the country, which are owned by the Federal Government, is far below the daily oil requirements.
The involvement of the private investors in establishing refineries becomes imperative. The Department of Petroleum Resources (DPR) has issued a number of licences to various companies who showed interest over the last ten years. Despite this, no privately-owned refinery is operational in Nigeria as of today.
Investigations revealed a lot of factors are responsible for private investors shunning the building of refineries despite holding operating licences.
Many of the licence holders have accused DPR of shifting the goal post in the middle of the game concerning sourcing of crude, the major raw material. The initial arrangement was that there would be a sovereign guarantee of steady supply of crude by DPR to Nigeria-based refineries. A situation where no priority is accorded and operators would have to rely on off-shore crude sourcing is a major worry. Instead of selling crude to foreigners as a matter of priority, operators are demanding that national interest and investors concern should take precedence in arriving at a decision.
The current oil subsidy regime by the Federal Government also constitutes a big headache for intending refinery owners. Except for diesel, all other petroleum products are currently being sold at a highly subsidised rate. With the possibility of private refinery operators production cost being higher than the current subsidized rates, there are fears that they might run into a huge loss if they invest in the refinery business. The operators are waiting to see how the new government addresses this disincentive. Two options are open for considerations here: One, government assures operators of buying their products at the production cost so they could break even. Two, the sector is deregulated and allow market forces to determine pricing.
Another huge concern is that of infrastructural challenge. Setting up a refinery comes with its peculiar challenges. In most cases, refineries are sited in locations, that are far from city centres, where there are deficit in terms of infrastructural provision. Good access roads, constant electricity supply, hospitals, schools, among others are some of the facilities that the operators would expect the government to provide in order to support the social and economic needs of the refineries and their host communities. Leaving the investors to provide all these facilities aside the huge capital requirement of setting up the refineries would be highly discouraging.
A critical area that government could help the operators is that of financing. The current high interest rate of domestic borrowing will surely have a negative effect on product pricing. The ordinary citizens will bear the brunt of high product price. Like the government did in some critical sectors like entertainment and aviation, operators have suggested an intervention fund would help a great deal.
Government can also provide encouragement by granting generous waivers for the importation of needed materials and equipment for the projects.
For the country to jump start the country’s oil industry and guarantee the availability of petroleum products for the citizens at all times, the establishment of local refineries is crucial. Government needs to support the licensed operators through the provision of conducive environment for them to thrive, bring succour to Nigerians and contribute substantially to the country’s economy by way of job creation, among other benefits.