Complex refineries as Nigeria’s economic fulcrum

By Sonny Atumah

A fortnight ago the NTA in its breakfast programme: Good Morning Nigeria featured some of us to discuss modular refineries as expounded by the Federal Government. Most discussants on the conference programme were of the view that modular refineries would promote community participation in the petroleum industry. An acquiescence of colleagues on the programme was that the government plan was a goodwill gesture for the Niger Delta. Government’s plan is to bring and support those called illegal refiners from the creeks to form consortia of modular refinery operators.

But reflecting on the programme were the panelists mawkish in their feelings? One has a dim view of governments approach on the issue of modular refining because it may not have been well thought out. Petroleum refining is a very complicated and capital-intensive industry. It costs at least US$100 million to assemble an average size modular refinery and it would involve joint venture participation. From the feasibility study stage through the front end engineering design to the final investment decision and then the engineering, procurement and construction phase would the government be there to lend support to community participants?

Oil producing communities can be part of any meaningful petroleum investment the government or any private investor should embark upon. Oil communities can be made genuine stakeholders or shareholders in complex refineries, the NLNG, the Eleme Petrochemical plant as well as the international oil companies, IOC operating in communities. The incorporation of oil communities in oil operations would be the greatest security for Nigeria and it is not rocket science to attain.

On this column in October 2015, one reported that the present administration issued 23 Licences to establish modular refineries which one doubts if any took off. Two years on since the licences were issued our petroleum resources managers are planning on how to engage the licencees on the way out.

The issues are that they need government assurances on petroleum feedstock and generous government incentives to set to work. Many Nigerians that acquired marginal oil fields are mere speculators that cannot go into modular refining. Most marginal oil fields allottees through successive administrations either sold them or are planning to do so to become crowned or togged billionaires.

As an oil producing nation, Nigeria should not brandish modular refining that does not have global appeal. Let us leave modular refining to private investors that can take the risk. Many who have fund may not have the passion to invest in this type of project that has little prospect to progress to maturity. A broader engagement is necessary for an understanding of the dynamics to use petroleum to develop the nation.

Nigeria’s diversification strategy should be in the area of fuels, synthetic fertilizers and pesticides for agriculture. Other direct linkages are lubricants, medicines, plastics, synthetic fabrics, asphalt, synthetic rubber, cosmetics among others. Nigeria has comparative and competitive advantages that with complex refineries we have many by products and derivatives numbering 6000.

With these we diversify the economy along vertical linkages to create wealth, induce savings and investments, create employment, increase GDP and increase revenue. Value additions in the industry are strategic for energy, technology and skills. That is where we can accommodate the illicit refiners in the creeks.

For exigency, we should not develop the obsessive interest in just one way out of problems. Emerging and developed nations find solutions to complex problems but ours is becoming a sad one to reminisce. Just a little reflection on these: There is no gasoline and the solution is modular refinery. There is subsidy fraud and the solution is scrap subsidy. Investors have not invested in our downstream and the solution is increase the price of petroleum products to attract foreign investors.

We have a riotous exchange rate and the solution is get dollar from our reserve to shore up the Naira value. There is a failure in government running a corporation and the solution is privatizing it. There was militancy in the Niger Delta and the solution was constructing a 1000 km pipeline to import crude from Niger Republic to a dead Kaduna refinery. Tanker drivers threatened to go on strike and the solution was increasing their rates.

William Halsey said: ‘’ All problems become smaller if you don’t dodge them, but confront them. Touch a thistle timidly, and it pricks you; grasp it boldly, and its spine crumble.’’ Until we ask the questions of whom, why, what and how about our petroleum products scarcity we may be failing as a nation. These are all issues in the realm of normative economics where we make value judgments and prescribe what should be done to solve our economic problems.

Refining in complex process plants is needed to jumpstart our economy. Until we do that we may be nonstarters. At optimum capacity performance the four refineries could give us the pre-May/June 2016 products consumption which was over 35 million litres of PMS per day. It is known that about US$700 million or less can bring back these refineries to life. They can equally be upgraded or debottlenecked for higher capacity.

The Vice President, Professor Yemi Osinbajo has gone round the Niger Delta trying to calm nerves which we hailed for steeling himself. One implores him to visit the four refineries to see the potentials Nigeria has in them. With our refineries on stream there are potentials for budgeting more than US$100 billion as against the US$24 billion budgeted for 2017.

 

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