The monthly pilgrimage by government officials to the 650,000 barrels per day (bpd) refinery being built in Lagos by the Dangote Group suggests that Dangote might be the only hope for Nigeria to end its shameful dependence on refined petroleum products imports.
Aliko Dangote, Africa’s richest man and president of the Dangote Group has vowed that his refinery would come on stream by 2018. Dangote claims that the refinery would not only end the importation of refined petroleum products, but would make Nigeria a major exporter of the products. No one contests that claim.
Dangote has done it before. He seized control of the cement industry from laggards like Lafarge, the French cement giant which was reluctant to invest in Nigeria. Dangote has single-handedly ended the cement armada that used to clog Nigerian ports with imported cement that drained the country’s lean foreign reserves. Now that he has shifted attention to the downstream sector of the oil industry, everyone expects him to price Nigeria’s four clumsy refineries out of business and dictate the tunes in the industry.
Something of a jinx has made the industry unattractive to investors. Dangote is poised to break that jinx. The only danger is that he may end up as a sole monopoly. Sometime in 2005 the Department of Petroleum Resources (DPR), the regulator of the oil industry issued provisional licenses to 18 firms for the construction of different sizes of refineries in Nigeria. Proprietors of the firms hit the global money markets in search of funds for the projects. After 10 years of futile search, DPR revoked the licenses and returned to the drawing board to fashion out more investor-friendly requirements for the sector. The new requirements are so liberal that DPR might grudgingly introduce trusted firms with licenses to financiers with the hope of overcoming the financial asphyxiation that nullified the 18 licenses issued in 2005.
By 2013 the regulator was ready to license a new batch of firms for the same purpose. A total of 25 refinery licenses were issued to fresh applicant firms.
Out of the 25 licenses, 21 were for modular refineries which could be erected on oil fields at minimum cost. A modular refinery could refine as much as 10, 000bpd.
The proposed 21 modular refineries had a combined capacity for 781, 000bpd. If they come on stream, they would make Nigeria an exporter of refined petroleum products as their total output would be more than what the economy can consume. That was a tall dream which may be fizzling out like the one in 2005.
The average cost of a modular refinery is about $10, 000 per barrel. From that projection, a modular refinery with capacity for 10, 000bpd carries a price tag of $100 million. That amounts to N35 billion at the flexible exchange window rate of N310 to the dollar.
The DPR had issued the licenses after visiting the proposed site of each of the projects. That suggested that the proprietors could mobilize to site as soon as licenses were issued. They all paid the mandatory $30, 000 for the licensing processes.
Unfortunately the development on ground is a sharp contrast with what the architects of the licensing process had in mind. Almost two years after the licenses were issued, no firm has mobilized to site. By next June, the licenses of some of the firms would expire. They would either forfeit the provisional licenses like their predecessors or pay additional fees to keep them. Like the 18 firms that were licensed in 2005, the 25 new firms have failed to end Nigeria’s dependence on imported refined petroleum products.
All the firms are busy searching for financiers like their predecessors. The development is a tragic replay of the investor-unfriendliness of the downstream sector of Nigeria’s oil industry. Even the big players in the upstream sector are not willing to build refineries in Nigeria.
It is clear that the four refineries owned by government would never make Nigeria self-sufficient in refined petroleum products. There is need to empower private firms to establish a foothold in the sector. Since it has become obvious that the 21 firms battling to set up modular refineries lack the financial muscle to fund the projects, the federal government should set up a modular refineries’ intervention fund to reduce the funding crisis plaguing the sub-sector.
Government should also take a decisive step on the management of its four cash-guzzling refineries. If they are not sold now, they would later be sold as scraps. The billions of dollars washed down the drain through mysterious turnaround maintenance (TAM) of the refineries, should be ploughed into an intervention fund for financing the building of modular refineries and disbursed to reliable private sector firms. The funds should be duly guaranteed before disbursement. That is the only way the DPR can break the jinxed cycle of issuing dormant provisional licenses every five years. With the Dangote Refinery poised to render government’s four refineries moribund, it would be dangerous to leave such a sensitive sector to the monopoly of a private company. The modular refineries could in their own way check the excesses of a sole monopoly.
