At last, a wholly private sector-owned petroleum refinery will come on stream within the next two years. The recent signing of multi-billion naira petroleum refinery and petrochemical/fertilizer plants by Dangote Group has received widespread critical public support. The investment package, worth $9billion, comprises a 400,000 barrel per day oil refining capacity and a fertiliser plant. The project is being financed by a consortium of 12 local and foreign banks.
Of major public interest in the project is that the refinery is coming against the backdrop of several failed efforts by the government to encourage private sector participation in the establishment and management of private petroleum refineries.
For example, in 2002, the government issued 12 operational licences to firms to build private refineries. Since then, not one of them was able to convert or utilise these licenses until they were revoked five years later.
Many reasons were advanced for the failure. They ranged from poor pricing of petroleum products, lack of interest by banks in providing loans, and increased restiveness in the oil-rich Niger Delta region, among others.
Besides the challenges that stalled the take-off of these licensed refineries and other three Greenfield ones proposed by the government, the state of the four refineries in Port Harcourt, Warri and Kaduna, owned by the Nigerian National Petroleum Corporation (NNPC), have not elicited any hope to would-be investors in the sector.
Austin Oniwon, former NNPC Group Managing Director, said running a private refinery was not feasible.
Oniwon, who spoke with journalists after he delivered a paper as guest speaker at the pre-convocation ceremony of the Ahmadu Bello University (Abu), Zaria, said the cost of running a private refinery is so enormous for a businessman to undertake and survive alone.
He urged those calling for the establishment of private refineries before the removal of oil subsidy to do a rethink, saying it was only the government that could withstand the financial rigour of such huge project.
He said: “Where you control prices of petroleum products to a point that is below the cost of manufacturing, only the government can really invest in such sector because it alone can bear the loss.
He said: “Anybody you tell to go and pay for crude oil at international price and earn below the international price for the product he is going to bring will not do it.
“That is why private refinery licences are stalled. But once we have the courage to deregulate the sector, you will be surprised. The upstream was deregulated. In fact, nobody ever regulated the upstream and you can see how many people are there. The telecoms was deregulated, you see how many people are playing there.”
Oniwon’s arguments for the deregulation of the downstream petroleum sector may have spurred Dangote into this gigantic project.
However, Mr. Isaac Aberare, General Secretary, Nigeria Union of Petroleum and Natural Gas Workers (Nupeng), lauded the project by saying that the establishment of a refinery by Alhaji Aliko Dangote would reduce the importation of petroleum products for the country.
“The union is happy with this development coming from the private sector; it will stop the massive importation of products from abroad by 2016 when the refinery is established.
“Nupeng is encouraged by the initiative as it will create jobs for many unemployed youths in the country,” Aberare said.
He said that the refinery and petrochemical plant would add value to the oil and gas industry in the country.
The union scribe said that it would also create indirect employment to thousands of people in line with the transformation agenda of President Goodluck Jonathan.
According to him, the establishment of the refinery is good because the oil and gas industry is experiencing a decline. “It will save the country the use of foreign exchange to procure imported fuel and materials. The Dangote refinery will also become a major foreign exchange earner in the export of refined petroleum,” he said.
Mr. Taiwo Kuteyi, an oil expert, explained that one of two factors must be in place to make the $9 billion Dangote planned refinery to be viable: it is either that the government deregulates the sector before the refinery begins operation or that it would put stringent measures in place to regulate importation of petroleum products.
He said access to foreign exchange is paramount in addition to the government giving the company waivers in crude supply.
Kuteyi said: “Businessmen are not Father Christmas. They invest to make profits. Maybe Dangote has done all the arithmetic and has been assured by the government that prices will be deregulated before the refinery begins operation. So, he is sure that he will recover all his costs and make reasonable profit.
“The second factor is that the government might have assured him that he will be given concession for crude supply at prices lower than what obtains at the international market. You know that the government doesn’t give waivers, but in Dangote’s case, it is different. Even if the government deregulates the petroleum marketing sector, it (government) will make it impossible for people to bring products to feed the refinery. Government may direct the Central Bank of Nigeria (CBN) not to give forex to importers just to ensure that the investment is protected.
“In the absence of these factors, I don’t see the viability of the project because there is no way he can sell gasoline (petrol) at N97 per litre and the business surviving.”
Mr. Abiye Membere, NNPC group executive director, Exploration and Production, assured that the corporation will give uninterrupted supply of crude to the refinery, barring any acts of vandalism of pipelines that convey the crude there.
He said that there would be steady supply of crude applies to any investor that builds a refinery in the country, but noted that it may not be possible to sell crude to the refinery at a reduced price.
He stated that even the NNPC buys its crude at international price, insisting that the government would sell crude to the refinery at international price.
However, President Goodluck Jonathan has assured that the Dangote Group will not find the government wanting in this endeavour.
Jonathan, who spoke while receiving Alhaji Aliko Dangote, president of the Dangote Group, who led other investors and bankers to the Presidential Villa, Abuja, moments after the $3.3 loan agreement was signed, said his administration was committed to removing major impediments to investment in the country, such as inadequate infrastructure and unsteady power supply.
“We are pleased that you are now investing in refining, petro-chemicals and fertiliser production. It is the downstream sector of oil and gas that can really create many jobs. Your interest and investment in that area will help in the area of job creation which we have been emphasising. You are also helping us to move away from being a mere producer of raw materials by adding value to our natural resources.” he told Dangote and members of his delegation.
Dangote has acknowledged government’s support in the phenomenal growth of his Group. He said government’s policies have helped “us greatly.”
“Without them, we will not be where we are today. We have taken the challenge and we will replicate the successes recorded in the cement industry through the backward integration in petroleum refining,” adding that the refining, petro-chemicals and fertiliser complex will make Nigeria a net exporter of petroleum products.
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