Is it possible to build two refineries within 12 months and four others after a while? The prospects are not reassuring
Last week, it was lavishly reported in the media that the federal government has signed a Memorandum of Understanding (MoU) with an American energy firm to build six oil refineries, in a project worth $4.5 billion. The deal between US-based Vulcan Energy and the Nigerian government aims to build six refineries with a combined capacity of 180,000 barrels per day, Trade and Investment Minister, Mr. Olusegun Aganga, said in a statement.
If Aganga is to be believed, two of the refineries are to be completed within the next 12 months, at least going by the terms of the MoU. “This is the beginning of changing our old paradigm from exporting just raw materials and exporting jobs to the Western countries,” Aganga said. According to Vulcan’s vice president, Jim Mansfield, the MoU highlighted Nigeria’s attractiveness as an investment destination.
“The funding for the project will be a non-Nigeria source and is from investors who firmly believe that Nigeria is a good place to do business,” he was quoted as saying.Ordinarily this should be a welcome development, given that the lack of capacity for refining crude in the country has been a serious issue which is at the heart of the corruption in the petroleum sector.
But before Nigerians begin to get carried away by the news, it is important to clear the air on some salient issues. The building of refinery is within the purview of the Ministry of Petroleum and the Nigeria National Petroleum Corporation (NNPC) whose officials, we understand, are not aware of this development. It is even more curious that two refineries with a combined capacity of 60,000 would be ready by July next year on the strength of an MoU just signed! We are particularly worried because the development shows the lack of rigour in government and an absence of coherent policy framework for addressing serious sectoral challenges. We recall that sometime in 2003, the federal government approved 23 licences for the construction of new refineries 20 of which were given to local investors.
The government also entered into partnership with the Chinese to build additional refineries in Lagos, Kogi and Bayelsa States. Notwithstanding all the concessions demanded by these licencees and the guarantees given by the government, not a single one of them has commenced work on the refineries.
Against the background that an MoU to source funds for the construction of three Greenfield refineries and a petrochemical plant was similarly signed with China State Construction Engineering Corporation Limited in May last year with nothing to justify the optimism then expressed, why should Nigerians believe this is not another pie in the sky? It is particularly noteworthy that just three weeks ago, Mr Malcolm Brinded, the outgoing Executive
Director of Shell Petroleum Development Company (SPDC), said his company cannot build a refinery in Nigeria because there are surplus refineries across the world. He made the statement after a farewell visit to President Goodluck Jonathan.
Except we are talking about the roadside refineries that now dot the landscape of the Niger Delta, an MoU to construct refineries about which the Petroleum Ministry knows nothing is already a first sign that something is fundamentally wrong.
We are therefore constrained to ask the following questions: With whom did Aganga hold discussion prior to signing the said MoU? What is the profile of the investors coming to build these “fast-food” refineries?
We seek the foregoing clarifications because one of the challenges that have militated against private investment into building of refineries is the fact that the price of PMS is not cost-reflective without subsidy payments. So to that extent, the logic of this MoU remains incomprehensible to us.