Nigeria News

Nigeria: A Case for Niger Delta Indigenous Oil Refineries

refIN elementary economics class,we were taught that the preponderance of natural resources in certain locations is one of the major considerations for locating extractive industries in the area.

This justified the presence of a huge array of textile mills in Kaduna,a stone throw from Funtua in Northern Nigeria where cotton farming was endemic .

It also underscores the existence of Onyeama Coal Mines in Enugu ,where huge deposits of coal are buried under the earth crust, just as it is the reason for siting cocoa producing factories in Lagos-lbadan axis where it is the commonest cash crop in that region.

In those good old days, the textile mills and the coal mines were veritable providers of jobs for Northerners and Easterners who loath to venture far afield to Lagos where factories were more abundant with corresponding ample job opportunities.

Interestingly, the situation at that time was such that both big and small textile ,cocoa and coal mines thrived successfully without any threat to one another. Correspondingly, in the Niger Delta where oil/gas deposits were discovered in 1959,refineries and petrochemical industries are located in Port Harcourt in Rivers State and Warri in Delta State.

But contrary to the situation in the North, South East and South West where cotton,coal and cocoa were strictly private business, oil exploration is conducted under stringent control of government via the enactment of the Petroleum Act in 1969.

So, apart from the huge state-owned oil/gas firms run by the behemoth, Nigerian National Petroleum Corporation, NNPC, no smaller firms were allowed to operate in the exploration and refining of crude oil in Nigeria at the initial stages.

The monopoly subsisted until distributorship permits were granted local operators when the refineries came on stream and oil/gas exploration licenses were, several years after, granted indigenous firms like Dubri Oil, Muni Pulo,Consolidated oil ,Midwest oil, SEPTA and a host of others which are now profitably mining marginal fields hitherto neglected by multi-national firms.

Disappointingly,the last time Nigeria built a refinery was in 1989′ which is 24 years ago in Kaduna, while the first refinery was built in 1965 in Port Harcourt.

Now Petroleum Resources Minister, Diezani Alison-Madueke has just informed the National Assembly that tax payers funds in excess of N251 billion (or $1.9 billion) has been earmarked for turn around maintenance of the three ageing refineries which is more or less trying to revive the dead.

It has been argued by some that 18 licenses were issued for refineries establishment in 2002 and none has taken off till date but my counter-argument is that the licenses were issued to firms with business plans for replication of the four already existing monstrosities in terms of capital outlay and refining capacity which is mission impossible in a country where access to capital is highly limited,more so as the market is yet to be completely deregulated for market-driven prices.

Another difference is that what is being advocated in this article is not licenses for start up or green business but licensing for grey businesses which in other words are going-concerns.

Also worthy of note is the fact that the so- called “crude” refineries are still sprouting like mushrooms despite constant attacks from JTF and this suggests that they are serving a niche market -a relevant fact which can’t be ignored.

Obviously, the impropriety of consigning critical oil/gas assets to government and foreigners alone at the expense of indigenous investors is reflected in the dilapidated state of our refineries, leading to reliance on imported fuel which the recent petrol subsidy scam, resulting in excess of N2 trillion loss this year alone, is a by-product.

Thankfully, the Alison-Madueke-led Petroleum Ministry, in 2010, introduced the local content policy which simply stipulates that contracts in the oil/gas business must be awarded wholly or in partnership with willing Nigerian investors with capacity to deliver.

The visible gains from the partial liberalisation of the sector are technology transfer benefits,more indigenous oil/gas firms in the upstream sector now doting the landscape and more of the proceeds from that sector being retained in Nigerian banks as opposed to financial institutions in London,Paris and New York.

Put succinctly, the policy shifts that brought indigenous investors into oil/gas industry, first as explorers and currently as major contractors have been salutary and therefore should be extended into other areas such as refining that still remains exclusive to the Federal Government and her foreign partners.

Sadly, as lofty as the idea of getting indigenes involved in small scale petroleum refining appears,it is not captured in the draft Petroleum Industry Bill,PIB, which is currently receiving legislative attention.

Rather than encourage indigenous small scale investors, international oil companies,IOCs, like Shell,Chevron,Exxon-Mobil and Total Fina Elf as well as AGIP maybe compelled to establish refineries as pre-condition for retaining their oil blocks and if the current body language of the IOCs is anything to go by, building a refinery in Nigeria is not their priority.Since the big players are not keen for the reason that refining is not as lucrative as extracting crude oil from the earth crust and with a joint venture agreement that favours them to boot,who will fill the gap?

The indigenous operators whose local oil refineries have been operating under the radar have been filling the gap but are presently being destroyed daily in the Niger Delta by the Joint Military Task Force,JTF, at such an alarming rate that could further accelerate the impoverishment of the embattled people of the region which the Federal Government amnesty programme was meant to ameliorate.

Ostensibly,the reason for destroying the refineries is that they are illegal and are allegedly responsible for the increasing rate of crude oil theft.

While such allegations may be partially true, it does not appear to me that those small scale refineries have the capacity to refine the volume of theft that the Minister of Finance and Coordinating Minister of the Economy,Ngozi Okonjo – Iweala was referring to when she raised alarm that crude oil theft could negatively impact our country’s economic fundamentals this year.

Clearly, our crude oil theft has international dimension to it and effective maritime security, including the establishment of coastal guards serving the dual purpose of creating employment for Nigerians and blocking further theft are worthy of consideration.

As for the alleged theft by small scale refinery operators, licensing and allocating crude oil to them could stem the tide of theft as people rarely steal what they have legitimate access to.

Not allowing small oil refineries in Nigeria might have a been a policy borne out of the overbearing influence of the IOCs much the same way they persuaded government to cap marginal oil/gas fields which are now being profitably explored by indigenous investors after a long period of being fallow.

Having recorded appreciable measure of success in the exploration and contracting aspects, refining oil locally by Nigerians may be an innovative way of creating employment and boosting the economy of the Niger Delta.

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