A Review of the Nigerian Energy Industry

Will Nigeria ever be self-sufficient in fuel refining, supply?

Chuks Isiwu

28 July 2012, Sweetcrude, LAGOS – AMID the corruption allegations trailing Nigeria’s fuel import regime and the probe by the House of Representatives that opened up another chapter of corruption charge, one sore question stands out: Why Nigeria, the world’s eighth-largest oil producer, is unable to refine enough petroleum products locally for its 150 million people.

Nigeria is endowed with nearly 40 billion barrels of crude oil reserves and produces 2.5 million barrels of crude oil per day. It owns four refineries in Warri, Kaduna and Port Harcourt with a combined capacity for refining 445,000 barrels of crude oil per day. Eighteen private companies were licensed in 2002 to build and operate private refineries. Yet, the nation cannot provide for itself enough fuel, something that is taken for granted in other oil-producing countries and many non-oil producer nations as well.

The four existing refineries are not working after gulping billions of Naira while the private ones are yet to take off the ground, due to myriad reasons bothering on policy. And so, Nigerians must continue to depend on imported fuel while the rest of the oil-producing world are enjoying from the abundant hydrocarbons nature had endowed on them because they have laid out good plans for the exploitation of their God-given resource, including providing for adequate local processing of produced crude.

Iranians, for instance, could wake up every day sure of the availability of petrol, diesel and kerosene at every fuel station. Why not, when the nation has over 10 local refineries that are carefully planned to meet national consumption, with surplus for export? Added to this, the country plans to build refineries across Asia to take advantage of market opportunities across the continent. Indonesia currently owns nine refineries with a combined capacity for one million barrels per day with plans to build three additional ones that will add a total 400,000 barrels per day to the national refining capacity.

The successes and exploits of Malaysia and Venezuela in the downstream petroleum business are well known. Both own strings of refineries and fuel stations locally and across their respective regions – Asia and Central America.

These countries are all oil producing and exporting nations like Nigeria, but Iran, Indonesia and Venezuela are, specifically, also Nigeria’s fellow Organisation of Petroleum Exporting Countries, OPEC, member nations.

Curiously, Nigerian oil industry officials have long been interacting with their counterparts from these countries at varied levels and various forums, yet they appear not to have been able to learn a thing from them over the years on how to entrench in the Nigerian system a sustainable and viable downstream petroleum subsector that would banish fuel importation.

Part of the many disadvantages of continued fuel importation is that Nigeria has been wasting huge funds in subsidising inefficiency in the system in the name of paying subsidies to the nation’s powerful cartel of fuel importers. Last year, fuel subsidy payments topped N2.7 trillion.

Appearing earlier this month at the public hearing by the Joint Committee of the Senate probing the management of the fuel subsidy regime, Minister of Finance and Coordinating Minister for the Economy, Dr Ngozi Okonjo-Iweala, disclosed that subsidy payments on imported petrol has overshot N2.19 trillion from January till date, surpassing by far the N888 billion earmarked for the scheme for 2012.

Okonjo-Iweala gave the breakdown of the expenditure as N1.7 trillion arrears, which was brought forward from 2011, and the subsidy payment between January and June this year, which stood at N451 billion. It is all too clear that before the end of this year, the total expenditure on fuel subsidy payment would have grown much more.

Nigeria may have been spending heavily in the name of the subsidy scheme, but the greater issue is the corruption that has been fueling the huge expenditure itself. As revealed by the Farouk Lawan-led House of Representative Ad-Hoc Committee that probed the fuel subsidy regime, corruption stands tall in the management of the subsidy regime. This is evidence in the committee’s establishment of an overpayment of N229.7 billion to fuel marketing companies in fuel imports between 2006 and 2011.

In obvious reaffirmation of the House findings, another Committee set up by the Executive arm of goverment to probe the subsidy scheme uncovered N422 billion as over-payment of fuel subsidy to the oil marketers.

To make the corruption matter worse, the House probe Committee itself became enmeshed in a bribery allegation that has since swept Lawan out as chairman of the Ad-Hoc Committee. Oil magnate Femi Otedola, Chairman, Zenon Petroleum and Gas, accuses the former Ad-Hoc Committee chairman and secretary of the committee, Boniface Emenalo, of collecting $620,000 in bribe to clear his company of any misdeed in the Committee report while Lawan alleges the money was collected as evidence against Otedola that he tried to influence the Committee report.

As the nation remain transfixed on the interpretation of what transpired between Lawan and Otedola, and whether and how best those indicted in the House probe report should be punished, the truth remains that the solution to the entire quagmire lies in local refining of petroleum products.

This, the Goodluck Jonathan administration appears to have come to terms with, which perhaps explains the zeal with which the administration is exploring investment in that regard. Two years ago, the government had reached an agreement with Chinese investors to builds three greenfield refineries to be located in Lagos, Kogi and Bayelsa States. An agreement on the sourcing of funds for the construction of the refineries and a petrochemical plant was later endorsed with China State Construction Engineering Corporation Limited in May 2011. Excellent as the idea is, not much has been heard about this in recent times.

Few weeks back, the government reached another agreement with a partnership of a private United States and Nigerian company for the construction of six modular refineries in the country at a cost of $4.5 billion. These refineries are expected to be in place in 30 months time and each would process 30,000 barrels of crude per day, making a total of 180,000 barrels per day.

Another excellent idea, as 180,000 barrels of crude refined locally would mean the nation, at least, has a foothold to build on, in its quest to attain self-sufficiency in fuel refining and supply. But, the big question is whether this plan will materialise, afterall; or whether it will be struck down by the same ailment that has made it impossible for the 18 private refineries licensed by the government in 2002 to come into operation, ten years after.

The latest assumption is that the Petroleum Industry Bill recently forwarded to the National Assembly by President Goodluck Jonnathan will create the right mood for business men to invest in building private refineries, thus commence the culture of local refining of petroleum products and save Nigeria from the vagaries of fuel importation.
Only time will tell.

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  • Obviously, with the kind of leadership the country has at the moment, not any time soon.

  • Ony Ifeajika via Facebook

    Yes, with the right strategy. Fuel refining is not a new technology, what Nigeria need is the right blueprint suitable for Nigeria fuel refining. Fund should not be ruled out as we all can agree that good strategy without fund cannot yield any fruition.