A Review of the Nigerian Energy Industry

Why licensed refineries have not been built – Peterside

30 October 2014, Abuja – Several factors have been identified as the cause of the failure of private investors to build 18 refineries in the country, 12 years after the Federal Government granted them licences.

The government had in June 2002 issued licences to 18 private refineries, including Akwa Ibom Refinery and Petrochemicals, Tonwei Refinery, Badagry Petroleum Refinery, Clean Water Refinery, IIaje Refinery and Petrochemicals, Niger Delta Refinery and Petrochemicals, NSP Refinery and Oil Services, Ode Ade Refinery, and Orient Petroleum Resources Ltd.


Others are Owena Oil and Gas, Rivgas Petroleum and Energy, Sapele Petroleum, Southland Associates, Southwest Refineries and Petrochemicals Company, Starex Petroleum Refinery Ltd, The Chasewood Consortium, Total Support Refineries and Union Atlantic Petroleum.

The companies were expected to commence construction within two years, and refining in four years from commencement of construction, but none of them has come on stream.

The Chairman, Committee on Petroleum (Downstream), House of Representatives, Mr. Dakuku Peterside, who spoke on the sidelines of the Oil, Trading and Logistics (African Downstream) Expo in Lagos on Tuesday, highlighted some of the factors that had thwarted the construction of the refineries.

“One of the factors is the regulatory environment where you are forced to sell at a particular price. The other one is even the funding environment, it is stifled. In terms of security, you know the challenges we are having every day. Pipelines are being destroyed and so even when you bring in a vessel, piracy is still on. So many things are going on in terms of security. We are not getting it right yet.

“Aside from that, the government set out to build what they called Greenfield refineries in Lagos, Kogi and Bayelsa. Why is it that these refineries are not on and running? The model is such that government needed to own maximum of 40 per cent and private investors 60 per cent because those who designed it realised that government is not good in business. And so we need the private sector input, not only to drive efficiency and effectiveness, but also to ensure that it is efficiently run and guarantee return on investment.

According to Peterside, private investors have refused to come to partner with the government as they were insisting that certain regulatory issues must be addressed before they can invest.

There are a lot of building blocks that we need to put in place to ensure that we get the environment right, he said.

“Not very many persons will want to invest in the real downstream assets in this kind of environment. The environment is heavily regulated. It is not like deregulation will solve all our problems, but it is very critical. The regulatory environment will stifle any investment and so I don’t see anybody investing to build refineries until we address those fundamental issues,” he further said.

Dangote Industries Limited is building a $9bn refinery/petrochemical/fertiliser complex in Lagos. The refinery, which is expected to be completed by 2016, will initially have a capacity of 400,000 bpd, doubling the country’s refining capacity.

The chairman, African Capital Alliance, Robert Kramer, recently stressed the need to privatise the downstream petroleum sector, which he described as the biggest drain on the Nigerian economy.

“The fact that the sector is deregulated does not mean refineries will emerge immediately. The reality is the fact that we will continue to import,” said Peterside.

“Are we happy that we are importing almost all our petroleum products, the answer is outright no. That is not where we desire to be. That is not where we want to be. We are concerned as other Nigerians. But the reality is that most of our refineries are in a dilapidated state. And in the short-term, we must import.”

Noting that refineries could not be built overnight, he said the most important step to be taken is to provide the right business and regulatory environment for investments to flow in-country.

“Are we providing that environment? We are making effort, but we have not provided the environment yet. In terms of power, you know we are not getting power right. In terms of regulation, we are still grappling with the Petroleum Industry Bill. In terms of funding, most Nigerian banks do not like to invest in long-term projects.”

“I believe that the issue of the regulatory environment needs to be addressed urgently. I believe that we cannot continue to fund other nations to create employment for their people. For as long as we continue to import, we are funding other nations,” he added.

Nigeria, Africa’s largest crude oil producer, is arguably the biggest importer of refined petroleum products on the continent, creating a lucrative market for refineries particularly in Europe and the United States.

The country, which is home to over 170 million people, imports more than 80 per cent of its refined petroleum products for the servicing of its economy.

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