The federal government’s drive to have more oil refineries built in Nigeria is getting positive reactions. The Nigeria National Petroleum Company, NNPC, is collaborating with Oando, African Petroleum, AP, and Mittal of India to build three refineries. Two of the refineries are to refine crude oil, while the third will refine gas. The crude oil refineries will be located in the South-West and the Niger Delta, while the gas refinery will be located in the North Central zone. The collaboration of the NNPC with the three companies, the first of its kind in the construction of refineries, is to ensure private sector participation and efficient management.
When the projects take off, there would be outsourcing of the captive power and water requirements of the plants to reliable third parties on internationally acceptable commercial terms. In other words, the power generating section and the waterlines would be managed by a reputable company to ensure efficiency.
The arrangement is similar to Saudi Arabia’s Marafiq Power and Water Utility Company established by the Saudi government to provide all the power and utility services for the refineries, petrochemical plants as well as industrial and residential areas in Jubail and Yanbu. What this means is that the NNPC does not want to delve into areas it is not very competent to handle, but which have tremendous impact on the operations of the refineries.
Each refinery would be designed to form the nucleus of a hydrocarbon industrial park to produce petrochemicals. Natural gas supply to the parks will feed power plants and would also be converted to fertilisers and methanol. The refinery being constructed by Mittal would have a capacity of nine million tonnes and is estimated to cost about $4 billion. Nextant, a United Kingdom-based consultancy firm, undertook the feasibility study for the refinery on behalf of Mittal.
The project is in line with a memorandum of understanding signed between the Nigerian government and Mittal in November 2005. It stipulated that the company would make some infrastructural investments in the country in lieu of oil blocks. Mittal preferred to construct a refinery instead of building a 2,000 megawatts power plant or a railway project. As a result, it got two oil blocks, OPLs 285 and 279.
On its part, Oando is building a 360,000 barrels per day green field refinery and a 210,000 metric tonne product reception terminal in the Lekki Free Trade Zone, Lagos. Ayo Ajose-Adeogun, chief executive officer, Oando Refinery and Terminals, said the Lekki project has the advantage of proximity to source of crude oil and market. It is expected to start production in 2017.
Mohammed Barkindo, group managing director, NNPC, said the Corporation would support the Lekki Free Trade Zone project by assisting with the arrangements for the supply of natural gas feedstock to the zone. The feedstock is required for the manufacture of petrochemicals, fertilisers and other much desired industrial products.
The collaboration of NNPC and the three oil companies is in keeping with a federal government directive to oil majors to build refineries as a condition for renewing their licence for oil leases. The condition comes into effect as many oil mining leases, OMLs, are due for renewal with the government saying it wants ‘premium’ for their renewal. Altogether, 18 oil blocks held by the oil majors since 1968 are due for renewal.
Billy Agha, director of the Department of Petroleum Resources, DPR, said: “We are going to ask the oil companies to give us premium for renewing their licence. If the oil companies are going to have a downstream project and they think refinery is the best option for them, the government will encourage them and one of the issues is that if they can, they can refine 50 percent of their products here in Nigeria.” However, he added that if they cannot build a new refinery per se, they could do a technical audit of existing refineries and see what to do.
Also coming on stream is Covenant Ground Refinery Limited, a privately-owned company incorporated in Nigeria with a margin equity from Ondo State government. It is being constructed on six phases of 25,000 barrels per day capacity at a cost of $1.65 billion or N247 billion. It is located at Olokola Free Trade zone on the coastline, approximately 100 kilometres east of Lagos. Wole Oyekanmi, CEO of the company, said the project is a private venture licenced by the DPR, to process 150,000 barrels per day Nigerian crude oil.
He explained that all the feedstock would be bought from the NNPC going by government’s guidelines on supply of feedstock to private refineries in Nigeria. According to him, the refined products, which would be sold at both domestic and international markets, would reach out to the West African sub-region.
The renewed interest in refinery construction by private organisations may have been necessitated by government’s removal of the main impediment to granting of licence for private organisations. Before now, every investor was expected to deposit $1 million for every 10,000 barrels per day capacity refinery, among other conditions. The amount was expected to be paid as soon as the licence to establish the refinery was awarded.
Refund of the amount was subject to project execution schedule within the first 18 months and the achievement of 70 percent detailed engineering design, otherwise, the sum deposited would be forfeited to the government. Other guidelines were payment of statutory application fee of $50,000 and Department of Petroleum Resources service charge of N500,000. Eighteen firms initially got licences to build refineries, but at the end of the deadline given to them, only Orient Refinery, Aguleri, Anambra State, and Amakpe International Refinery, Eket, Akwa Ibom State, met the conditions. The others lost their licences and deposits.
The entrance of more investors into the refinery project is expected to minimise the country’s dependence on importation of petroleum products. Presently, Nigeria has four refineries, two of which are in Port Harcourt, one each in Warri and Kaduna. They all have a combined refining capacity of 445,000 barrels per day. The refineries have not been able to meet the demands of the Nigerian public because they have been producing below installed capacity. Consequently, the country has been experiencing regular fuel scarcity over the two years.
