By NBF News

The proposed refineries
Thursday, March 11, 2010
The plan by the Nigerian National Petroleum Corporation (NNPC), in collaboration with three other oil companies, to set up three new refineries in the country is a welcome development. But it should not be allowed to go the way of previous plans that collapsed before they could take off. The three other oil firms involved in the project are Mittal, an oil and gas company based in India, and two indigenous outfits - Oando and African Petroleum (AP).

According to the plan, two of the refineries will be crude refineries to be located in the South West and the Niger Delta region, respectively. The third, a gas pipeline will be sited in the North Central zone. It is expected to leverage on the recently proposed Abuja-Kaduna-Kano gas pipeline meant to produce gas derivatives such as fertilisers and petrochemicals.

Although no official date has been set for the construction of the proposed refineries, the sponsors of the project have said that the model being adopted for the new refineries would be distinct from what obtains with the existing refineries in Kaduna, Port Harcourt and Warri. This can only be cheering news because the refineries have remained moribund for many years now. They have been grossly mismanaged despite huge amounts spent on Turn Around Maintenance (TAM). Recent statistics show that $75 million was sunk in the Kaduna refinery, while the Port Harcourt and Warri refineries gulped $137 million and $152 million respectively. Yet, none of them is running at half its full capacity.

We believe the proposed refineries will not suffer the same fate. And, with equity participation of reputable domestic sponsors such as Oando and AP and the impressive record of Mittal, Nigeria may soon have better alternatives to government-owned refineries. We commend these oil firms for taking this bold step. If the projects pull through, they will bring sanity into the oil sector, which is currently afflicted with perennial fuel shortage resulting in long queues at filling stations across the country. It will also reduce the amount spent on importation of refined petroleum products. In that regard, any measure or plan that will improve domestic production is a welcome relief. Under the new plan, each of the refineries is designed to form the nucleus of a hydrocarbon industrial park to produce petrochemicals.

We, however, advise the oil firms involved in the new refineries to ensure that proper feasibility studies are carried out. Any business plan is as good as dead on delivery when the necessary research has not been done. Money should not be the main driving force. A detailed feasibility study should take note of the demand side of the new refineries. The necessary framework must be put in place. Over the years, unnecessary bureaucracy in NNPC messed up the effective management of the existing but decrepit refineries. In the present plan, the other three oil firms should not allow bureaucratic hiccups to dampen their interest in giving Nigerians alternative outlets to available and affordable petroleum products across the country.

We are aware that this is not the first time that government and private partnerships have mooted the idea of setting up refineries or rehabilitating moribund ones, but they have not met public expectations. It is either that the idea was not well thought through, or it is consumed by political summersaults.

For example, few years ago, Bluestar, a consortium of domestic oil firms and other business interests, had successfully bought the Kaduna Refining and Petrochemical Company (KRPC) and the Port Harcourt Refinery. But the deal was cancelled by President Umaru Yar'Adua soon after assuming power in 2007. Also, the Lekki Green Refining and Petrochemical Park, which is currently being promoted within the oil and gas area of the Lekki Free Zone (LFZ), with an estimated 300,000 barrels per day, remains on paper a bold project.

In the same vein, work in the proposed Covenant Refining, a private initiative with an expected 150,000 barrel of oil per day is yet to take off. All these new efforts should be seen as an integral part of the deregulation policy of government. It is high time that this policy was allowed to have the desired result in the oil sector.

While we endorse the plan to set up these three refineries, we are surprised that none was earmarked for the South East. If this is an oversight, it should be redressed immediately. Geographical spread is necessary for equity in our polity. We urge the sponsors of the new refineries to benchmark the refineries against global standards. Other blue chip companies in Nigeria should emulate the example of these oil firms.

The establishment of private refineries can address the current severe shortfall in supplies of petroleum. In this regard, there is the need to address the contentious areas of the Petroleum Bill before the National Assembly to fast track the process.