Oil & Gas
Can proposed modular refineries dent downstream supply gap?
The Federal Government has said that ten modular refineries are at advanced stages of development in the Niger Delta with the capacity to add 300,000 barrels per day (bpd) production.
The 10 modular refineries are located in five states in the Niger Delta region; namely Akwa Ibom, Cross River, Delta, Edo and Imo states, according to the statement by Laolu Akande, special assistant on Media and Publicity to vice president Yemi Osinbajo.
According to Osinbajo, two out of the 10, Amakpe Refinery (Akwa Ibom), and OPAC Refinery (Delta State), have their mini-refineries modules already fabricated, assembled and containerized overseas, ready for shipment to Nigeria for installation.
Advanced stage of development for the modular refineries means that the projects have passed the Licence to Establish (LTE) stage, while some have the Authority to Construct (ATC) licence or close to having it because they have met some critical requirements in the Licensed stage. Constructing these kinds of refinery usually pass three stages: Licence to Establish (LTE), Authority to Construct (ATC) and Licence to Operate (LTO).
Nigeria is betting on these modular refineries to ensure self-sufficiency of petroleum products while serving as a disincentive for illegal refineries and oil pollution. By 2019, Africa’s largest economy plans to discontinue importation of refined petroleum products.
Osinbajo said government is committed to promoting the establishment of privately financed modular refineries so as to increase local refining capacity, create jobs, ensure peace and stability in the Niger Delta. However, this commitment is yet to go beyond words.
The on-going fuel scarcity has demonstrated just how fragile and unreliable the current system is. A little hiccup means long queues and this government seems to be racing against time to justify coming back to the electorate next year to ask for votes. Petrol prices have not reduced as it promised and the subsidies it castigated is back with a vengeance.
A report that 38 licensed privately financed greenfield and mini-modular refineries investors have so far indicated interests in the establishment of refineries in the region and at least ten (10) of the licensed refineries investors are at an advanced stage of development had been submitted to government but it will take a long time to translate to reality
Modular refinery operators are constrained by funding challenges as a 20,000 barrel could cost over $50million. The Vice President directed the Federal Ministry of Petroleum Resources to keep providing the necessary support and creating the enabling environment for positive investments in modular refineries by engaging key government agencies.
The best support for operators is in the area of financing as few local banks are willing to lend to serious ones. Federal Government can provide guarantee for loans through the Central Bank to make them come on stream fast. Some of the investors are counting on foreign development banks like the US and China Exim banks but they desperately need guarantees from the Government.
Agencies including the Niger Delta Development Commission, NDDC, Nigerian Content Development & Monitoring Board, NCDMB, and financial institutions, including the International Finance Corporation, African Export-Import Bank (Afreximbank), Nigerian Sovereign Investment Authority, Bank of Industry, have been tapped to support the investors.
Providing this kind of support for operators is both pragmatic both for business and political reasons. When these refineries come on stream in the Niger Delta, it will reduce incentive for militancy and create more jobs.
Oil producing states will see other sources of income from oil and reduce agitation for resource control. It may allow the government a say on price of refined product depending on the terms, even though control prices are not desirable and may have something to campaign on next year.
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