2019 Outlook for Nigeria’s refineries

rifineries

When 2019 comes, the stone that the leaders (builders) rejected shall be the head cornerstone.

When 2019 comes, the cost of economic mistakes often made out of sentiments and ignorance will stare many Nigerians in the face. Although sentiments also sometimes robbed people off the sense of quilt, many will remember how much the country bled during seasons of subsidising importation of petroleum products to ensure stability and affordability, while the refineries remained epileptic.

In 2019, the Nigerian National Petroleum Corporation, currently bearing the burden of importing much of the petroleum products, will be relieved to focus on its core business.

Even in faraway United States, former presidential aspirant Hillary Clinton will nod over the briefing on Nigeria. As U.S. Secretary of State in 2009, she had said ‎that the continuous importation of refined petroleum products by Nigeria was a sign of bad leadership.

“Nigeria is the 6th largest producer of crude oil but the country still imports fuel,” Clinton said during a seven-nation tour of Africa.

When 2019 comes, the Minister of State for Petroleum Resources, Ibe Kachikwu, a strong believer in the power of the private sector for economic growth and transformation, will heave a heavy sigh of relief over the removal of an ugly national stigma‎, and rejoice over a promise delivered.

His repeated assurance of the cessation of petroleum products importation in 2019 is largely based on one key variable in the sprawling sands of the Ibeju-Lekki area of Lagos. “I have made very firm commitment to Nigerians that I must stop the importation of petroleum products by 2019 and I am going to keep it,” he said during a visit to the site of the Dangote refinery recently.

So, he told the President of the Dangote Group Aliko Dangote, “The challenge I will give you today is that of time; I see your time for completion is December 2019, but I am sure you will understand my greed if I tell you that the refinery component should come earlier than the set date.”

In the bigger picture, Kachikwu was not speaking out of personal greed. It does not make any economic or even crude political sense for a major crude oil producer and exporter to import petroleum products with relish as was done in recent years.

THE REJECTION

The year 2019 is therefore a very important date for Nigeria’s oil and gas sector! Only 10 years ago, in 2007, Dangote led a consortium of investors to pay $750 million for two of the nation’s four ailing refineries, which the federal government was finding it difficult to manage. But the Yar’Adua administration reversed the decision soon after it came in to score political points.

“I went to him (Yar’Adua) and asked why he did that. But he said it was because of pressure,” former President Olusegun Obasanjo, whose government sold the refineries, said recently.

These same sentiments have driven opposition against private-sector involvement in modernising the refineries despite copious evidence that the many turn-around maintenance efforts in the past did not add much value, even if there were resources to do one now.

Today, the same Aliko Dangote is the man on whose shoulders the expectations of 2019 rest. However, he assured Mr. Kachikwu he has accepted the challenge and would do all possible to achieve the feat. He said: “On the honourable minister’s challenge, we are going to make it by the grace of God. I am sure the minister will support us to make sure that we meet his challenge.”

Mr. Dangote told Bloomberg later that although the project recently went “a little off track” because of the 70 million cubic meters of sand required, it is back on course. “I don’t have any worries about finishing.”

He added: “This is my lifetime project. I have to back it up with my own life to make sure it is delivered.”

Over the years, attempts have been made by government to encourage private sector investment in refineries, but they have largely failed. Out of the 33 private refineries that were given Licence to Establish (LTE), only the 1,000-barrels-per-day refinery operated by the Niger Delta Petroleum Resources in Ogbelle, Rivers State has come on stream to produce diesel.

Most of the other investors have not even kicked off construction work because of the funding problems.

THE HEAD OF THE CORNERSTONE

Driven by the commitment to the socio-economic development of the country and a huge appetite for local direct investment, Mr. Dangote has long put 2007 behind him.

“Nigeria’s refineries‎ were privatised in 2007. We bought two, but after a few months we had a new government that decided to void the transaction, thinking we got a very good deal. So, since 2007 we’ve been actually working on building our own refinery, but we didn’t finally start something until 2015.”

THE DELIVERABLES

It is the world’s largest single line refinery, petrochemical complex, and the world’s second largest urea fertiliser plant. The refinery, according to Mr. Dangote, will have the capacity to refine 650,000 barrels of crude oil per day. The petrochemical plant will produce 780 KTPA Polypropylene, 500 KTPA of Polyethylene, while the fertiliser project will produce 3.0 million metric tons per annum (mmtpa) of urea.

“In addition, we are also building the largest sub-sea pipeline infrastructure in any country in the world, with a length of 1,100 km, to handle 3 billion SCF of gas per day. We also plan to construct a 570 MW power plant in this complex. As a matter of fact, gas from our gas pipeline will augment the natural domestic gas supply and we estimate an additional 12,000MW of power generation can be added to the grid with the additional gas from our system.”

THE BENEFITS

According to Mr. Dangote, “We will be adding value to our economy as all these projects will be creating about 4,000 direct and 145,000 indirect jobs. We will also save over $7.5 billion for Nigeria annually, through import substitution and generate an additional $5.5 billion per annum through exports of the refined petroleum products, fertilizer and petrochemicals.

“We envisage that these projects, which would cost over $18 billion, would be completed in 2019.”

The petrochemical is 13 times that of Eleme petrochemical. It is 10 times that of NAFCON and therefore, the largest fertilizer plant in Africa, he added.

Expectant of the refinery, the federal government is also counting the benefits. During a visit of Vice President Yemi Osinbajo and some ministers to the site, he said that when 2019 comes, the nation’s refining capacity would be sufficient for the domestic market and export at the completion of the Dangote refinery project.

He was optimistic that the project would also boost gas supply to power plants through the three billion standard cubic feet per day gas pipeline, and that the facility would buoy export earnings after meeting the nation’s current requirement of two billion scfpd.

The plant, according to him, will generate over 100,000 employment opportunities.

Even labour unions that objected to the sale of the refineries in 2007 will join in the celebration when 2019 comes. Speaking on the project, the General Secretary, National Union of Textile, Garment and Tailoring Workers of Nigeria (NUTGTWN), Issa Aremu, admitted that the bold initiative by the Dangote Group is a giant stride at re-industrialising Nigeria in particular and Africa in general. Happily for Labour, the refinery will employ many people. It will also provide opportunities to local vendors.

During the week, the Nigerian Content Development and Monitoring Board announced that the management of Dangote petroleum refinery has agreed to select competent Nigerian vendors that will participate in the construction of the plant. The Chief Operating Officer, Dangote Refinery Project, Giuseppe Surace, stated this at the technical meeting held between top officials of the company and NCDMB at the refinery project site in Lekki.

On the socio-economic scale, the refinery is bound to transform life in that part of Lagos into a cosmopolitan, upscale area with jobs and improved living standards. In anticipation of that, private property investors have already shifted attention there.

CHALLENGES

Like every other business, the Dangote refinery project faces challenges, some because of its sheer size, but so far, he has been able to take them on as they come. For example, he explained that, “For the refinery, almost every single item was imported. One of the difficulties was that most of our ports are not designed to receive heavy equipment; 75 per cent of the cargo needed for the refinery cannot be offloaded in the port of Lagos. One piece of equipment weighs 2,870 tons! So, we had to build our own jetty, about one kilometre in the ocean, which was a major project.

“We couldn’t get local cranes to hire, either. We had to go and buy 300 cranes. Then there’s manpower, which we also brought from abroad—almost 30,000 people, because we didn’t have a trained workforce for these massive projects.”

On the initial allegations of conflict with the host community, he said there are no issues because the conflict was between two communities and the state government. He explained: “We did not buy the land from communities, we bought our land (swamp) at $100 million and the filling of the swamp to become solid land is costing us another $420 million.

There are funding issues too: He said the holding company, Dangote Industries Limited, which is different from Dangote Refinery, took an initial loan for the project that has accrued an interest of $173 million, stressing that, contrary to speculations, the company has not gotten substantial forex from the Central Bank of Nigeria. Rather, he said “We lost almost N50 billion to the new forex regime.”

WHEN 2019 COMES

This is likely to be the scenario of nation’s refining capacity in 2019. The Dangote refinery, 650,000 barrels per day (bpd); federal government refineries, 445,000 bpd (and it is expected that they will operate at full capacity); Eko Petrochem and Refining Company Limited, 20,000 bpd (all things being equal); modular refineries in the Niger Delta (if they can materialise by then).

The good news is that the Dangote refinery alone may be able to supply 95 per cent of local daily consumption. So, when 2019 comes, Nigeria is likely to be an exporter of petroleum products.

Indeed, when 2019 comes, the thick cloud of national shame will be lifted. And economic reality will crush the old Jericho walls of politics and sentiments in the oil and gas industry that perpetuate a circle of poverty! At least, there will be large template to learn from and use.


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