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Monday, July 15, 2024

Nigeria’s Modular refineries in limbo

.As FG’s failure to supply 15 refineries’ 60% oil stock halts output

.Operators lament lack of crude oil, $60,000 renewal fees

.15 firms need N916bn to complete 282,000bpd capacity refineries

Nigeria’s modular refineries are currently in limbo as 40 licensees are currently crying foul over the Federal Government’s failure to issue 15 of them who are at construction stage crude oil guarantee term sheets, required by their financial institutions and others to continue construction.

The term sheet is a document which guarantees crude oil domestic supply obligation by the Federal Government. Under the arrangement, the Federal Government is to provide 60% crude oil of each refinery’s production capacity as a guarantee for the financiers’ investment.

Currently, 58 licenses had been issued by the Federal Government for the establishment of modular refineries, less than15 of the modular refineries had gotten to 50% completion while about 35 are yet to commence any civil works

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Specifically, five modular refineries are currently producing below capacity due to lack of crude oil while seven more have just been completed.

ENERGY TIMES learnt that the five completed refineriesare producing based on their own independent crude oil sourcing.

The producing refineries are Niger Delta Petroleum Resources (NDPR) producing 1,500 barrels per day, with feedstock from OML 54, Ogbele integrated Oil and Gas Facility, Waltersmith Refining and Petrochemical Company Ltd, 5,000bpd through Ibigwe marginal field (OML 16). Waltersmith Refining and Petrochemical Company is a joint-venture between Waltersmith Petroman Oil (70%) and Nigerian Content Development and Monitoring Board (NCDMB) (30%), Edo Refineryand Petrochemical, 1,000bpd through special arrangement with Decklar Resources Inc. The company owned Oza and Asaramatoru Fields located onshore in Oil Mining Lease (OML) 11 and the Emohua Field located nearby in OML 22.

Edo Refinery is owned and operated by AIPCC Energy Limited, a joint venture company between AFCOM Oil and Gas Limited and African Infrastructure Partners (AIP) who are investment bankers and financial experts focused on infrastructural development in Nigeria, and OPAC Refineries located at Umuseti Kwale, Delta State. The refinery is currently producing at 1,500bpd, sourcing crude oil independently as well as AGEL refinery at current rate of 1,900bpd.

“The term sheet states that crude oil will be given to them upon completion of the refinery but this is not forthcoming and the reason, we cannot understand.

Even the PIA also provides that the Federal Government should provide 60% crude oil of their production capacity as a guarantee for their investment.

On why the government had failed to provide the 60% capacity, the source explained: “What we heard was that people will use the term sheet to go and collect allocation for crude oil but with the PIA, the sheet can only be issued upon mechanical completion.”

Also, Chairman of Crude Oil Refineries Owner’s Association of Nigeria (CORAN) Mr. Momoh Oyarekhua, recently bemoaned the continued failure of responsible agencies to supply its members with crude oil to run its operations in Nigeria, saying that such actions were capable of destroying its members’ investments while stifling growth in the sector.

Oyarekhua who was speaking on Channels TVprogramme, Business Morning, called on the new government to intervene and guarantee the supply of crude as stipulated in the previous DPR operating laws, saying that the government was expected to supply 60% of the crude required to run a modular refinery in the country and the PIA bill provided for a domestic obligation for crude supply to the modular refineries.

He lamented that it was absurd for an oil-producing country like Nigeria to withhold crude supply from modular refineries after years of pleas, resulting in redundancy in multiple modular refineries and a general discouragement of investors who seek to enter the market.

“In our case, we did not fund our refinery entirely; we had foreign partners willing to bring equipment into the venture in exchange for equity. And this is what the majority of modular refinery owners are saying: if the government could guarantee the supply of crude oil to them, many modular refinery owners would be driven to do their best in return. For example, our company’s 10,000bpd refining capacity, which has been in operation for over a year, has not been able to refine up to 10,000bpd due to a lack of supply, but without the intervention of Pillar Oil, which has been supporting us with about 1,500 barrels, the refinery would have remained idle.”

“When many modular refineries are strategically installed across the country, they compete and considerably contribute to Nigeria’s refining capacity, lowering the need for imports and boosting energy security. As a result, we will save the foreign exchange that is now being used to bring petroleum products into the country, which is also putting excessive pressure on our foreign exchange. And, if you look at some of the countries outside of Nigeria, they do have more small units of refineries as opposed to the massive refineries, which they believe helps to boost healthy competition and create alternatives in production should the larger refineries fail, their production should continue, which will drive down prices.

“This is yet another advantage of modular refineries being operational in Nigeria. We are convinced that modularrefineries are economically viable with efficient operations, which are a direct outcome of the government’s support in crude oil supply.”

Oyarekhua said that Dangote Refinery’s entry into the market is neither a threat to the modular refineries nor are modular refineries a threat to Dangote Refinery, stressing that strong competition was critical for industry progress.

Joint committees recommendations

The former Minister of State for Petroleum Resources, Chief Timipre Sylva, had in 2021 received a joint report of the committees on establishment of modular refineryintervention funding and technical committee on crude oil domestic supply obligation where he observed with dismay the poor refining capacity of Nigeria despite the 58 licences issued for the establishment of modularrefineries.

The joint committees which were chaired by the Permanent Secretary, Ministry of Petroleum Resources, Bitrus Bako Nabasu, recommended the establishment of Modular Refinery Intervention Fund in collaboration with Central Bank of Nigeria akin to the Agricultural credit fund domiciled at the CBN in line with the Petroleum Industrial Act 2021 (PIA), that NUPRC/NMDPRA/NNPC Ltd. should engage with the licensed modular refineries to develop an appropriate commercial model that would guarantee reliable feedstock; NMDPRA renewal fee ofmodular refinery licence guidelines to be revisited and possibly reduced by way of 50% waiver. This however, should be on the company-by-company assessment, and granted to only companies with credible challenges, and that annual monitoring of modular refineries be carried out by the Ministry to ensure compliance with Government policies.

Other recommendations were that NNPC Limited should consider taking equity in modular refineries via the provision of reformer/other requirement units to ensure adequate production of PMS based on agreed conditions; the issuance of the Import Duty Waivers for Modularrefinery equipment be done by the Federal Ministry of Finance after due certification of the equipment that qualified for waiver is done by the Ministry of Petroleum Resources, Modular Refinery owners with evidence of feedstock challenge be given preference in allocation of crude oil while modality be worked out by NUPRC/NNPC Ltd. for crude oil to be sold to modularrefinery owners in naira equivalent for that day with guarantee that all the refined PMS be sold in naira equivalent for that day in-country.

Implementations

Checks revealed that of all the recommendations by the committees, crude oil is now sold to the refineries at naira instead of dollars.

Although NMDPRA had slashed the newly introduced $60,000 licence renewal fees for operators at Construction Stage by 30%, some of them believe that the new fee should be removed since it wasn’t there at the beginning of their construction.

The refiners, however, want the President to transfer the authority to issue and sign approvals to the NMDPRA’s chief executive.

“With the PIA, the responsibility of approvals and signing for licences now rests with the Minister of Petroleum Resources. Now that we don’t have the minister, it is left for the President or Special Adviser to do. As of now, two refineries are ready to operate awaiting Federal Government’s approval. Before now, the authority to issue licences and approvals rested with the defunct Director of DPR.”   

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