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Why indigenous refineries are yet to produce petrol, by refinery owners

Of all the private refineries in Nigeria at the moment, none of them can refine crude oil to the level of the Premium Motor Spirit (PMS) petrol because they have no reformer.

They are seeking investment to add the PMS plants to the refineries at the moment.

The in-country refineries, including Dangote Petroleum Refinery, are all engaged in primary refining that can only produce the Automotive Gas Oil (AGO), gas oil, nefta, and kerosene etc.

Crude Oil Refinery Owners Association of Nigeria (CORAN) chairman, Engr. Momoh Oyarekhua disclosed this to The Nation in a telephone interview at the weekend.

Oyarekhua, who is also the chairman of OPAC Refinery, also explained that the secondary processing unit of the refinery consists of the reformer, cracker and others, which all the plants in the country do not possess.

He said: "So the secondary processing unit is where you have the reformer, the cracker and all of that. So, what most of the modular refineries don't have is the secondary refining unit and which I just mentioned will require further investment to be able to install in our refineries."

According to him, the lack of the secondary unit in the domestic modular refineries is the reason they are not selling petrol.

Asked where the modular refineries will sell the products they produce, Oyarekhua noted that while about 80per cent of them supply to the local market, a pocket of the refineries export theirs.

 The CORAN boss said: "To the best of my knowledge as at today, I will speak more of our refinery (OPAC Refinery). We sell all of our products into the local market. And I could say the same of other modular refineries in the country.

"But I am aware that maybe one or two might be exporting their fuel oil. But generally most people sell to the local market.

"I am sure may be about 70per cent or 80per cent of the product they produce actually goes into the local market.

"Like most of the modular refineries are not producing PMS right now; I think including Dangote Refinery has not started producing PMS at this time," he said, adding however that "the modular refineries are currently trying to gather investment to add PMS plants to their refineries so that they can produce.

"I also understand that Dangote Refinery will start producing PMS maybe sometime next month.

"So, as we speak as at today, none of the private -owned refinery in Nigeria is actually selling PMS to the local market because we are not producing PMS at this time."

According to him, in order to add the PMS plants to their refineries, they have been clamouring for support from the Federal Government.

"That is why some of us have been advocating government support to enable us to produce PMS into the local market," he said.

He explained that the refinery business is highly capital intensive, stressing not all Nigerian banks have the funds for it.

He further noted even the few ones that have the buoyancy shy away from financing investments in refineries owing to the single obligor limit.

Oyarekhua lamented that securing foreign loans for the refineries is also almost impossible because of the ongoing energy transition that has mopped up investment in hydrocarbon businesses.

The CORAN Chairman said the most difficult challenge for the modular refineries in Nigeria is lack of access to the feedstock (crude oil).

He said: "First and foremost, for us, I think it is feedstock. Another thing is that we in the space we need more of government support to actually optimize what we are doing.

"You know funding for oil and gas is very scarce around the world today. So if the government could create some kind of funding that we in the space we can access it will be a kind of leverage for us.

"It will also be a relief for us. Like I just mentioned to you, we want to add a reformer to be able to produce PMS. And perhaps if some of our refineries can produce bitumen which is largely imported into the country.

"But these investments are not things that you can just get from the street. I mean given the feedstock challenge we have even when you approach Nigerian banks, it is a bit difficult for those who even have capacity but most of them do not have the capacity to fund some of these projects because they will be talking about a single obligor.

"If I go to a bank now they, will request that if I want a $100 million some of them do not have it. That is where it comes back to us; if we can get support from government, it will be most appreciated."

Seeking government's intervention, Oyarekhua recalled that in the immediate past administration, the former Minister of State for Petroleum Resources, Chief Timipre Silva inaugurated a committee through which the refineries were requesting for an intervention fund of between $1 billion and $1.5billion.

The essence was for those that are seriously rooted in the business to access the fund for project execution.

He said because of the fund, the ministerial committee, which comprised the Ministry of Finance Permanent Secretary and that of the Ministry of Petroleum Resources visited their project sites to confirm what the refineries have implemented with their private funds.

He added that from the visit there was a white paper that the government should create between $1billion and $1.5billion intervention fund for the refineries to access.

The CORAN chairman urged the government to revisit the white paper to give them the intervention.

Oyarekhua said: "In the last government, there was the last Minister of State Petroleum actually set up ministerial committee where we engaged and we were asking for an intervention fund of between $1billion to $1.5billion for those that are found seriously in the industry to be able to access.

"And there were also visitation of the ministerial committee from Ministry of Finance, Ministry of Petroleum.

"I think the Perm Sec was even part of that visitation that they took around to see some of the projects that we have executed with our own funds.

So and they found it wise and there was I may say a white paper.

"They came out from that engagement for government to create an intervention fund of $1billion to about $1.5billion to support what we are doing. For me I will say that should be revisited and that could surely be some of a succor to us in the course of time."

He also urged the government to create a platform to continuously engage the refinery owners in Nigeria.

He asked the government to always listen to the players in the industry who knows the challenges for the necessary solutions.

He recalled that the companies have already tabled their requests for feedstock to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) that is addressing it.

He revealed that "we are working out the framework from NUPRC and we hope that that will kick in very soon.

"So we are still optimistic that in no time, we will be able to get the adequate feedstock that we want for our refineries."

Unless the commission meets their requests for the feedstock, according to him, the modular refineries remain uncomfortable.

Asked how many members are in the association, he said: "Currently we have about 15 members and you know that the membership of CORAN is not just about the refineries that are working alone.

"There are people who already have license to establish. There are people who also have authority to construct. All of these people are all members of CORAN."

The OPAC Refinery chairman countered the argument that Dangote Refinery diesel price was too high.

He explained that in the Refining Economics, the investors must cover his cost and get some margin of profit.

Oyarekhua urged Nigerians to understand that Dangote is not the Federal Government or a subsidy scheme.

He admonished them to see him as the businessman he is.

He said: "So, the Refinery Economics will determine how much you sell your products because you do not sell the products at the same rate. For example, if you are selling gas oil which is diesel at N1,200, the likelihood that you might be selling the fuel oil cheaper than that of even the kerosene cheaper than that. So all of this must add up together to give you profit. So, we must understand the Refinery Economics first and foremost before we begin to determine or to tell somebody how to sell his products.

"Another thing we must understand as a country is that Dangote is not Federal Government.

"He is not there to subsidize the products for the market. It is a private businessman.

"He must make profit and he must be able to refine is such a way that he will be able to recover his cost and make some margin. That is what we must understand also."

Explaining why the costs the Dangote Refinery incurred, he said the Refinery imported crude oil from the US, paid for shipping and other costs.

According to him, owing to Dangote 's economics of scale, he has already reduced the diesel price from N 1,600 per litre to N1,200 per litre.