International financiers that are meant to fund the construction of about 20 modular refineries in Nigeria have withheld their funds due to the challenge of getting guarantees for crude oil supply to the facilities when they are completed.
Producers of crude oil in Nigeria, who are largely international oil companies, have not been able to provide guarantees to assure the financiers that crude would be supplied to the modular refineries when the plants are set to produce refined petroleum products.
Based on this, funders of the facilities have held onto their funds pending when the Federal Government would be able to impress it on IOCs to provide the guarantees required for crude oil supply to modular refiners.
Although Nigeria prides itself on being the largest crude oil producer in Africa, it exports the bulk of its crude to earn foreign exchange, starving domestic refiners who find it tough to source the United States dollar required for the purchase of crude.
Nigeria currently has 25 licensed modular refineries. Five of them are operating and producing diesel, kerosene, black oil, and naphtha. About 10 are under various stages of completion, while the others have received licences to establish.
Operators of modular refineries told our correspondent that aside from the five that are in operation currently, the remaining plants are embattled due to the major challenge of crude oil unavailability, a development that has stalled funding from financiers.
“Only about five of our members have completed their refineries. The others are having a major challenge. The challenge is that the people who are supposed to finance them have not disbursed financing for construction because they want some level of guarantee.
“A guarantee that if they finish the refinery, they are going to get feedstock, which, of course, is crude oil,” the publicity secretary of the Crude Oil Refinery Owners Association of Nigeria, Eche Idoko, stated.
CORAN is a registered association of modular and conventional refinery companies in Nigeria. Modular refineries are simplified refineries that require significantly less capital investment than traditional full-scale refineries.
Speaking further, Idoko said, “When we approached the regulator, it said it cannot give us that kind of guarantee, this was before the Petroleum Industry Act became implemented. It cannot give us a guarantee because it thinks we will take the feedstock to sell and will not build the refineries.
“This, for us, is neither here nor there, because what the financiers were asking for is not that you should supply them the crude, but that we should be able to give them what we call a Conditional Term Sheet and Heads of Terms. And this means that when you finish your refinery as an investor, you will be supplied feedstock.”
The CORAN official said this is the reason why most modular refineries in Nigeria have yet to be completed, adding that the Nigerian Upstream Petroleum Regulatory Commission should impress on IOCs to provide these guarantees.
He said modular refiners as well as some downstream operators in the sector have repeatedly called on the regulator to mandate the international oil companies to supply crude to indigenous refiners first before exporting the commodity.
“What was done before now is that the regulators would write, quoting Section 109 of the PIA, which talks about the fact that crude oil will be supplied after mechanical completion of the refinery.
“The financial houses know that the regulators do not own crude and don’t produce the commodity, but they want to see something from your suppliers that when you finish your refinery, they are going to give you crude under some clearly specified terms.
“But we have not been able to get the regulators to see reasons and impress it upon these IOCs to give us this kind of documents. So what we have received from them is that the guidelines state that they can supply crude when the refinery is at least operating at 50 per cent,” Idoko stated.
The CORAN official added, “This means you are saying the refinery is already completed and is running at 50 per cent capacity. We want the refineries to take off, and so our plea is that the regulator should impress it upon these IOCs to give us the guarantee, which is the Conditional Term Sheet.
“At the end of the day, you are not doing it for the refineries, rather, you are doing it for the country. You see what recently happened, diesel was trading for N1,700/litre, but the moment Dangote refinery dropped it to N1,200/litre, the price fell to N1,200.”
He explained that when modular refineries join forces with the Dangote Petroleum Refinery, Nigeria would be an oil refining hub in West Africa, as about 70 per cent of refined petroleum products consumed on the sub-continent are imported.
“I can tell you that in terms of the demand/supply gap for refined petroleum products in West Africa, the continent is short by about 70 per cent in terms of what it needs. So 70 per cent of what the whole of West Africa consumes is imported.
“So what we are saying is that let us make Nigeria a refining hub and make this country the giant of Africa once again. Let all other African countries start coming here to buy refined petroleum products from us.
“In fact, Dangote refinery now appreciates what we are doing and is making a move to become a full member of our association. They have made inquiries; they want to collect forms and become a full member of our association,” Idoko stated.
Oil marketers react
Dealers in the downstream oil sector stated that it was high time that the Federal Government ensured the sufficient provision of crude oil to indigenous refiners.
They attributed the high cost of locally produced Automotive Gas Oil, popularly called diesel, to the lack of adequate crude oil supply to indigenous refineries, stressing that this was why big players such as Dangote refinery were importing the commodity.
“Diesel is sold at about N1,200/litre by Dangote refinery and he has good reasons for that,” the National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria, Chief Ukadike Chinedu, stated.
He added, “If you look at the foreign exchange rate and you combine it with the fact that the key determinant of the cost of refined products in Nigeria is the forex, and you also consider international prices, you will agree that Dangote may not be wrong. He may be using that as a yardstick.
“Dangote recently said his cargoes of crude oil are coming from the United States because he can’t get enough crude from Nigeria. So nobody should blame him when he regulates his price in line with the international market.
“Therefore, our appeal to the Federal Government and Mr. President is that they should give Dangote refinery and other local producers enough crude oil so that refined petroleum products can be produced in-country at good rates.
“Again, this will help us make gain in foreign exchange. The solution is to get enough crude locally for our local refineries so that it can enable us to gain enough foreign exchange as a country. That is the solution to challenge in the midstream oil sector.”
NUPRC responds
Responding to the demand for a Conditional Term Sheet by the financiers of modular refiners, the Nigerian Upstream Petroleum Regulatory Commission stated that it received figures on the production capacities of indigenous refineries and had presented them to crude oil producers to make the commodity available.
NUPRC’s Chief Executive Officer, Gbenga Komolafe, while reacting to a question by our correspondent on the matter, however, stated that the commission would not guarantee supply to refineries that had yet to come into existence.
“This still borders on the implementation of the domestic crude oil obligation. First of all, let me make it clear that establishing a refinery of whatever capacity, whether it is a modular refinery or a larger refinery, is a commercial engagement. So the commission can’t come in to give any form of guarantee. I need to make that clear.
“However, the regulator will only implement the provisions of the PIA given that all the regulatory activities of the commission are expected to be in compliance with the provisions of the law. So as it relates to guaranteeing feedstock to refiners, that is enshrined under section 109 of the PIA.
“And what we have just done in furtherance of that provision is that we have put in place a regulation that has to do with domestic crude oil obligation. So in the implementation of that provision, what we do is that we receive the figures on the domestic refining capacity from the Nigerian Midstream and Downstream Petroleum Regulatory Authority.
“And once we receive that, our development and production department factors the numbers against the capacities of the various producers within the upstream sector and makes it obligatory for them (crude producers) to meet those numbers, thereby guaranteeing that volume of supply to existing licensed and operating refineries, not refineries that have not come into existence.”
The NUPRC boss stressed that “we do not guarantee crude for financing of refineries that have not come into existence.”
Recall that the commission recently promised to ensure that crude oil was supplied to domestic refiners
It stated that, in compliance with the provisions of Section 109(2) of the Petroleum Industry Act 2021, the NUPRC in a landmark move, had developed a template guiding the activities of Domestic Crude Oil Supply Obligation.
“The commission, in conjunction with relevant stakeholders from NNPC Upstream Investment Management Services, representatives of Crude Oil/Condensate Producers, Crude Oil Refinery-Owners Association of Nigeria, and Dangote Petroleum Refinery, came up with the template for the buy-in of all.
“This is in a bid to foster a seamless implementation of the DCSO and ensure consistent supply of crude oil to domestic refineries,” Komolafe had stated.
