Enforcing domestic crude obligations critical to modular refineries’ success

Funding for the construction of 20 modular refineries in Nigeria is at risk as foreign investors withhold their money due to a lack of guaranteed crude oil supply for the facilities.

These modular refineries, aimed at boosting domestic refining capacity, are facing a major hurdle.

International oil companies, the primary source of crude oil in Nigeria, are hesitant to provide guarantees that crude will be available to the refineries once operational.

According to operators of the modular refineries, only five out of the planned 20 are currently functioning.


The remaining 15, at various stages of completion or with licenses secured, are facing financial roadblocks due to the crude supply uncertainty.

“Investors are demanding a certain level of assurance before they release funds for construction,” said a representative of the refinery operators.


“Without a guarantee of crude oil, they are hesitant to move forward.”

According to Eche Idoko, publicity secretary, Crude Oil Refinery Owners Association of Nigeria, only about five of our members have completed their refineries. The others are having a major challenge. This 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,” Idoko said.


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 it 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 enquiries, they want to collect forms and become a full member of our association,” Idoko stated.


© 2023 - Businessday NG. All Rights Reserved.

We have modular refinaries that could help bring down the price of petrol but the federal government prefers importation so that they can continue to make money from subsidies.

Wetin dem use the initial licence issued by Buhari/Osinbajo for


If they're serious, they should think outside the box

omowolewa:
Wetin dem use the initial licence issued by Buhari/Osinbajo for


If they're serious, they should think outside the box

This is not issue of obtaining license but availability of constant supply of crude locally.

Foreign investors are not ready to stake their fund into it,even dangote is relying on foreign crude supply

Chinjo2:
We have modular refinaries that could help bring down the price of petrol but the federal government prefers importation so that they can continue to make money from subsidies.

where are they located