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Government Policy, Funding Stall Proposed Oil Refineries



oil refinery
  • Government Policy, Funding Stall Proposed Oil Refineries

Government policy in the downstream sector and paucity of funds as well as inadequate technical capacity are pulling a plug on proposed private refineries in the country, even as government-owned plants continue to perform dismally with no new ones built in almost 30 years, ’FEMI ASU writes

For more than two decades, private investors have continued to indicate interest in building refineries in the country on the back of the inability of government-owned refineries to meet growing demand for petroleum products.

While many licences have been granted to investors, only a mini refinery owned by the Niger Delta Petroleum Resources Limited has come on stream, with a capacity to process 1,000 barrels of crude oil per day and produce only diesel.

Between 1976 and 1989, the government, through the Nigerian National Petroleum Corporation, built refineries in Port Harcourt, Warri and Kaduna, in addition to an existing refinery in Port Harcourt, which was built by Shell in 1965 (later bought over by the NNPC).

But the state of the 445 million-bpd refineries has worsened over the years and no new refinery has been built by the government since 1989, making the country rely heavily on imports to meet fuel demand.

Data obtained from the Department of Petroleum Resources showed that the capacity utilisation at the refineries, including the Niger Delta Petroleum Resources’ 1,000bpd refinery, plunged to as low as 4.85 per cent in 2015 from 23.03 per cent in 2011, resulting in increased petroleum products’ imports.

Petroleum products import rose to 13.56 million metric tonnes in 2016 from 8.63 million metric tonnes in 2008, the DPR said in its 2016 Oil and Gas Industry Annual Report.

“Even if all the refineries were operating at full capacity, the 445,000bpd would not be enough to meet our demand,” the Chairman, ARCO Group, Chief Joseph Akpieyi, told our correspondent in an interview.

Akpieyi, a former Chief Executive Officer, Nigerian Petroleum Refining Company (now Port Harcourt Refinery Company) and Warri Refining and Petrochemicals Company Limited, said, “The way to stop this importation of products is to build more refineries such that we have enough refining capacity greater than the country’s demand.”

According to the Deputy Director, Emerald Energy Institute, University of Port Harcourt, Prof Chijioke Nwaozuzu, the country requires a total refining capacity of 1.2 million bpd.

“This capacity would ensure domestic self-sufficiency in the supply of refined products, and provide extra supplies for the smuggled products across our borders,” he added.

An investigation by our correspondent revealed that the government’s long-standing policy of regulating the prices of petroleum products, funding constraints and lack of requisite technical capacity by the licencees were largely for the stalled refinery projects.

Licencees in limbo

With over 100 applications received from interested investors between 1990 and 2000, the Department of Petroleum Resources developed and sought approval of a procedure guide for the establishment of private refineries.

In 2002, 21 companies were granted licences to establish crude oil refineries, with a validity of 18 months. After the evaluation of the extent of engineering design work done, 17 of them were in 2004 granted approval to construct refineries, with a validity of 24 months.

Following the inability of the investors to make appreciable progress on the projects and the expiration of the construction approval, all the licences were cancelled in 2007. This led to a review of the statutory framework for licensing of private refineries and the issuance of the ‘Guidelines for the Establishment of Hydrocarbon Processing Plants in Nigeria’.

According to the DPR, there are a total of 39 proposed modular refineries with capacity ranging from 5,000 barrels per stream day to 30,000bpsd, and six conventional plants with a total capacity of 1.35 million bpsd.

It said 18 out of the 45 companies were still sourcing funds, some of whose licences to establish had expired, adding that 20 licences were active.

The agency said seven companies could break ground, namely Waltersmith Refining & Petrochemical Company Limited (5,000bpsd modular plant in Imo State); Clairgold Oil & Gas Engineering Limited (20,000bpsd in Delta); Niger Delta Petroleum Resource (10,000bpsd our in Rivers); Dee Jones (6,000bpsd in Cross River); Energia Limited (20,000bpsd in Delta); Southfield Petrochemical & Refinery Limited (20,000bpsd in Edo); and Starex Petroleum Refinery Limited (100,000bpsd in Rivers).

Funding and technical capacity constraints

The National Refineries Special Task Force, which was set up by the Ministry of Petroleum Resources in 2012, said it examined 35 greenfield private refinery licencees/applicants, and only seven were found to have reasonable potential.

The task force said it was evident that most of the applicants for a refinery licence did not have the requisite experience and background in petroleum refining and marketing.

“Their technical capability is rather doubtful and their ability to attract the quantum of funds required for refinery projects, running into billions of naira, is questionable. Besides, in many instances, potential financiers evidently insisted on crude supply agreements at rates below international market prices, owing to the prevalent subsidised products pricing regime, as a condition for further consideration of funding applications,” it said in its report.

The Chairman, Eko Petrochem and Refining Company Limited, Mr Emmanuel Iheanacho, described refineries as complex structures, saying interested investors must be able “to cross the hurdle of the technical capacity requirement”.

“The second issue is financing. The third issue that made it impossible for people to build refineries is the market structure and regulatory environment within which Nigerian private sector refineries could be built,” he told our correspondent.

Last year, Eko Petrochem and Refinery Company, which is working on a 20,000bpd modular refinery in Lagos, announced the signing of a grant of $797,343 by the United States Trade and Development Agency.

Iheanacho said, “Once we finish the detailed engineering design, which we are doing currently, we expect that it would take another 18 months before we can stream the refinery.

“Government has to engage more with the people who are committed to this process. They have to weed out those who are absolutely not serious or do not understand what is involved in it. They have to commit resources, not just giving licences.”

The Technical Consultant to President/Chief Executive of Dangote Group on Refinery and Petrochemicals Project, Mr Babatunde Soyode, described funding as perhaps the single most important obstacle.

Aliko Dangote, Africa’s richest man, is building a refinery with a capacity of 650,000bpsd in Lekki, Lagos.

He told Reuters last month that he had arranged more than $4.5bn in debt financing for his refinery project and aimed to start production in early 2020.

“We will end up spending between $12bn and $14bn. The funding is going to come through equity, commercial bank loans, export credit agencies and developmental banks,” Dangote added.

Deregulation as a key incentive

Many industry stakeholders have described the lack of deregulation in the downstream sector of the nation’s oil and gas industry as a major drawback to investment in refineries by private investors.

The prices of diesel and kerosene were deregulated in 2009 and 2016 respectively but petrol price is still being fixed by the government.

A former Group Managing Director, NNPC, Chief Chambers Oyibo, in a telephone interview with our correspondent, described government’s control of petroleum products’ prices as a major obstacle to private investment in refineries, saying, “The other thing is that many of these people who had licences didn’t have any source of crude.

“We had thought the government was going to deregulate. Then politics took over and then they didn’t do what they were supposed to do. Until they do that, private investors would be reluctant to invest. People will say, ‘What of Dangote?’ Dangote has put his refinery in a location where he is free to export all his products if he wants. He is free to also get his crude from whatever sources he can.”

Iheanacho said, “If you have a situation where government dictates the volume of products that can be brought into the country and the price at which it would be sold, it will be difficult to build a refinery because the cost factors and the pricing policy of the refineries might not be in tandem with what government wants.”

He noted that increased domestic refining capacity would save the nation a lot in foreign exchange; create a huge job opportunity, and opportunity for the acquisition of technology.

“The lack of deregulation is a major drawback. There is absolutely no need for us to continue to advocate a situation where we waste money in subsidising fuel. It has created a huge incentive for people to take products from Nigeria across the border to sell for a premium in other countries. We should stop that,” he added.

Soyode also acknowledged the lack of deregulation as a challenge, but said the Dangote refinery would operate profitably without full deregulation.

He said Dangote would buy crude oil at the international markets at the general price and sell refined products at international price, adding, “He will sell at the price at which sensible people in Nigeria would rather buy from him than import.”

On the idle refinery licences in the hands of private investors, he said, “They (the licencees) do not have money. Most of them want to use it to collect crude oil allocation and sell the crude oil. But when the government stopped that, nobody has built anything. Only Dangote has built.”

The crude oil allocation was meant to encourage interested investors to build refineries because the government realised that the capital-intensive nature of such projects.

The NRSTF, in its report, said the uniform and regulated pricing policy of the Federal Government for petroleum products was one of the most widely adduced reasons by prospective investors and entrepreneurs for the lack of investment in new refineries.

“It will, therefore, be necessary to fully deregulate prices in the downstream sector. This should, however, be subject to putting in place adequate palliatives to ameliorate the attendant social and economic burden on the populace,” it added.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq,, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Federal Government Set to Seal $3.8bn Brass Methanol Project Deal in May 2024




The Federal Government of Nigeria is on the brink of achieving a significant milestone as it prepares to finalize the Gas Supply and Purchase Agreement (GSPA) for the $3.8 billion Brass Methanol Project.

The agreement to be signed in May 2024 marks a pivotal step in the country’s journey toward industrialization and self-sufficiency in methanol production.

The Brass Methanol Project, located in Bayelsa State, is a flagship industrial endeavor aimed at harnessing Nigeria’s abundant natural gas resources to produce methanol, a vital chemical used in various industrial processes.

With Nigeria currently reliant on imported methanol, this project holds immense promise for reducing dependency on foreign supplies and stimulating economic growth.

Upon completion, the Brass Methanol Project is expected to have a daily production capacity of 10,000 tonnes of methanol, positioning Nigeria as a major player in the global methanol market.

Furthermore, the project is projected to create up to 15,000 jobs during its construction phase, providing a significant boost to employment opportunities in the country.

The successful execution of the GSPA is essential to ensuring uninterrupted gas supply to the Brass Methanol Project.

Key stakeholders, including the Nigerian National Petroleum Company Limited and the Nigerian Content Development & Monitoring Board, are working closely to finalize the agreement and pave the way for the project’s advancement.

Speaking on the significance of the project, Minister of State Petroleum Resources (Gas), Ekperikpe Ekpo, emphasized President Bola Tinubu’s keen interest in expediting the Brass Methanol Project.

Ekpo reaffirmed the government’s commitment to facilitating the project’s success and harnessing its potential to attract foreign direct investment and drive economic development.

The Brass Methanol Project represents a major stride toward achieving Nigeria’s industrialization goals and unlocking the full potential of its natural resources.

As the country prepares to seal the deal in May 2024, anticipation grows for the transformative impact that this landmark project will have on Nigeria’s economy and industrial landscape.

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IMF Report: Nigeria’s Inflation to Dip to 26.3% in 2024, Growth Expected at 3.3%



IMF global - Investors King

Nigeria’s economic outlook for 2024 appears cautiously optimistic with projections indicating a potential decrease in the country’s inflation rate alongside moderate economic growth.

The IMF’s revised Global Economic Outlook for 2024 highlights key forecasts for Nigeria’s economic landscape and gave insights into both inflationary trends and GDP expansion.

According to the IMF report, Nigeria’s inflation rate is projected to decline to 26.3% by the end of 2024.

This projection aligns with expectations of a gradual easing of inflationary pressures within the country, although challenges such as fuel subsidy removal and exchange rate fluctuations continue to pose significant hurdles to price stability.

In tandem with the inflation forecast, the IMF also predicts a modest economic growth rate of 3.3% for Nigeria in 2024.

This growth projection reflects a cautious optimism regarding the country’s economic recovery and resilience in the face of various internal and external challenges.

Despite the ongoing efforts to stabilize the foreign exchange market and address macroeconomic imbalances, the IMF underscores the need for continued policy reforms and prudent fiscal management to sustain growth momentum.

The IMF report provides valuable insights into Nigeria’s economic trajectory, offering policymakers, investors, and stakeholders a comprehensive understanding of the country’s macroeconomic dynamics.

While the projected decline in inflation and modest growth outlook offer reasons for cautious optimism, it remains essential for Nigerian authorities to remain vigilant and proactive in addressing underlying structural vulnerabilities and promoting inclusive economic development.

As the country navigates through a challenging economic landscape, concerted efforts towards policy coordination, investment promotion, and structural reforms will be crucial in unlocking Nigeria’s full growth potential and fostering long-term prosperity.

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South Africa’s March Inflation Hits Two-Month Low Amid Economic Uncertainty



South Africa's economy - Investors King

South Africa’s inflation rate declined to a two-month low, according to data released by Statistics South Africa.

Consumer prices rose by 5.3% year-on-year, down from 5.6% in February. While this decline may initially suggest a positive trend, analysts caution against premature optimism due to various economic factors at play.

The weakening of the South African rand against the dollar, coupled with drought conditions affecting staple crops like white corn and geopolitical tensions in the Middle East leading to rising oil prices, poses significant challenges.

These factors are expected to keep inflation relatively high and stubborn in the coming months, making policymakers hesitant to adjust borrowing costs.

Lesetja Kganyago, Governor of the South African Reserve Bank, reiterated the bank’s cautious stance on inflation pressures.

Despite the recent easing, inflation has consistently remained above the midpoint of the central bank’s target range of 3-6% since May 2021. Consequently, the bank has maintained the benchmark interest rate at 8.25% for nearly a year, aiming to anchor inflation expectations.

While some traders speculate on potential interest rate hikes, forward-rate agreements indicate a low likelihood of such a move at the upcoming monetary policy committee meeting.

The yield on 10-year bonds also saw a marginal decline following the release of the inflation data.

March’s inflation decline was mainly attributed to lower prices in miscellaneous goods and services, education, health, and housing and utilities.

However, core inflation, which excludes volatile food and energy costs, remained relatively steady at 4.9%.

Overall, South Africa’s inflation trajectory underscores the delicate balance between economic recovery and inflation containment amid ongoing global uncertainties.

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