Refineries: Dangote and IPMAN cut the Gordian knot

Some degree of sanity seems about to return to the Nigerian oil sector. Despite being the largest producer of crude oil in Africa, the country imports virtually all refined products. While its four state-owned refineries continue to gather dust, two greenfield projects could change the current situation beyond all recognition. Frederick Mordi reports.

When the Dangote Group unveiled its plans to build a $9bn oil refinery, petrochemical plant and fertiliser plant, to be sited in the Lekki Free Trade Zone, Lagos, last September, there was a general feeling of relief.

Nigeria, a member of the Organisation of Petroleum Exporting Countries (OPEC) and Africa’s largest oil producer, does not have functioning local refineries. All four refineries in the country are dilapidated and practically inoperative due to years of neglect, caused largely by corruption.

Even though the federal government had in the past allocated billions of naira purportedly for the turnaround and maintenance of the ailing refineries, there has been little to show for it. Nigeria still imports refined petroleum products. The government spends billions of dollars yearly to subsidise the cost of importing refined crude to cushion the effect of price on the masses.

In January 2012, the President Goodluck Jonathan administration announced a removal of the controversial fuel subsidy. This did not go down well. A nationwide strike that paralysed socio-economic activities in the country at the behest of organised labour and civil society groups, forced the government to rescind its decision.

The government eventually reached a compromise with the labour movement on the appropriate price of petroleum products. But this may not have been the end of the matter as the government is said to be waiting for an opportunity to end the fuel subsidy scheme. 

It is projected that the Dangote refinery, which is currently under construction, will be able to refine 500,000 barrels of crude oil per day, while the petrochemical plant will produce 750,000 metric tonnes per year of polypropylene. The fertiliser project is expected to produce 2.8m metric tonnes per year of urea and ammonia.

Currently, Nigeria produces a little over 2m barrels of crude oil per day. Youth restiveness and pipeline vandalism in the volatile Niger Delta region, the site of the nation’s oil wealth, have led to a shortfall in output over the years.

During the signing ceremony in Abuja, the nation’s capital, president and chief executive of the Dangote Group, Aliko Dangote, said: “At the completion of these projects, we expect Nigeria to become not only self-sufficient in fertiliser and refined petroleum products but indeed to become recognised as a leading exporter of these products.”

A consortium of local and foreign banks are backing the Dangote refinery project. In July this year, the African Development Bank (AfDB), approved a $300m loan facility to the Dangote Group as part of its support to facilitate the mega-project.

Another refinery on the way

Following in the footsteps of the Dangote Group, in July also, the Independent Petroleum Marketers Association of Nigeria (IPMAN), the umbrella body of oil marketers in the country, declared its intention to invest $3bn in local refineries in two states of the federation. The two proposed refineries will be located in Kogi and Bayelsa states.

The Kogi refinery is expected to cater to the needs of the middle belt region and boost supplies from the Kaduna refinery in the north. The Bayelsa refinery in the Niger Delta, will complement the existing Port Harcourt and Warri refineries, also in the zone.