Can local refining address Nigeria’s oil challenges?


Despite strong-arm efforts to stamp out unlicensed local refining in Africa’s largest oil producer, the practice continues and is a major source of livelihood for those involved. Maybe it is time the government recognized and regulated local oil refining instead of relying on imports of petroleum products.

Since the discovery of oil in 1958, Nigeria is yet to find solutions to her crude refining and exploration and has over the years relied on importation of refined petroleum products.

Successive governments had made promises on building functional local refineries and addressing the rot in the oil sector. Unfortunately, none of them has repositioned the sector.

In one of the efforts Mr. Olusegun Aganga, the former Minister of Trade and Investment, signed a memorandum of understanding between the Nigerian National Petroleum Corporation (NNPC) and some foreign investors under an American-Nigerian joint venture to put up six modular refineries at the cost of $4.5 billion (about N700 billion). To this moment nothing has been done.

The federal government audit report shows that over $1.6 billion has been spent on the turnaround and maintenance of Nigeria’s refineries, without a functional refinery on the ground.

In the face of this challenge, communities in the Niger Delta region have come to adopt unconventional technologies in refining crude oil, which they sell to make a living.

Both the federal and state governments have branded these actions as illegal, thereby shutting down the refining plants. The argument of the government is hinged on the fact that the exercise is criminal and leads to pollution and environmental degradation, loss of revenue, as the products are not well refined, which also leads to health disasters, explosions and vehicle breakdown.

In an effort by the government to checkmate this act, about 4,349 illegal refineries were reportedly destroyed in diverse operations executed by the Joint Taskforce (JTF) in the Niger Delta between January and December 2012 alone and the destruction continues to this time.

In a complementary action, about 36,584 drums of illegal refined products, 638 pumping machines and 326 outboard engines were reportedly confiscated and destroyed by the JTF and the Nigeria Security and Civil Defence Corps (NSCDC) in Niger Delta communities, while 2.24 million liters of illegal diesel in Delta State were reported to have been destroyed.

In Edo, Rivers and Delta states soldiers under the auspices of ‘Operation Pulo Shield’ were reported to have destroyed numerous local refineries.

As the government destroys local refineries, branding them illegal as a justification for its actions, groups such as the Ijaw People Development Initiatives (IPEDI) have argued that rather than destroy such ‘illegal’ refineries the government should allow them to operate to create job opportunities for the youth in the region.

They advised the government to provide operational guidelines for local refineries, rather than destroying them. They observed that in spite of the destruction of local refineries and branding them illegal, they still exist.

As such the best idea is for such refineries to be licensed by the federal government and to demand the payment of appropriate taxes.

Mr. Peter Biakpara, a former commissioner in Delta State government, does not see any illegal refineries in the Niger Delta region. Rather, he calls the exercise “local expertise”.

To him, “government has to encourage local refineries, and if the government refuses to support and regulate them, they will continue to exist, because those who operate them cannot easily give up as they are making a living out of them.”

He also observed that “the giant oil refining companies we have today may have started in crude and traditional forms as those operating in the Niger Delta at the moment.”

He was of the opinion that government should play a major regulatory role as it does in other sectors, as against its choice of using the firepower of the state to send people out of business.

Even as government destroys the local refineries in the Niger Delta, the hope of Nigerians in having efficient and functional refineries is still dim.

A report by the Special Task Force on national refineries revealed that the number of licenses issued to investors to build refineries in Nigeria has increased to over 28, and in all none of the licensees has the capacity to operate a refinery.

The report also revealed that of the 42 oil refineries operating in Africa, the three in Nigeria are the worst, in terms of efficiency and capacity utilization.

Foreign investors are unwilling to invest in Nigerian refineries as a result of these challenges.

Some key questions that are left unanswered are: going by the need for the Nigerian state to have local refineries that are driven by the local people, should initiatives of crude refining in Niger Delta communities be killed by the government? Is there a way the government can establish a framework that will enhance local crude oil refining in the Niger Delta? Are there ways government can encourage local refining of crude oil by setting regulations that will guide the activities of local refiners?

Communities within the region have also argued that if the reason for destroying their local refineries is because their activities lead to environmental pollution, Shell Petroleum Development Company and other multi-national companies operating in the region should also be shut down because they also cause environmental pollution.

If the Nigerian government sees a reason to encourage and support initiatives on local refineries by communities in the Niger Delta, investment in this direction will be one of the best options, they argue.

There is a sense in which communities in the Niger Delta are not likely to give up local refinery operations. The trend is likely to continue as those who engage in the act see it as a huge source of livelihood.

For instance, investors in this business make between N2 million (about $12,800) and N10 million ($64,000) every week, depending on the scope of their business.

Those who engage in the distribution of the products make more gains, particularly at the time of fuel scarcity, since they control the retail using boats and canoes to transport the products from one location to another.

Some law enforcement agents like the army and police whose assignment is to checkmate such operations are alleged to have joined communities in the business mainly because of the high profit.

In a sense too, despite several efforts towards cracking down on the operators of these ‘illegal refineries’ by the JTF, the number of lorries loading oil from the local refineries continues to increase.

The president of the Oil and Gas Service Providers Association of Nigeria (OGSPAN) Colman Obasi observed that: “From all indications and what is obtainable, the war against illegal refineries cannot be won now. In fact, it is far from being won. It has not even started and this is due to the fact that those who engage in the business are still in charge.”

Putting up a local refinery no doubt is capital intensive. If Nigeria will have a local refinery with good capacity in place, hopes that the challenges and corruption found in the country’s oil sector will disappear are high.

As the Nigerian state takes cognizance of the important role indigenous technology and local initiatives can play in both technological advancement and economic transformation, the government is likely to listen to the growing voices of advocates for supporting the local refineries.

The government may start to think in terms of plans to encourage and design policies for initiatives like those in Niger Delta communities rather than branding them illegal and shutting them, using the firepower of the state. This can be a dramatic turning point for the restive Niger Delta and the Nigerian state socially, economically and politically.

From the failed attempts by the government to establish functional refineries, and government unwillingness to give up its monopoly on oil business in Nigeria, the business of local refineries in Nigeria will face challenges in the years ahead. Despite the envisaged challenges, communities in Niger Delta are likely to embrace illegal refineries in full force in years to come. This is likely to be the case as communities in the region are resilient when it comes to oil.

Militants in the region are also finding the business lucrative and they are likely to opt for it in place of kidnapping and waging war against the government. The business is also likely to thrive more when communities and militants in the region know how lucrative it is, thus this is likely to be another area government has to confront Niger Delta region just as it did in the days of militancy.

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