The conspiracy against local refining

NIGERIA’S struggle to develop and sustain local oil refineries has long been a sore point. The oil industry, often touted as the lifeblood of the country’s economy, remains paradoxically underdeveloped at its downstream core. This is no accident but the result of a complex web that has inhibited the growth of local refineries.

Despite being the largest oil producer in Africa, Nigeria has relied on importing refined petroleum products for decades despite having four public refineries that have gulped billions of dollars in TAM. These refineries—Port Harcourt (two plants), Warri, and Kaduna—have operated far below capacity, often plagued by poor maintenance, outdated technology, and mismanagement. The result is a country rich in crude oil but impoverished in refined products, leading to a heavy dependence on imports and, by extension, international refineries. The Minister of Finance, Wale Edun, said Nigeria spends $600 million monthly on fuel imports.

A significant factor is the influence of multinational oil companies and foreign governments, who benefit immensely from Nigeria’s reliance on imported refined petroleum products.

Former President Olusegun Obasanjo recently fingered the oil cabal for frustrating the $20 billion Dangote Refinery, which has been lamenting low crude supply by the multinationals. This is against the Petroleum Industry Act.

Apart from the Dangote Refinery, other domestic refiners in Edo and Imo states are suffering from a crude shortage.

The Nigerian Upstream Petroleum Regulatory Commission’s argument that oil supply should be based on a “willing buyer and seller” system flies in the face of the PIA, which prioritises crude supply to local refiners. Tragically, the NNPC, which ought to champion the successful take-off of local refineries, has failed to rise to the occasion. The NUPRCL appears to lack the muscle to perform its job.

Compounding this issue is the internal sabotage rooted in corruption and the self-serving agendas of certain political elites and business moguls. These individuals, who profit from the status quo, have little incentive to support the revitalisation of local refineries.

The oil subsidy regime is another mechanism through which this conspiracy is perpetuated. While intended to make petroleum products affordable for the average Nigerian, the subsidy became a conduit for corruption. The funds for refinery maintenance and development are often diverted, leaving the refineries in perpetual disrepair.

To break free from this web, there must be a concerted effort to reduce the influence of foreign interests that undermine local refining capabilities. This includes renegotiating contracts and policies that favour foreign refineries at the expense of domestic production.

Internal reforms are crucial. The government must enforce stricter oversight to prevent sabotage and ensure that funds allocated for refinery maintenance and development are used effectively. Transparency and accountability must be the watchwords if the sector is to be revitalised.

Driving local crude oil refining in Nigeria is crucial for achieving energy independence, creating jobs, and boosting economic growth. The government and relevant stakeholders should prioritise the rehabilitation and modernisation of existing refineries.

Tax holidays, duty waivers on imported refinery equipment, and other financial incentives can attract local and foreign investors to establish new refineries. Simplifying the regulatory framework for obtaining licences and approvals can reduce the bureaucratic bottlenecks that deter investors. A transparent and efficient process will encourage more companies to invest in refining.

Modular refineries, which are smaller and quicker to build, can help increase refining capacity in the short term. The government should support the development of these refineries by providing access to financing, land, and technical assistance.

The recent directive by President Bola Tinubu to the NNPC to sell crude to the local refiners in naira is commendable and should be implemented without further delays.

Beyond meeting local demand, Nigeria can position itself as a regional refining powerhouse, exporting refined petroleum products to other African countries.