Category: Payments

The pressure on Naira has been enormous of late. An ant hauling Jumbo the Elephant across the Lagos Lagoon on its back wouldn’t have suffered a worse fate.
Any nation that imports more than it ships out would always have to contend with issues like this. But the dependence on imports for Nigeria has gone to a calamitous level and when you analyze that our imports are things we could easily have made ourselves you can’t but ask questions about our collective sanity. We have vast arable tracts of land yet we import food. We have cattle with big fat horns yet we import leather and milk. Our bitument deposit is one of the largest in the world yet the craters on our roads could easily swallow a dinosour. I could go on till the cows come home.
Economic schizophrenia aside, Nigeria ranks 15th on the list of the largest oil producing nations in the world with a reserve sitting us somewhere around 10th on another list. Yet we import virtually all our petroleum energy requirements. Does this make sense? I honestly doubt it. We have four near moribund refineries whose output fueling just 10% of national requirements could hardly produce enough to power the villages around them talk less of the whole country.
The current refineries are:

The state of things isn’t surprising after all; what industry or infrastructure has the government managed well? What is surprising has been the private sector apathy.
Government in a bid to open up the market has licensed some refineries some years back. I can remember Orient Refinery in Onitsha doing some road shows but nothing came out of it.
Despite the apparent madness going on at the national level, I believe Nigeria represents a deep gold mine for private sector lead refining but it cannot be on a puny level. But like every miner would tell you, you can’t just smash a few rocks and expect gold coins tumbling out: some serious digging is required. At a recent estimate, it cost approximately $10,000 per Barrel to build a modern refinery and a 500,000 Barrel behemoth would be in the neighborhood of $5B. Though huge, it is not more than what a consortium of banks (local and international) can put together. The payoff would be out this world. And once one is built, you can be sure many more would be erected until we have a glut. Late comers always pick up the crumbs (ask Etisalat or better still Telkom). The estimate is just a rule of thumb as no two refineries are same. The actual cost would be a function of multiple variables such as environment, feedstock, technology, blah blah blah.
But an energy analyst friend has opined that entrenched interests in the oily and smelly importation business in Nigeria have been a constant spanner in the works: It is easier to earn millions of dollars in oil allocations than sit down to do a serious business of building and running a refinery. This could be true nonetheless I believe that when there is a will, there would be a way. Prior to the country getting blanketed with mobile phones, entrenched interests held Nigeria by the communication jugular but we got out of it, didn’t we?
In 2010 the government, represented by NNPC, signed an $8B contract with the Chinese to build the first of three refineries at the Lekki Free Trade Zone. 80% of the cost would be ponied up by the Chinese and Lagos State offered land and infrastructure. Nevertheless like anything the government has hands in, until the construction is finished and petrol flows, you can’t shout hallelujah.
So how does a refinery help the Naira? Simple, when we stop importing fuel the demand on FOREX goes down (at least on non-productive things). Furthermore if we build enough of these things, we could end up as net exporter of refined products to other countries. Oil refining technologies have matured over the years and new ones built would have productivity and price advantage over the pre-Cambrian refineries at out neighboring countries.
The biggest challenge isn’t the entrenched interests or government ineptitude but the myopia of bankers and investment managers around here. The pressure for short term profit creates a vicious circle which prevents all from tapping limitless opportunities our infrastructural deficit has created. Promoters of Orient and Amakpe refineries have been running around like bees on steroid yet they haven’t gone 100% operational all for paucity of funding.
In the land of the mad, the psychiatrist is king.