The Right Brains are needed to solve the problem with establishment of Refineries in Nigeria – Roland E. IDIMI

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About 50 years ago, China performed a National research over why would their neither (Japan) with less population, smaller land mass and less natural resources, be more developed and powerful than them. The research work came to the conclusion that Japan is an intelligence driven society with indigenous technology while China was not promoting science and technology at that time. Thus, their size, population and resources amounted to nothing.

The resolution after the research, was a National Law that, if you are not of the technical you cannot lead the Communist Party of China, thus you cannot lead China. It is about 50 years now and the results are obvious. China has today almost beat Japan in almost every aspect of human civilization. They displaced Japan to take over the position of the 2nd largest economy in the world, next to the USA and China has become the centre of technology and manufacturing in the world.

In Nigeria what we lack is the right brains in critical sectors . I want to say here that till this day, the Nigerian Government has not come to the realization of the reasons behind simple problems such as establishment private refineries (modular or stick design) in Nigeria. Thus, they have not being able to solve them. The truth is that refining is not viable based on existing Government policies and the economics. It has been great waste of time and resources over the years by Government and private companies to continue to perform feasibilities studies over the establishment of refineries in Nigeria with the present Government policies.

The big problem we have include the regulation by the Government and payment of subsidy for PMS and also lack of indigenous refining technology. I must state that the Dangote refinery economics changed based on the special policy of FTZ within the location. This made the Dangote refinery an offshore/overseas refinery being built in Nigerian soil as by operation it shall operate based on international price of crude oil and products. Under the policy of FTZ, Nigerian Government will have to pay subsidy for importing PMS from Dangote refinery to Nigeria. It can be said the idea is that of subsidizing production in Nigeria, which is however better than the present subsidy of imported products from other countries. As the Dangote refinery has the potentials of creating jobs and wealth for Nigerians.

What can be done to totally solve the problem with the midstream subsector of the oil and gas industry? The people and Government of Nigeria must have to come in terms with global realities and completely deregulate the midstream and downstream subsector of the oil and gas industry and totally stop the payments of subsidy. However, this comes with a great consequence. There shall be increase in price of petroleum and hardship to be experienced by the people on a short term if the process is well managed by the Government.

It must be stated here that stopping the payment of subsidy on its own will not solve the problem with refining in Nigeria. The Government must make it a policy or law to reinvest monies to be realised from non payment of subsidy into the midstream subsector of the oil industry to encourage private participation and investments in establishment of refineries in Nigeria. Money realised from none payments should not be shared by Governors or to buy buses / Keke NEPE or withdrawing 1 billion USD from it to fight Boko Haram etc.

The Government have to put a policy framework in place that provides incentives for private investments into refining and makes it possible for private sector driven industry. One strategy the Government could adopt is to make a policy for Government to provide interest free loan or low interest loans of up to 60 percent of the CAPEX requirements for developing modular refineries in Nigeria, if the private investors can provide proof of fund for the 40 percent balance of equity. With such a strategy, there shall be huge inflow of investments into the midstream subsector of the oil and gas industry and the Government would not have a problem of funding the interest free loan with the excess liquidity (monies) to be realised from non subsidy payments.

Definitely, there shall also be need for other incentives. Such as no duties payments for importation of refining plants, provision of FTZ policy for strategic locations to set up refineries, Government security guarantees, crude oil guarantees etc.

Roland E. IDIMI (UBIOMOR) is an International Oil and Gas Consultant.

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