WHO BUILT THE REFINARIES? Sunday 26 October, 2014Updated6:23 My - TopicsExpress



          

WHO BUILT THE REFINARIES? Sunday 26 October, 2014Updated6:23 My Account About Us Contact Us HOME> NEWS The Refinery We’ve Been Praying for 22 Sep 2013 Font Size: a/ A Simon Kolawole Live!: By Simon Kolawole, Email: simon.kolawole@ thisdaylive It is not every day you get driven by a billionaire. I had to enjoy the moment as Forbes’ Africa’s richest man, Alhaji Aliko Dangote, got behind the wheels last Sunday. We were heading for Victoria Island from Ikoyi, Lagos State, for a briefing on his proposed refinery. He was wearing a simple short-sleeved shirt and a pair of jeans, too simple for the wealthiest black man. I could not but ask him: “So you drive yourself?” He said, “Mostly at weekends.” He even had a story to tell me: “There was a day I was driving and the traffic lights stopped me. Some guy looked out of his car and saw me. He appeared surprised. He asked, ‘So you know how to drive?’ I simply laughed. Why would I not know how to drive?!” I teamed up with him to laugh it off. When I heard the news of Dangote’s plan to build a 400,000-barrels-per-day refinery, I was amazed. I’m not sure most Nigerians know the significance of what is about to happen. Let us make some sense out of it. In 1965, General Yakubu Gowon built Nigeria’s first refinery which we call “Port Harcourt I” with a capacity of 60,000bpd. Ten years later, Gowon awarded the contract for the construction of Warri Refinery with a capacity of 100,000bpd. It was completed and inaugurated by General Olusegun Obasanjo in 1978. Obasanjo himself started the 100,000bpd Kaduna Refinery, which was inaugurated by President Shehu Shagari in 1980. “Port Harcourt II”, also started by Obasanjo, was completed by Gen. Ibrahim Babangida in 1989 to process 150,000bpd. Since then, we have stopped building refineries - even though our consumption has been doubling and tripling. All the refineries built by the government since we discovered crude oil have total installed capacities of 410,000bpd, almost equal to what one man is about to build. And, of course, you and I know that government refineries barely produce anything. That is why we keep importing petroleum products. Even if they work at full capacity, they cannot meet the demand. Only God can give us the accurate figure of the trillions of naira we have wasted importing fuel, including cost of freighting, demurrage, storage at fraudulent tank farms, fraudulent subsidy payments, bank charges, and such like, since Gen. Sani Abacha’s time. This is to say nothing about the opportunity cost - how much could we have been generating if we were refining and exporting products? How many jobs could have been created? I had called Dangote on phone to get some facts on his proposed refinery. After talking for some minutes, he said it was better we saw face to face. One of the questions troubling my mind was: since the downstream sector has not been deregulated, how does he hope to make money? Over the years, I had been campaigning for more refineries to be built. I once suggested that government should build and lease out the management, with the ultimate goal of selling them off through privatisation. I even suggested at a stage that local entrepreneurs should be empowered with oil blocks with the sole aim of encouraging investment in refineries. I was told to shut up, that I was not an economist and that I didn’t know anything about market forces. I was lectured that without deregulation, nobody would build new refineries. So why is Dangote building a refinery without deregulation? “I will explain,” he said, as we settled down in his yacht, anchored at Walter Carrington Crescent, Victoria Island. I was devouring cashew nuts with the kind assistance of a glass of Coke while he was dealing gently with tea. “With or without deregulation, there is nothing stopping anyone from building a refinery. I am not a marketer. All I will do is buy crude oil at the market price, refine and sell to marketers at the market price. It is marketers that deal with subsidy. If government continues to subsidise, marketers can buy products from us and then collect the subsidy from government. If not, they can sell to motorists at the market price. It’s not complicated. Don’t forget that when they go to foreign refineries to import petrol, they buy at the market prices before coming home to claim subsidy payments.” That was a startling revelation for me. Deregulation is clearly not an obstacle to building a refinery in Nigeria. Maybe I should have built a refinery myself (don’t laugh) instead of fruitlessly suggesting it to the government. Why didn’t I think of this all along? Well, it is not a 10 kobo business. That is why. The Dangote projects - a fertilizer plant in Edo, petrochemical and petroleum refining plants situated at Olokola in Ogun and Ondo states - will cost him $9 billion, for which he has sourced $3.3 billion loan from local and international banks. If the refinery was a government project, it would probably cost $15 billion by the time politicians, party chieftains and the middlemen in the private sector massage the figures. Dangote’s refinery, according to estimates, will create 9,500 direct jobs and 25,000 indirect jobs when completed. The story continues. Recent developments in the international crude oil market are not particularly in Nigeria’s favour. The world is developing alternatives to crude oil. Nigeria’s biggest customer, the United States, has scaled down oil imports from Nigeria, from the height of 1.1 million barrels a day to a little over 200,000. That is massive. We’re now practically hawking our oil like groundnut sellers inside Lagos traffic. Our biggest customers are now India and China. It takes 18 days to ship crude to the US, compared to 35 days to China. This has implications for finance. Some varieties of Nigerian crudes, meanwhile, are not preferred in the international market since they are only good for gasoline but not so much for Euro IV diesel. Apart from the lesser diesel output, it is more difficult to get the correct density and some of the other specs. Therefore, even our Sweet Crude (Bonny Light) has its limitations. “With global demand for crude oil projected to keep dropping,” Dangote said, “the way forward is for us to start exporting refined products rather than crude. We will get far much better value that way. In the next five to seven years, we should stop exporting crude altogether. Apart from South Africa, the refining capacity in Sub-Saharan Africa is grossly insufficient. Angola has a refinery that can only handle 30,000 barrels per day, whereas they consume 120,000 barrels. Cote d’Ivoire refines 60,000. Niger Republic is just 20,000. Ghana has 45,000. That is why our primary target is the regional market. Other African countries will be coming to buy products from our refinery when it is completed by 2016, insha Allah. That is our strategic plan.” We finished chatting and took a boat across to the Lagos Motor Boat Club, Ikoyi, from where we had driven to Victoria Island an hour earlier. He saw me off to the gate as we chatted on other matters of interest, including swimming. I jumped into my car and drove off, imagining myself as a billionaire driving a young journalist to my yacht for an interview. Not a bad act to follow.
Posted on: Sun, 26 Oct 2014 13:00:50 +0000

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