why nine refineries failed in nigeria

Can these be the issues that Seychelles and WHL Energy are facing?

By Hamisu Muhammad, 14 January 2013

"Bureaucratic delays, lack of funding and technical incompetence have stalled the establishment of nine private refineries approved by government, Daily Trust investigation reveals.

The Federal Government had since 2002 been granting licences for the establishment of private refineries to address fuel importation problem in the country, but none of them has yet taken off.

The latest nine private refineries, proposed to be established in seven states across the southern part of the country, have a combined capacity of 464,000 barrels per day (bpd).

Daily Trust investigation shows that bureaucratic delays, blamed on the Department of Petroleum Resources (DPR), and lack of funding from private investors have stalled the projects.

Initially, the Federal Government, through the DPR, offered 12 Refinery Construction Licences between 2002 and 2004 but they were revoked in March 2007 for the licensees' failure to utilise them.

The government later revalidated some of them and granted new ones under new guidelines, Daily Trust learnt.

The new guidelines require each beneficiary company to provide evidence of available funding, complete engineering design and work plan as well as payment of applicable security deposit or revalidation fees before issuance or re-issuance of any Refinery Construction Licence.

A document obtained by Daily Trust shows that some of the companies got 'Approval To Construct (ATC)' and 'Licence To Establish (LTE)' since 2007 and 2008 but some of them are yet to pass even the paperwork stage.

Daily Trust checks also reveal that some of the companies have technically abandoned the projects while others are yet to mobilise to sites years after the issuance or revalidation of their licences.

One of the firms even demanded for the refund of the non-refundable licence fee it had paid.

Industry sources blamed DPR for some of the bureaucratic delays on one hand and the companies for failure to meet the technicalities and generate the necessary funding on the other.

The document in Daily Trust's possession shows that the DPR is yet to review some designs and basic engineering packages for some companies, while some of the companies have not mobilised to sites.

The time frame for the construction of a refinery, experts say, depends on the type of refinery. For instance, a skid refinery with about 30,000 bpd capacity could be constructed in less than 12 months.

A mega refinery with about 100,000 bpd capacity and above takes between three and four years to construct, with an estimated cost of about $3.5 billion.

The document details the nature, proposed location and capacity of each of the nine proposed refineries and the type of licences granted to them.

The first one, Amakpe International Refinery Incorporated, whose licence was revalidated in December 2007, is to be located at Eket, Akwa Ibom State. It is designed to be a topping (hydro-skimming) plant, with total capacity of 12,000 barrel per day.

Rehoboth Natural Resources Limited, in Immingiri, Bayelsa State, which is also designed to be topping (hydro-skimming) plant, had its LTE granted in 2008, with 12,000 bpd capacity.

Amexum Corporation, Ikang, Cross Rivers State, designed as a complex conversion (cracking) refinery, was granted LTE in 2009. The plant, according to the plans, is to be constructed in four phases (each with 25,000 bpd capacity) to give a total 100,000 bpd capacity. But

DPR said lack of financing for the project has stalled its take off.

Niger Delta Petroleum Resources, Ogbelle, Rivers State, is a modularized portable topping (diesel-extraction) plant, which got approval to install facilities. The project began in 2009 and installation of units has commenced, though without much progress.

Antonio Oil, located in Iwopin, Ogun State, as a conversion refinery (mini), got its ATC in 2009. According to plans, the refining plant is to be brought in from Europe, with 27,000 bpd capacity. The civil/structural works commenced on site in 2010.

Gasoline Associates International Limited Refinery, with its location in Ipokia, also in Ogun State, is a complex conversion (cracking) refinery, with LTE granted in 2009, and has 100,000 bpd capacity. But the project is yet to start. DPR said the licensee didn't attend refiners' status meeting.

Resource Petroleum & Petrochemicals International Incorporated, Ikot Abasi, Akwa Ibom State, is a complex conversion (cracking) refinery, with an ATC revalidated in January 2010 and 100,000 bpd capacity. Based on the records, the design basis of the refinery has been completed, but is awaiting review by DPR.

Sapele Petroleum Limited, Okpe-Sobo, Sapele, Delta State, with an ATC revalidated in February 2010, is designed as complex conversion (cracking) refinery, with 100,000 bpd capacity.

Ologbo Refinery Company Nigeria Limited, Ologbo, Edo State, is a topping (hydro-skimming) plant, and its LTE was granted in January 2010, with its capacity to be expanded to 18,000 bpd from 12,000. The document indicates that its basic engineering package has been completed but is yet to be reviewed by the DPR.

One of the biggest problems, sources said, is lack of prompt renewal of licences. The firms are required to renew their licences after every two years, and so far only two of them -- Amakpe International Refinery and Resource Petroleum -- have done so.

When contacted, DPR officials said they have no outstanding issues with most of the firms.

However, they said, those whose licences have expired need to renew them quickly.

Mrs Belema Osibodu, assistant director in charge of public affairs at the DPR, cited the case of Ologbo Refinery, whose LTE she said has expired and is now aware of the need to reapply, based on the specific guidelines outlined to them.

She said Resources Petroleum, however, has a valid ATC and will move to site whenever it is ready to do so.

The other firm with a valid licence, Amakpe International Refinery, said that it has achieved a 100 per cent completion of the fabrication of plant and machinery for the first phase of 6,000 bpd of the project.

Its president, Chief Usua Amanam, said the company achieved "this milestone" through a careful and meticulous execution of its plans, despite cost overruns and global economic turbulence.

"Our major lenders directly provided funding to the engineering firm specifically for the project," he added.

But Daily Trust learnt that there is an internal crisis within the Amakpe project too as Akwa Ibom State Government, which has interest in the project, reportedly signifies its intention to divest.

The president, however, said the project is receiving increased inquiries from potential investors across the globe.

A source at the Ministry of Petroleum Resources in Abuja said some of the licences may be revoked if the companies fail to show appreciable performance at their sites.

The source said government is tired of issuing licences to unserious investors who are not ready to do business.

The nine projects are not the only refinery projects and proposals that are facing, or have faced, difficulties in the country.

The Nigerian National Petroleum Corporation had in 2010 announced Federal Government's plans to build three new refineries in the country. They are to be sited in Kogi, Lagos and Bayelsa States.

Last year, at the wake of anti-subsidy removal protests, President Goodluck Jonathan repeated the promise. But the projects are yet to take off.

Similarly, a move to construct six modular refineries with a combined capacity of refining 180,000 barrels of crude oil per day by two private firms, which signed a Memorandum of Understanding with the Ministry of Trade and Investment, was stalled due to an apparent disagreement between the ministry and its petroleum resources counterpart.

The project, agreed last year and to be undertaken by a US-based Vulcan Petroleum Resources Limited (PRSR Ltd) and Abuja-based Petroleum Refining and Strategic Reserve Limited, was estimated to gulp $4.5 billion (about N697 billion).

The first two of the refineries were to be completed within 12 months. But the move has apparently failed to work.

Nigeria currently has four state-owned refineries with a combined capacity of 445,000 bpd. The refineries are located in Kaduna, Warri and Port Harcourt. They are operating at far below capacity due to poor maintenance and difficulties in accessing crude oil, even though Nigeria is major oil producer.

Some observers say lucrative fuel importation business, controlled by powerful interests in the country, is a contributing factor in stalling initiatives to boost local petroleum refining industries.