TRADE and Investment Minister, Olusegun Aganga, early this month signed a tripartite Memorandum of Understanding (MoU) for the construction of six modular refineries in the country. Other signatories represented Vulcan Petroleum Resources Limited (an American firm that does not bear the more familiar tag of Inc.) and Petroleum Refining and Strategic Reserve Limited, a Nigerian company. The combined refining capacity of the proposed refineries is 180,000 barrels of crude oil per day, which represents six-sevenths of the capacity of one of the two refineries in Port Harcourt.The assurance by Aganga that due diligence had been carried out on the project raises a few issues that warrant a wholesale review of the entire project. Firstly, the three parties to the MoU do not have any known track record in refinery-related projects. The involvement of the Ministry of Trade and Investment is inappropriate because neither the Petroleum Ministry nor the Nigeria National Petroleum Corporation (NNPC) is expected to outsource construction of refineries, as it were, from another Nigerian ministry. Secondly, the average cost of the proposed refineries is a swanky N116.2 billion ($750 million). Is that price tag in line with industry standard' Thirdly, it is proposed to fabricate and test-run the refineries abroad. They will subsequently be dismantled, shipped down and reassembled where crude oil pipelines exist, but at yet to be determined sites. The promoters have apparently not given any thought to the local content law in the petroleum sector or the possible effect of the impending Petroleum Industry Act.Aganga also explained that constructing the refineries is a major step towards actualising the National Industrial Revolution Plan (NIRP) with particular regard to creating jobs and generating wealth in contrast to the practice of exporting raw materials and jobs to Western countries. But that rationalisation rings hollow because just 20 months earlier, Aganga as Minister of Finance, removed the ban placed on importation of textiles, furniture and other products. Despite protests in well-meaning quarters, the Jonathan administration has not reversed that action. Industries that use local raw materials together with imported complementary inputs, and employ labour to manufacture those products, have been left in the cold. It may be recalled that the import prohibition list was drawn up in 2003 to selectively resurrect sectors of the economy in accordance with the pristine import substitution industrialisation policy, which the NIRP being espoused by the minister probably mimics.The modular refineries will be constructed with funds obtained from abroad. As a matter of fact, intending foreign investors have given the Jonathan administration expressions of interest totalling N6 trillion for likely investments in various economic sectors that would be spread over several years. However, the points to note are, firstly, that these expressions of interest are practically castles in the air. Secondly, the pledged amount is not loose change or idle funds but anticipated cheap bank credit lines that attract competitive international rates. Thirdly, failure by Nigerian banks to finance national industrialisation through extensive private sector projects with similarly competitively priced credit lines is attributable to the non-conversion of Federation Account oil proceeds to realised naira revenue via deposit money banks. In the process, amount of bank credit missed by the private sector and lost to the economy every year exceeds six times the pledged foreign direct investment amounts. Thus the federal executive arm of government should embrace sound fiscal and monetary practices as the precondition for the country to move forward economically, politically and socially. The current unutilised installed manufacturing capacity rate of about 55 per cent, which has not improved since President Goodluck Jonathan took office, is evidence that this administration, like its predecessors, has not approached the NIRP objectives in the right manner.As regards petroleum refineries, the NNPC in 2002 granted 18 firms licences to construct private refineries. But 10 years on, no construction work has begun on any refinery. The obvious lesson is for government to overlook petroleum industry outsiders and take necessary steps to encourage companies within the petroleum sector to build refineries. To this end, it is imperative to revisit an earlier NNPC proposal calling on its six joint-venture companies to refine 50 per cent of their crude output by 2006. Therefore, the much anticipated Petroleum Industry Act or an adjunct enactment should set down graduated levels of crude oil output for oil producing companies to refine locally within a firm time frame. To address the usual concerns about so-called unattractive domestic prices of refined petroleum products, such refineries (wherever the various oil companies choose to site them on commercial grounds) should be accorded the status of export processing zone industries. Refined products for domestic consumption should be purchased at going international prices while the refineries arrange to export any surplus products. That way the refineries will be insulated from any problems of price deregulation and fuel subsidy, which should be left to the Nigerian people and the National Assembly to tackle as deemed fit.There are important advantages to this option. For instance, the refineries will be owned, built and run by committed experts. The NIRP will receive concrete expression as direct and indirect jobs will be created, and associated chemical industries will spring up on Nigerian soil. Secondly, upon acceptance at long last by the federal executive arm of sound fiscal and monetary practices, the Nigerian oil companies, which took over marginal oil fields from the oil majors will access cheap bank credit domestically, and individually or jointly with other minnows, take steps toward vertical integration by establishing refineries that will not be plagued by the problems which aborted the 18 licensed private refineries and which the planned modular refineries will most probably be unable to deal with.
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