International financiers that are meant to fund the construction of about 20 modular refineries in Nigeria have withheld their funds due to the difficulty in obtaining guarantees for the delivery of crude oil to the facilities after they are completed
The majority of foreign oil corporations that produce crude oil in Nigeria have not been able to promise financiers that crude will be provided to the modular refineries when the facilities are ready to produce refined petroleum products, according to The Punch.
As a result, the facility’s investors have held to their money until the federal government can persuade IOCs to give the assurances necessary for modular refiners to get their crude oil supply.
Although Nigeria prides itself as the largest crude oil producer in Africa, it exports the bulk of its crude to earn foreign exchange, depriving domestic refiners who struggle to source the United States dollar needed for the purchase of crude.
There are now 25 licensed modular refineries in Nigeria. Black oil, naphtha, kerosene, and diesel are produced by five of them now in operation. Ten or so are at various stages of completion, while the remaining ones have been granted licenses to open.
Aside from the five that are currently operating, modular refinery operators indicated that the remaining facilities are struggling with the key issue of crude oil scarcity, which has caused a halt in funding from financiers.
The Publicity Secretary, the Crude Oil Refinery Owners Association of Nigeria, Eche Idoko, stated “Only about five of our members have completed their refineries. The others are having a major challenge. This challenge is that the people who are supposed to finance them have not disbursed financing for construction because they want some level of guarantee.
“A guarantee that if they finish the refinery, they are going to get feedstock, which, of course, is crude oil.”
“When we approached the regulator, it said it could not give us that kind of guarantee, this was before the Petroleum Industry Act became implemented. It cannot give us a guarantee because it thinks we will take the feedstock to sell and will not build the refineries.
“This, for us, is neither here nor there, because what the financiers were asking for is not that you should supply them the crude, but that we should be able to give them what we call a Conditional Term Sheet and Heads of Terms. And this means that when you finish your refinery as an investor, you will be supplied feedstock,” he added.
According to Idoko, this is the reason that the majority of Nigeria’s modular refineries are still under construction. He also suggested that the Nigerian Upstream Petroleum Regulatory Commission should put pressure on IOCs to offer these assurances.
He said modular refiners and a few downstream firms in the industry urge the regulator to require foreign oil corporations to provide crude to domestic refiners before exporting the commodity.
“What was done before now is that the regulators would write, quoting Section 109 of the PIA, which talks about the fact that crude oil will be supplied after the mechanical completion of the refinery.
“The financial houses know that the regulators do not own crude and don’t produce the commodity, but they want to see something from your suppliers that when you finish your refinery, they are going to give you crude under some specified terms.
“But we have not been able to get the regulators to see reasons and impress it upon these IOCs to give us this kind of document. So what we have received from them is that the guidelines state that they can supply crude when the refinery is at least operating at 50 per cent,” Idoko stated.
