Crude oil supply, a key challenge for Kaduna Refinery
The Head, Energy Research at Ecobank, Dolapo Oni, in this interview with KINGSLEY JEREMIAH, discussed key issues relating to the Kaduna Refinery, especially the need for government to hand off refinery business and allow the private sector to drive investment and grow the sector.
What do you make of Kaduna Refinery’s constant shutting down?
That refinery will constantly have problems because of it distance away from any crude oil field. The refinery depends on pipelines from the Niger Delta, which transports crude oil up North. It is also equipped with a storage capacity that takes only one-month supply. The implication is that even if crude oil flow stops for only three weeks, the refinery is out of supply. This is one of the disadvantages that we have to battle with. This, in part explains why the refinery is constantly going off and on. That also means that we have not been able to utilise the refinery, which happens to be one of the youngest, and has not seen as much usage as the rest of the refineries. It is also one of the refineries that has not recorded any fire incident or damage by militants- Warri and Port Harcourt refineries have had a lot of that. So the Kaduna Refinery is meant to be in a state much better than the others except for crude oil supply, which has remained a key challenge.
Many see the location of the refinery and the fact that it largely depends on heavy crude as disincentives. Are they?
The refinery processes normal crude but it also has a unit that enables it process heavy crude oil. The reason the unit was added was to process heavy crude and process diesel for the northern region. This is because there are a lot of trucking activities in the North. This crude is sourced from outside Nigeria. But again that is a further disadvantage to the refinery in the sense that Kaduna is land-locked and that means crude oil has to come in from somewhere, that is, either by pipeline or truck. So, it is not a very convenient economics. Economically, the cost of getting crude oil to the refinery itself makes it very expensive.
In that case, would you also join in calling for the scrapping of the refinery?
I am not a big supporter of that idea, but like I earlier explained, in terms of the condition of the refinery, it is still one of the best refineries in the country, and I have it on good authority that it remains one of the best. The major problem of the facility is the crude oil supply. What I think needs to happen is for alternative supply to be created to get crude to that refinery. We have to agree that the decision to take the refinery there in the first place was wrong. But since that has already been done, I think we can either get a pipeline to supply crude oil to the place from Niger Republic or from neighboring Chad so that if supply from the Niger Delta stalls, we can still have supply from one of the neighboring countries. The other option is for us to create stronger crude oil storage at the refinery, that is for up to about three months so that when there is a shut down, the refinery can keep running. The good thing is that even if you store about three months supply at the Kaduna Refinery, it cannot be easily trucked out, so the fear that someone may steal and sell it off won’t arise. I think the storage first of all has to be increased, thereafter we can sell off the refinery. I am a big fan of government getting out of refinery business. Government should allow the private sector to run refineries because private owners are better managers.
Over $20b have so far been spent on Turn Around Maintenance (TAM) of the country’s refineries, yet there are no improvements. Do you think government needs to pump in more money into them or sell them off?
The issue here is that the refineries need to be fix a bit before they are sold, privatised or concessioned since they cannot be sold as they are. What we need to do is to put them in good shape and make them work. Unfortunately, the government has found it consistently very difficult to fix those refineries and we cannot deny that fact. I think we do need to spend some money, if there is an opportunity to get people that will buy, concession, involve in the financing agreement at this stage. This may be a better option. For instance, if I already know that I am going to win the concession of a refinery, I will have no problems spending some money to fix the facility now so that when it is concessioned to me I can get my funds back.
The APC government promised to build a new refinery every year, but we are yet to see any. What could be responsible for this?
Those were political promises. The reality is that the economy behind building refineries is a lot more complicated than most people thing. Look at the Dangote Refinery for instance, we have to wait till 2019. So, it takes a lot more than mere pronouncement, and I think we need to deregulate the sector and allow the private sector to drive growth and investment.