Page 5 - DMEA Week 31

DMEA COMMENTARY DMEA

The Dangote refinery
construction site.

operational until the end of 2022. Such a lengthy a 5,500 bpd plant in the Edo State has reached
delay would cost Nigeria a considerable amount 70% completion.
in terms of fuel import costs. “While large-scale refining in Nigeria has
been fraught with challenges, modular refining
Other options avoids many of the political and logistical pitfalls
Meanwhile, plans by state oil company NNPC while offering vertical and horizontal integration
to modernise its ailing refineries in Kaduna, through upstream, midstream, downstream and
Warri and Port Harcourt appear to be at a power, as well as easing reliance on fuel market-
standstill. NNPC revealed last year that the ers and pipelines that have been routinely van-
plants were running at a mere 5.6% of their dalised,” Simm said.
combined nameplate capacity of 445,000 bpd.
The fuel they produce is also of low quality, Reforms
contributing to pollution problems in Nigeria’s To make a success of its refining industry,
largest cities. though, Nigeria will also need to push ahead
NNPC said in April it wanted to close down with fuel sector deregulation.
the refineries altogether, while it searches for Subsidised low fuel prices and other con-
the financing to upgrade them. It is offering straining policies have long sapped investment
investors operations and maintenance (O&M) in Nigerian refining and fuel retail. But in
contracts for the refineries, meaning it will no June, the government introduced a more mar-
longer own them after modernisation is com- ket-based template for gasoline pricing, raising
plete. Attracting partners will be no easy task in prospects that gasoline price ceilings could be
the current economic conditions. ended for good.
“It has been some time since any progress was Low international fuel prices have presented
made on improving these chronically underper- the authorities with an opportunity to enact
forming units, and despite making all the right such reforms. However, as markets rebalance
noises, there are serious doubts about whether and prices rise, the risk is that the government
NNPC can actually complete these projects,” rolls back these changes, fearing the civil unrest
Simm told NewsBase. “With NNPC not having that increased fuel bills could cause. Fuel prices
carried out full turnaround maintenance on the are politically contentious, and in the past, riots
facilities for more than 40 years, there is grow- have broken out over even mere rumours of
ing concern that the company has given up on price hikes. Motorists are likely to be particularly
the refineries, instead putting all its eggs in the incensed by price increases given the deep reces-
Dangote basket.” sion Nigeria is facing.
The picture appears somewhat rosier for Equally, though, Nigeria’s fiscal crisis means
Nigerian modular refining. Waltersmith Petro- it is less able to cover these subsidies. And as the
man started pre-commissioning in March at a International Monetary Fund (IMF) and other
5,000 bpd modular refinery at the Ibigwe oilfield lenders will likely insist on austerity measures
in Imo State, and production is due to begin by in return for their financial support, the reforms
the end of the year. Meanwhile, construction of could be here to stay. ™

Week 31 06•August•2020 www. NEWSBASE .com P5