Why private refineries are not built — Avuru

Unfavourable government policy, harsh economic environment and lack of adequate fund have been identified as some of the impediments to private sector participation in the refinery business.
The Chief Executive Officer, CEO, Seplat Petroleum Development Company Limited, Mr. Austin Avuru, stated this at the just concluded Nigerian Marginal Field workshop, held in Lagos.

According to him, “The reason why the private sector has not been able to invest in refineries is that you cannot go to the bank to borrow $1 billion to build a refinery when the commercial framework is unclear to your bankers. When you are selling the product in the same market as the government-owned refineries that are regulated; when government says you can only sell the product at N97 per litre.

That is the reason why nobody has built refineries.” The SeplatCEOspoke against the backdrop of the nearly 12 years after the former President OlusegunObasanjo’s administration awarded 18 licences for private refinery operation, none has been built. Avuru explained that it takes a lot of financial capability to venture into the capital-intensive refinery project, a situation many Nigerians cannot cope with.

He said, “If you have AlikoDangote’s financial muscle, where you have the cash to build it, you can take the plunge and you will not lose money. The reason is that marketers in Nigeria, as vendors, do not pay N97 per litre for the products they bring in. They pay about N150 and the difference is the famous subsidy we all know.
“It is the same thing. If you have a refinery here, you are not going to sell at N97 per litre.

You are going to sell to the same marketers who would have imported their products at market price, at import parity price. “It is their business to sort out the difference between what government says they should sell and what you are selling to them, which is subsidy. Dangote will not build a refinery and sell at N97/litre. He will sell at import parity price. People will deposit money in the bank before he gives them products.  So, he loses nothing.

“Ordinarily, even if you have the courage to build a refinery today, you lose nothing, but you cannot raise the money because no bank will give you money under this kind of condition,” he said.
Avuru assured that with the entrance of Dangote into the oil and gas business, more Nigerians will venture into it such that in the next three years, the business will be dominated by indigenous companies.

“Once Dangote opens the floodgate and others come in, my projection is that at the end of 2017, the entire refining business in Nigeria will be controlled by the indigenous sector and some of them will also come from growth out of marginal field companies.
“At that point, people will have the courage to borrow $16 million and put in 5,000 to 10,000 barrel refinery around their fields and would not bother about shipping their crudes to some multinationals,” he added.