ISSUES IN MY COUNTRY WITH LAI OMOTOLA.
Topic: Five Reasons Why a Refinery May Never Work in Nigeria.
Introduction
A lot of independent businessmen and women secured licences and licences to refine crude oil in Nigeria. Motivation for this licence has always been the crude oil. Some even thought that once they secured licences, they would begin to lift crude oil, and since then, getting our refineries to work has been a challenge.
Historically, the first commercial quantity of crude oil began in 1956. But Nigeria did not start refining crude oil until 1965, when the first refinery was built by Shell in Port Harcourt.
For the past 28 years, our refineries have hardly worked. In fact, they have totally collapsed. About one trillion Naira have been spent on the turnaround and even repairing of the refineries. Several dates have been announced at different times for the refineries to commence operations. Recently, about 2 billion dollars was borrowed by the federal government to bring these refineries back to work.
For 28 years, we still continue to battle with our refineries. In just a recent time, the Dangote Refinery came on board and has been met with stiff opposition from opposing interests, and the battle still continues to rage.
Today, I want to carefully tell you five reasons why a refinery may never work in Nigeria.
1: Access to Funding
The first reason is access to funding. AnyoneAnyone Anyone thinking of running a refinery today, considering what has happened to Dangote, will find it extremely difficult to get access to funding.
It should be noted that to bring up or build a refinery is not a small amount of money, essentially in dollars, and running into a minimum of a billion dollars. It will be difficult for any entrepreneur or any independent businessman to invest in the business of a refinery after Dangote, and we have also seen those that have tried to build a refinery across Nigeria struggling, struggling, and, in the long run, entering into huge debts.
2: Dilapidated Infrastructure
Number two reason is about our oil and gas infrastructure. Our oil and gas infrastructure, which is a pipeline network, is majorly challenged. It is totally disintegrated, disintegrated, disintegrated, and it is in a state of moribund. There is no fund to rehabilitate our pipeline network. In view of this, refiners will now have to be trucking, and with the state of our roads, trucking comes with its own challenges. Our infrastructure is a major challenge to refineries. Our infrastructure is not aiding refineries, and that’s one of the reasons why setting up a refinery will be a problem in Nigeria.
3: Bad Business Model
Number three reason is about a bad business model. The business model in which the Federal Government will give an independent businessman the license to build a refinery is a bad business model.
The people that build refineries in developed countries are mostly energy companies. Who are these energy companies? They are the firms that drill crude oil and add value chains across the board. What do I mean by this? They drill crude oil, build refineries, and also have petrol stations. In the early days, Shell, a major player in oil and gas, would drill crude oil, build our first refinery, and also have Shell petrol stations across the country. Why is this model good? The reason is because the feedstock is guaranteed, guaranteed, guaranteed, the market is guaranteed, and you have vertical integration across the board. The same entity that is drilling is the same entity that is refining, and the same entity is retailing.
When you have a disjointed or a separated business model, it brings the exact vices that we are finding in Dangote Refinery, owned by Aliko Dangote, who is an independent businessman who has never been a stakeholder in the oil and gas sector, a new entrant, and now faces stiff opposition. opposition. The refinery he has built is the first. He has never built one before. So, he is doing something he has never had expertise in or has never done before. It is noteworthy that these challenges have become nobel to him. In a nutshell, the business for our refineries in Nigeria is bad, which will not aid the refineries.
Secondly, you tell independent investors to build refineries when already we have spent a trillion Naira on our own refineries, so of their own refineries are working. Which account is the money we have already expended on our own moribund refineries, and the workers we have paid at these refineries will go? This is the reason why private refiners will encounter opposition and still conflicts, and as a result of this, independent refiners will find it difficult to make headway.
Thirdly, what a lot of people going into the refinery business don’t understand is that in the business, the margins are low. They are between 1 percent and 5 percent. Turnover is high, but the margins are low. But because of the turnover, businesses concentrate on the turnover, but they do not realise that the bottomline is thin. Now, you will realise that in the early days, understanding these things, it was the government that built refineries because they understood that anybody that would survive in the refining business, subsidy must be coming from somewhere.
I will talk about subsidies in my next edition. But subsidy must come from somewhere, as I have said. When you take subsidies away from a refinery, that refinery will soon die. That’s what we are saying.
4: Toxic Business Environment
Number four, the Nigerian business environment is a toxic one. The economy is nose diving, and the regulators of the oil and gas business are new on board, and they continue to make lots of mistakes. They have turned the business climate into a very harsh one. As a result of this, the business environment for any foreign investor or local investor to come in is not attractive, and because it is not attractive, it cannot command the desired results. Our business environment is not helping matters.
5: Unstable Foreign Exchange.
Number five, which is the most important one, and if it is not resolved, no refinery will survive, is our foreign exchange. (Forex). No refinery will survive in a forex regime that is not only high but always fluctuating. It is a big risk when your forex fluctuates. When this happens, it means you have to be changing prices as it fluctuates. For example, if it fluctuates in Nigeria every week, it will be difficult for refineries to be changing prices every week. And if that is the situation and the refinery does not do it. The refinery will end up recording losses. These are the five reasons why a refinery may never work in Nigeria.
Thank you
Till I see you again next time.
