by Mark Amaza

On the Port-Harcourt leg of his Niger Delta tour, Acting President Yemi Osinbajo disclosed the intentions of the Federal Government to work with illegal refiners of crude oil in the region and enable them to establish modular refineries so they can legally refine the crude oil and be properly engaged in economic activities, eliciting cheers and applause from the audience.

This marks a change in approach by the Federal Government to the menace of illegal refineries which has previously been focused on destroying them – in the last one year, over 1000 of such refineries have been destroyed by the Nigerian Navy and the Nigeria Security and Civil Defence Corps (NSCDC).

These refineries have become a source of economic livelihood for many people in the region and also a source of cheaper fuel for residents. However, the crudeness of the process confines them to being able to only produce heavier products of crude oil refining such as diesel and fuel oil; also, these refineries are heavy polluters of the environment.

In a country such as Nigeria that is a major oil producer and yet, depends almost entirely on imported fuel products, the possibilities of oil refineries is always welcome and the ingenuity of those who engage in illegal refining ought to be harnessed rather than criminalized.

But how feasible is it to have these refineries become legally operating, modular refineries as suggested by the Acting President?

The idea of using modular refineries to solve Nigeria’s refining problem is not a novel one; in October 2015, the Federal Government announced plans to issue 23 licenses for the establishment of these modular mini refineries with capacities from as low as 1000 barrels per day up to 30,000 barrels per day. However, none of these refineries is yet to see the light of the day.

It will not be farfetched that lack of access to capital is a major reason for this as modular refineries do not come cheap. For example, one of the license holders has disclosed that $116 million has been spent so far on their 20,000 barrel per day capacity modular refinery. At about $5800 per barrel, this means that it will cost approximately $58m to build a 1000bpd capacity modular refinery. Such an amount is far out of the reach of the operators of illegal refineries, either singly or even if they merge – such is the nature of their micro-enterprises.

But the question of the feasibility of these illegal refineries becoming legal, modular refineries is not just an economic one – it is also a question regarding the ownership of crude oil. What Acting President Osinbajo did not disclose but is known by everyone who has knowledge of illegal refining in the region is that the refiners use stolen crude oil as their feedstock.

The issue of crude oil ownership is central to the political unrest in the region: the Nigerian Constitution has vested ownership of all mineral resources in the Federal Government in addition to giving state governments ownership of all land through the Land Use Act. Agitation for greater share of oil revenues is what has morphed over decades into militancy and with it, oil bunkering and theft of crude oil on which these illegal refineries thrive.

If these refineries become legal, modular refineries, they will have to purchase their crude oil feedstock legally and at international prices, which will significantly increase their operating costs. Also, illegal refineries are tolerated by the people because they see it as simply harnessing the economic benefits from the oil gotten from under their land.

If Nigeria’s resource ownership laws were like, say that of the United States of America, crude oil discovered on privately-owned land can be mined and sold or refined by the owners directly, unlike the present arrangement where the government has the prerogative on who it allows to mine the crude oil, and the crude oil is sold on the international market in order to extract the maximum revenue for government and the oil explorer.

The proposed policy as suggested by Acting President Osinbajo is well-intentioned, but it is far easier said than done. A lot has to come together for it to produce the desired effect.

Editor