Like Nigeria, like Ghana state-owned refineries fail

Recent tweets by one of BusinessDay’s energy reporters currently in Ghana for an oil and gas reporting  fellowship programme on the state of Tema Oil Refinery (TOR) show West Africa’s top two oil producers and economies are derailing from making their oil sector sustainable and globally competitive because the refineries are state-owned.

Ghana, it was thought, will learn from Nigeria’s mistakes, this does not seem to be happening. It is time to make oil resources and revenue work for nations that produce them and viable models include modular refineries and private sector led investments such as has been proven feasible by Dangote’s refinery in Lagos, Nigeria, set to come on stream 2019 or 2020.

BusinessDay’s reporter’s tweet said this about TOR “The tank farm in the refinery has been converted to storage facilities for Bulk Distribution Companies (BDCs) who import petrol. I visited the refinery today and I’m still trying to understand, who did this to Africa?”

Ghana produces oil from its jubilee fields but prefers to sell crude and import refined products. The reason: oil prices are high and it wants short-term profits. To keep the refinery workers quiet, they are paid all their allowances as at when due though they mostly do nothing.

Two refinery ownership and operational model look viable given track record of performance. Privately owner big and modular refineries present options worth examining because history shows enlightened self-interest as expressed in private sector enterprises are competitive and profitable.

Refineries come in various sizes. The range from small topping and reforming refineries to sophisticated complex refineries, but perform three basic steps which are Separation (fractional distillation), Conversion (cracking and rearranging the molecules), and Treatment.

In Nigeria, Dangote’s refinery offers an example of a privately owned refinery, which is poised to demonstrate how sustainable and profitable privately owned refineries can be in Nigeria, a model that is strange Africa’s top oil producer given many years of state owned and ran refineries.

Dangote Refinery currently under construction would save Nigeria $12 billion annual import substitution, create 4,000 direct jobs and crash prices of petroleum products.

Babajide Soyode, the Technical Consultant to Alhaji Aliko Dangote, said the project would add value to the economy as it would also create 145,000 indirect jobs.

Entrepreneurs look out for their interests and in the process, as Adams Smith, father of modern economics recognised, the invisible hand guides them towards the common good and sustainability but state-owned business entities behave differently in Nigeria. They generally under produce and loss money.

Experts say while it is encouraging that the over 500,000 barrel per day (bpd) plant by Dangote will alleviate the national and regional shortages in petroleum products supply, it should be understood that the problems that crippled the older plants are still in place, and by the sheer size of the refinery, it may suffer the fate of the older ones if extensive reforms are not implemented. Modular refineries, however, offer some unique options that may be more suitable for emerging economies like Nigeria.

A modular refinery by definition is a prefabricated processing plant that has been constructed on skid mounted surfaces, with each structure containing a portion of the entire refining process plant connected together by interstitial piping to form an easily manageable process.

In a volatile nation like Nigeria, large scale refining has some profound disadvantages that have over the years been proven by the non-functionality of plants and the heavy dependence on fuel import even after the plants were built.

This shows that unlike developed countries, economies like Nigeria have not evolved to managing large scale plants and maybe should look to smaller and flexible units. The key reason here is maintenance.

Large scale refineries are not easy to maintain and require a stringent quality control and jurisdictional system to ensure longevity. Global standards stipulate that process equipment be opened cleaned and inspected at least every five years, and an on-stream mechanical integrity programme be implemented and documented. While some refineries in America built in the 1920s are still fully functional, Nigeria’s oldest refinery was built in 1965 and operates at less than 15 percent capacity. The jurisdictional and industrial ethics are clearly absent and such levels of operation do not suit societies like Nigeria.


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