Another plan for the north: Where will the dollars come from?

This might not be a comfortable headline to many: Nigeria is planning to start importing CRUDE OIL. Reason: The Niger Delta militants are frustrating the operation of Kaduna refinery.

The group managing director (GMD) of NNPC, Dr Maikanti Baru, confirmed, last Friday, that the Federal Government will build 1000 kilometers of pipeline from Niger Republic to supply crude to Kaduna refinery. The GMD says the President has been in talks with authorities in Niger Republic.

If this deal comes to fruition, it will create room for the establishment of refineries in Kano and other parts of the north, where it is becoming increasingly impossible to pump crude, with pipelines, from the Niger Delta because of vandalism.

Reports say Chad is an option for crude oil import to the north. (Note that these countries have their own serious security problems – Boko Haram.)

The north ‘badly’ needs this energy. For the north to develop it needs energy to build power plants.

Even agricultural development needs energy – energy needs in irrigation and food processing are enormous. Thus, this plan will definitely increase the ties of northern states with Chad and Niger, while reducing ties with the rest of Nigeria – especially the Niger Delta.

But there are fundamental questions here. One, where will the money come from to invest in pipelines outside Nigeria, especially when there are enormous need for pipelines within Nigeria. Maybe from the foreign loans being sought? Two, would the scarce dollars in Nigeria be used to pay for imports from Niger and Chad.

No matter the kind of agreement that Nigeria might want, these neighbouring countries would love to have more dollars for their exports, and less naira and even the refined products in return.

The Nigerian government might want to have a crude swap agreement with the Nigeriens in order to conserve its scarce forex. But how will this crude that would be used as exchange for the Nigerien’s be transported from the Niger Delta?

There is no doubt that transporting crude oil from the Niger Delta on railways to the Kaduna refinery – if it’s eventually upgraded – will be a very viable option for Nigeria, especially when the government seems to have serious problem combating pipeline vandals. But the government seems to have jettisoned this alternative that would have forced it to build more railways within Nigeria.

Instead, it is embracing an alternative that would increase ties with our neighbors at the detriment of other Nigerian states.

Besides, this agreement will necessitate government to use its scarce resources to modify the Kaduna refinery in order to accommodate crude from Niger and Chad. (Kaduna refinery was initially designed to process a small amount of Nigeria’s kind of crude and latter upgraded to process paraffin based crude from the Middle East.)

But the Kaduna refinery has always been problematic. A former Presidential Adviser on Petroleum, Dr Emmanuel Egboga, had advised government to scrap this refinery and build a new one in Kaduna. Egboga says that there are many bad and very old features in the plant that are never talked about.

Its initial design adopted a very simple refining technique called hydro skimming – which produced surplus gasoline at uncompetitive prices at the expense of other products.

Subsequent upgrades were only able to upgrade it to a refinery which was dependent on Middle-Eastern oil imports – heavy oil. And these heavy crude oil were exchanged with Nigeria’s crude oil in swap deals.

The President does not want to privatize these refineries for some reasons – mainly statist ones, in my view. But this time, it is worrisome that the strategy been adopted to upgrade the Kaduna refinery would empower our neighbors, give them more influence in northern Nigeria and even the politics of Nigeria.

One Prediction that has come true

A few days ago, the minister of state of Petroleum, Dr Ibe Kachikwu, was quoted as saying that Nigeria’s refineries would be scrap as soon as Dangote’s refinery comes on board.

This whole scenario had been analyzed on this column in May. To fully understand why these refineries will be scrap, interested readers are referred by my article on this link.