If assurances from the Nigerian National
Petroleum Corporation (NNPC) are anything to go
by, the Port Harcourt refinery will resume
operation next month. The Corporation, through
its former Group Managing Director (GMD),
Joseph Dawha, said the four refineries will
operate up to 80 per cent of their installed
capacities, translating to five million litres of
petrol per day.
Based on the revised Turn Around Maintenance
(TAM) strategy for the refineries, Dahwa also said
that Warri and Kaduna refineries will be
revamped and become operational within the
next 18 months.
With all plants producing at nameplate capacities,
a significant improvement is expected on
domestic refining and a drastic reduction on
importation of refined products.
But, if Dahwa felt his assurances would gladden
the hearts of Nigerians and restore their
confidence in NNPC’s management of the
nation’s oil and gas resources, particularly the
refineries, he got it all wrong.
President Muhammadu Buhari, who has not
hidden his administration’s resolve to beam a
searchlight on the operations of the NNPC,
sacked the corporation’s 10-member board last
weekend.
The NNPC has been under attacks over perceived
sharp practices in the running of refineries and
the management of revenues from crude oil sales
and swaps.
Not a few Nigerians, including industry operators,
experts and stakeholders, saw the NNPC’s sudden
assurances as medicine after death. And they
have every reason for such skepticism.
For instance, none of the four state-owned
refineries has witnessed significant improvement
in capacity utilisation despite the several billions
of the tax payers’ money spent on yearly Turn
Around Maintenance (TAM).
Even, the five million litres daily production
expected from the Port Harcourt refinery from
next month, will be a drop in the ocean. On the
average, Nigerians consume about 40 million
litres of petrol daily. So, if all the four refineries –
Port Harcourt (two), Kaduna and Warri- produce
80 per cent of their nameplate capacities, it will
translate to five million litres from each of the
refineries. All four will produce 15 million litres,
leaving a shortfall of 25 million litres and a far-cry
for local consumption demands.
Impliedly, the much-needed succour may not
come for Nigerians, who have been battling with
acute fuel shortage since the beginning of the
year. Yet, the problem is not limited to petrol
alone. In all, the two refineries in Port Harcourt
have a combined refining capacity of 210,000
barrels per day (bpd). The other two in Kaduna
and Warri have installed capacities of 110,000 bpd
and 125,000 bpd respectively.
All added, the four refineries have a refining
capacity of 445,000 bpd. But the Organisation of
Petroleum Exporting Countries (OPEC) says that
Nigeria has capacity to produce 30,400 barrels
per of gasoline, 15,800 bpd of kerosene, 18,400
bpd of distillates and 20,700 bpd of residuals.
The oil cartel put the country’s output of
petroleum products by country at 89,000 bpd,
which is a far-cry from 445,000 bpd.
Experts blame the embarrassing scenario on
mismanagement of the refineries.
Modular refineries to the rescue
The stakeholders and the authorities in the oil
and gas industry have proposed the
establishment of modular refineries as the
quickest way to halt declining efficiency and
productivity of the existing refineries. They
believe such facilities will boost local refining
capacity.
Modular refineries are crude processing facilities
with narrow product line, limited to kerosene,
diesel and low pour fuel oil (LFPO) with a
production capacity of between one to 30,000
barrels per day or bigger. They have a completion
period of between 18 – 24 months.
Promoters of modular refineries believe the
option will address the recurrent and
embarrassing fuel scarcity within a short time
and at rock-bottom costs.
Looking at it from the investment angle, experts
agree that investing in, and construction of
refineries is capital intensive, and that mini/
modular refineries are cheaper and easier to
build.
According to the Department of Petroleum
Resources (DPR), Nigeria’s oil and gas industry
regulator, an investor requires between $1
million to $15 million to build a modular refinery.
Stakeholders identified flexibility as another
attraction as investors can build refineries that
are relatively inexpensive, in multiple locations as
and where demand is required.
Besides, modular units can be expanded, thereby
providing a cost-efficient and highly flexible
means of delivering ‘on the spot’ refining capacity,
either to remote geographical locations, or to
regions requiring the benefits of locally
processed oil products to meet increasing
operational and local demand.
This was what the 20, 000bpd modular refinery in
Rivers State, Southsouth set out to achieve. The
project, with an initial cost of $480 million and a
12-month completion period, is to be handled by
an international consortium comprising the
National Standard Finance of the United States
(U.S.) and Omega-Butler Refineries of the United
Kingdom (UK).
Apart from producing petrol, diesel and gas, it
will also produce bitumen. The Rivers State
government will provide 40 hectares of land for
the project, that has a capacity to generate 1,500
jobs.
Experts speak
The job creation potential of modular refineries is
not lost on the Joint Task Force (JTF) Commander,
Maj-Gen Emmanuel Atewe, who believes that
modular refinery will improve fuel supply, create
jobs and grow the economy.
Gen. Atewe told The Nation that if modular
refineries were working, scarcity and distribution
glitches would become a thing of the past.
He said: “I think the country needs modular
refineries to refine crude oil. By this, I mean
refineries with smaller capacities. When we have
modular refineries, they will help in refining
thousands of barrels of crude oil and the
economy will be better for it. Besides reducing
the perennial fuel scarcity, it will also provide
jobs for people.”
According to the JTF Commander, with gainful
employment for the restive Diger Delta youths,
they will no longer engage in pipeline vandalism
and oil theft.
“Even, if they are going to commit such crimes,
the rate at which they do so would not be high.
Job creation is one way of reducing restiveness in
the Niger Delta. I’m advising stakeholders to
come together and see how they can build
modular refineries and further provide multiplier
effects on the economy,” he said.
The Registrar/Chief Executive Officer, Institute of
Business Development (IBD), Mr. Paul Ikele, was
on the same page with the JTF chief. He described
modular refineries as a sustainable option that
will boost products supply across the country and
also resolve the subsidy controversy.
He said the granting of franchise to investors to
build and operate modular refineries with newer
technologies, will end the raging controversy over
whether or not to remove subsidy.
“If petroleum products are available to Nigerians
on sustainable basis, the issue of payment of
subsidy would not arise,” the IBD manager said.
He pointed out that the technologies used in
building the existing refineries were obsolete and
demanding so much in maintenance.
He said the country cannot cope with such huge
resources on TAM in the face of the prevailing
global economic downturn, occasioned by
tumbling oil prices.
“Let’s look at modular or mini-refineries with
newer technologies that can assist existing
refineries whose maintenance demand so much
due to obsolete technology,” he recommended.
Government’s take
The government has not lost sight of the benefits
of modular refineries. At a recent conference on
Health, Safety and Environment (HSE), organised
by the DPR, the former Petroleum Resources
Minister, Mrs. Dizeani Alison-Madueke, gave a
hint of a plan to scrutinise and franchise aspiring
operators to install and operate modular
refineries.
She said the government believed the short
project cycle, low cost and flexibility for the
establishment of modular refineries will
stimulate investors’ interest in local oil production
and minimise oil theft and operation of artisanal
(illegal) refineries.
The minister further stated that to ensure the
success of the initiative, several financial
institutions had been approached to assist
operators in the funding of the initiative, adding
that the regulatory agency will soon roll out the
details of the programme.
At a one-day sensitisation programme, organised
in Lagos, for the sstablishment of modular
refineries, the DPR Deputy Director in charge of
Technology and Standards, Mr. Alfred Ohiani,
echoed Mrs. Alison-Madueke that the government
has decided to once again encourage the
establishment of modular refineries.
He said investment in modular refineries, whose
timeline and cost is limited, holds a better chance
of achievement more quickly than the
conventional refineries.
Pointing out that the DPR will fast-track the
process for investors in modular refineries,
Ohiani added that the regulatory agency has
slashed the licensing fee from $1 million to $500,
000 to further sway investors’ interest.
Apart from reducing the fee, the government is
also dangling other incentives such as reliable,
sustainable and cheap sources of crude oil
feedstock for the refineries and freedom to locate
plants at numerous tax free zones across the
country.
Investors are also to enjoy the liberty of exploring
regional and international markets.
Price regulation, PIB as clogs
With such mouth-watering incentives, investors
should be falling over themselves to establish
modular refineries. But that has not been the
case. Rather, most investors have adopted a ‘wait-
and-see-attitude’.
The Nation learnt that government’s regulation of
petroleum products’ prices and the delay in the
passage of the controversial Petroleum Industry
Bill (PIB) are two critical issues clipping investors’
wings.
An economist, Mr. Henry Boyo, captured
investor’s frustrations when he said there is
uniformity in the price of crude oil produced in
Nigeria, Saudi Arabia, and America, or elsewhere
and that most investors are afraid of being asked
by the Nigerian government to sell below
production cost.
Boyo said: “The process of producing crude oil or
refined products is the same everywhere in the
world; it is the same equipment. So, if you put in
the same feed stock, what you will get at the end
will be the same price.
“At that level of business, investors have to go
and borrow money. If they borrow money to set
up refineries here in Nigeria and they produce
and the output from their refineries is priced all
over the world at X dollars per litre, that price is
uniform because crude oil is the same price all
over the world.”
Boyo, who identified labour as the only thing that
might change, Boyo said those who have either
gotten licenses for refineries, or ready to do so,
are worried that repaying loans may become
herculean when compelled to accommodate
subsidy after borrowing to set up refineries.
According to him, the existence of local refineries
is not the issue, the price at which the products
will be sold is critical, as this will determine how
fast the investor recoups his money.
Noting that although, the government, through
the NNPC has pumped in so much money,
enough to build new refineries, on TAM, the issue
at stake is at what price will the products sell?
The economist insisted that the issue is not
whether or not to sell the refineries, but pricing.
“Investors cannot produce and sell to marketers
below the production cost. In no time, they will
pack their loads and go,” he said, adding that
once the pricing is right, those who got licenses
for refineries will begin operation.
He, however, was quick to point out that the
naira-dollar mechanism will influence pricing.
In 2002, the Federal Government, through the
DPR, franchised 18 investors (local and foreign) to
establish refineries.
But, 13 years down the line, only the Niger Delta
Petroleum Resources is in the process of
activating the license. The remaining firms have
been watching the investment environment to
make informed decisions.
Although, investors continue to hold back
because of stringent guidelines, corruption and a
harsh business climate, inadequate project
funding, among others, Boyo said government’s
regulation of the downstream sector remains the
greatest reason behind the investors’ cold feet.
He said this was what informed the decision of
President of Dangote Group, Alhaji AlikoDangote
that after borrowing to provide a world-class
refinery, he will not sell at a price below his
production cost.
Dangote, Africa’s richest man is currently
investing $9 billion in aworld-class refinery in the
Lekki area of Lagos, Nigeria’s commercial capital.
According to the master plan, Dangote Group
wanted to build a 450,000 bpd-capacity refinery, it
has since increased the capacity to 650, 000 bpd.
Analysts in the industry say despite Nigeria
having the largest petroleum refinery in the
world, Messrs Dangote will sell products at
international prices.
PIB also a spoiler
Beyond pricing, the failure of the Sixth and
Seventh National Assembly to pass the PIB into
law has also not helped investors. The non-
passage of the bill has made the commercial
framework unclear to banks that will offer loans
to investors.
The PIB was designed to reform the entire
hydrocarbon sector to increase the government’s
share of revenue; increase natural gas
production; streamline the decision making
process by dividing up the different roles of the
NNPC into a profit-driven company; privatise its
downstream activities; and promote local content.
The PIB will also provide for greater share of oil
revenues to the producing communities and
expand the use of natural gas for domestic
electricity generation.
For as long as the bill remained in the works,
Nigerians cannot reap the fruits of the benefits.
The bill has since become a subject of intense
politicking at the National Assembly, which has
different versions, especially around the more
contentious contents such as the renegotiation of
contracts with the International Oil Companies
(IOCs), the changes in tax and royalty structures
and clauses to ensure that companies use or lose
their assets.
Experts argue that if the PIB, which they
described as the roadmap for the opening up of
the industry for increased investments had been
passed, it would have comprehensively
addressed the persistent fear of investors in
building refineries, settled the issue of
deregulation, as well as uncertainty concerning
regular supply of crude oil at reasonable prices.
Rivers State chapter Chairman of the Trade Union
Congress of Nigeria (TUC), Comrade Chika
Onuegbu, recently warned government and
politicians to stop playing politics with the
passage of the PIB.
According to him, the non-passage of the
document has blocked foreign investment in the
sector that accounts for over 90 per cent of the
nation’s foreign exchange earnings.
Onuegbu, who made the declaration at a media
chat with reporters in Lagos, noted that investors
have continued to adopt a wait-and-see game,
refraining from making any new investment
pending the passage of the PIB.
He said no Final Investment Decision (FID) has
been taken on any oil and gas project in the
country, not even on the government-promoted,
Brass Liquefied National Gas (LNG) project since
the introduction of the PIB as an Executive Bill in
2008 by the administration of the late President
Umaru Musa Yar’Adua.
Onuegbu said: “It is worrisome that while we are
dithering in Nigeria, there are new oil discoveries
all over Africa, drawing in investors just as new
technology is making hitherto unreachable and
uneconomic hydrocarbon deposits accessible in
Europe and North America, thus attracting
investors to those environments.
“We believe that the PIB represents a great
opportunity for Nigeria to ensure a solid
foundation on which the future of oil and gas
operations in the country will rest. Also, that the
petroleum resources which Nigeria have been
endowed, work for and benefit the Nigerian
people.”
The delayed passage of the PIB is also believed to
be responsible for the non-take-off of the three
new green refineries with a total capacity of one
million barrels in three states. The $23 billion
(N3.7 trillion) project remained in the pipeline five
years after it was conceived.
On May 13, 2010, the Federal Government signed
an agreement with the China State Construction
Engineering Corporation (CSCEC) for the
establishment of Greenfield Refineries in Lagos,
Bayelsa and Kogi states at the cost of $23 billion
(about N3.7 trillion) with a five-year completion
period.
Under the terms of the agreement, 80 per cent of
the project cost was to be funded with a loan
provided by CSCEC and a consortium of Chinese
banks, led by the Industrial Commercial Bank of
China (ICBC). The NNPC was to provide 20 per
cent of the funding as Nigeria’s equity stake.
But five years after, the project is yet to see the
light of the day, prompting legislative
investigation last year by the House of
Representatives Committee on Petroleum
(Downstream).
Calls for deregulation gather steam
President, Lagos Chamber of Commerce and
Industry (LCCI), Mr. Remi Bello, called for the
deregulation of the downstream sector of the oil
and gas sector as a way of out of the myriads of
problems in the industry. He noted that a
deregulated downstream will end scarcity of
petroleum products, halt corruption in the
subsidy regime, resuscitate the collapsed
refineries, boost investments and create jobs.
Insisting that the current regime of subsidy and
government’s direct involvement in the
operations of oil and gas sector should be
discontinued, the LCCI chief said government’s
management of the sector has done a colossal
damage to the economy.
“It is in the overall interest of the economy and
the citizens that government should quickly
deregulate the sector,” Bello said, urging labour
unions and Nigerians to give the reform a chance.
He was not alone. The Nigeria Employers’
Consultative Association (NECA) is also rooting
for deregulation. It’s Director-General Segun
Oshinowo argued that the the N10 reduction in
the pump price of a litter of petrol by the
government begged the more fundamental issue
of appropriate policy framework that will
promote investment in the sector and put a stop
to the embarrassing and shameful practice of
importation of products.
Oshinowo said: “Our expectation therefore, is
that government would seize the opportunity of
the current decline in the price of crude oil to
commence implementation of the policy on
deregulation.
“This is a unique timing the government cannot
afford to miss as full implementation of
deregulation, which in time past had led to price
increase and reaction by the labour movement in
form of industrial action, does not have any
negative effect on the masses.”
The NECA director further said that rather than
the reduction from N97 to N87, there ought to be
a far more holistic announcement of a new policy
thrust of deregulation of the downstream sector
and privatisation of the four refineries.
According to him, the economy stands to gain a
lot from the deregulation of the oil sector.
Oil marketers’ position
Oil marketers, under the aegis of Major Oil
Marketers Association of Nigeria (MOMAN),
argues that deregulation will bring in investments
into the sector and encourage the establishment
of private refineries.
Its Executive Secretary Obafemi Olawore said the
government should summon the courage to fully
deregulate and remove subsidy, or embark on
continuous subsidy regime payment as at when
due.
Olawore said: “If the government likes, they can
introduce gradual removal of subsidy. But, it
should not go beyond six to 18 months period.”
He added that if fully deregulated with rules, the
country will have serious investors coming in to
invest adequately.
He insisted that deregulation is the answer and
that the government must educate the people to
make them understand the advantages.
Director-General, Enugu Chamber of Commerce,
Industry, Mines and Agriculture (ECCIMA), Sir
Emeka Okereke, urged the government to muster
the political will to push through the deregulation
policy.
“The government has no business in business.
Deregulation is an idea whose time has come. Put
the right policies in place so that private investors
can come in,” he told The Nation.
Okereke recalled that because of political
exig
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