There are indications that private investors are picking interest in domestic refining of oil with the coming on stream of two modular refineries. But there seems to be no clear policy that will guarantee cost recovery by these private investors.
IT is a shameful paradox that Nigeria, the sixth oil producing nation in the Organisation of Petroleum Exporting Counties (OPEC) depends entirely on imported fuel to run the engine of her economy.
Efforts by the administration of former President Olusegun Obasanjo to encourage domestic refinery of petroleum products were not backed by the political will. For instance, his former Group Managing Director, Nigeria National Petroleum Corporation (NNPC), Funsho Kupolokun, said the government will put a policy in place that would require all the multinational oil companies (MOCs) operating in the country to refine 50 per cent of their oil locally. That policy, logical as it sounded, never saw the light of the day.
The government issued about 20 licences to private investors to build refineries. None of the licencees is refining oil in the country.
The reason for this is not far-fetched. The private sector investors said it would be unwise for them to raise offshore cash from lenders, site the plant while the government caps the price of the finished.
Building more refineries and expanding the capacities of existing ones was one of the electioneering promises of President Muhammadu Buhari. Nigerians trusted him because they recalled that most of the current downstream infrastructure, including the four refineries (one has been sold to Indorama) with combined daily production capacity to process 445,000 barrels of oil per day (bopd) were built when he was Federal Commissioner for Petroleum and Natural Resources and pioneer chairman, NNPC.
About six years into the administration and several hurtful adjustments in the pump price of petrol, hope of domestic refining is on the rise. Buhari had increased petrol price to N145 per litre, a 67 per cent hike in 2016.
But he had identified modular refineries as one of the four elements in the government’s refinery roadmap unveiled in 2018.
Elixir
At the end of last year, two modular refineries driven by private investors were inaugurated.
They are the 11,000bopd Ogbele Expanded Refinery and the 5,000bopd Waltersmith Refinery in Ibigwe, all situated in the eastern part of the country. The first phase of the Waltersmith plant has 5,000 bopd while the second phase increases this to 50,000 bpd capacity. The facility is close to the Ibigwe flow station located in Imo State.
Crude will come from Waltersmith’s own marginal field, Ibigwe. Seplat Petroleum also has assets in the area is considering working with Waltersmith on potential processing.
The company will build the second phase in two parts. One is a 25,000 bopd standalone condensate refinery and aims to complete this by 2023. The second part will be another 20,000 bopd crude processing plant.
Buhari said domestic refining of oil would eliminate imports and increase availability. The president had named modular refineries as one of the four elements in his refinery roadmap launched in 2018.
“There is increased momentum in the other three focus areas under the roadmap covering the rehabilitation of existing refineries, co-location of new refineries, and construction of greenfield refineries.
“The realisation of the refinery roadmap will ultimately lead us to becoming a net exporter of petroleum products not only to our neighbouring countries but to the worldwide market. This modular refinery is the largest commissioned modular refinery in the country today,” the president had said during the virtual inauguration of Waltersmith refinery.
According to latest update from oil industry regulator, the Department of Petroleum Resources (DPR), another 7,000bopd OPAC Refinery in Kwale, Delta State, would likely be the third functioning, privately run refinery, having just been completed and awaiting commissioning.
Under construction too are two others- the 500,000bopd Dangote refinery which is 71 per cent completed, says the DPR‘s report, and the 6,000bopd Edo Refinery.
The DPR had issued licences to 25 investors, but aside these five, no other refinery is under construction in the country.
The widely publicised Elko Petrochem & Refining Company is not yet under construction, according to the DPR update nor is the Petrolex Oil and Gas refinery, for which an ‘authority to construct’ (ATC), was granted in December 2018. There are 16 proposed refineries that have been granted authoritisation to construct, but are not in construction stage.
Importation as forex depleter, harbinger of corruption
The Federal Government said it spent N1.5 trillion on fuel subsidy in 2019 alone. Senior Special Assistant to the President on Niger Delta Affairs, Senator Ita Enang, disclosed this in a communiqué in Abuja.
Worried by the large scale fraud uncovered under the regime of fuel subsidies payment to importers which ran into several billions of naira, the programme was discontinued in 2016, while the NNPC became the sole importer of petrol into the country and introduced the oil-for-fuel swap deal.
Nigeria is almost entirely reliant on imported fuel because of years of neglect at its own refineries. It has leaned heavily on the swap arrangements to get fuel, particularly petrol, as other would-be importers struggle to make money due to price caps.
NNPC said it had saved the nation $2.2 billion and supplied some 90 per cent of its import requirements.
End to subsidy era
In a bid to deregulate the downstream oil sector, the Federal Government, had removed what it called fuel subsidy and under-recovery costs.
NNPC GMD, Mele Kyari, Kyari said: “There is no fuel subsidy anymore in Nigeria. It is zero subsidy forever. There would be no resort to either fuel subsidy or under-recovery of any nature. NNPC will play in the petroleum marketplace, just like any other marketer in the space. But we will be there for the country to sustain the security of supply at market price.”
Hope for neglected refineries
NNPC said it is ready to adopt the Nigeria Liquefied Natural Gas (NLNG) model for its three ailing refineries to optimise performance.
Kyari said having removed under-recovery (fuel subsidy) on petrol, the next line of action is remodelling the operations and management of the three refineries, Warri refinery, Port Harcourt (I & II) refineries and Kaduna refinery, after NLNG model.
NLNG model is a successful business model in the oil and gas industry, where the Federal Government owns 49 per cent stake while other shareholders control 51 per cent. The model allows the Board to take business decisions like privately owned businesses except in some cases where national interest needs to be considered like the Train 7.
“We made a very conscious decision to shut down our refineries. Today, after proper scoping, which was not done in the past, we know exactly what to do to get them back on stream. We have also secured financing to make sure they work optimally.
“Aside from proper scoping, we are also going to have an Operation & Maintenance (O&M) contract, a different model of getting the refineries to work. We are looking at the NLNG structure where world-class processes will always be in play. We’ve seen it work before with success,” Kyari said.
He said the stoppage of subsidy or under-recovery payment will ensure monies are freed up for the government to fund critical infrastructural projects such as education, health, roads and others for the benefit of the ordinary man.
“Ultimately, having the market to take care of consumption is the best way to manage the issue. Once the market forces come into play, the over-reliance on the oil Industry will cease and other sectors of the economy will quickly pick up.
“We decided that the fuel subsidy/under-recovery has to be stopped. In any case, the subsidy is an elitist thing because it is the elites that benefit. They are the ones that have SUVs (Sports Utility Vehicle), four, five cars in their houses. The masses should be the ones to benefit.
“The stoppage of subsidy or under-recovery payment will ensure monies are freed up for govt to fund critical infrastructural projects such as education, health, roads & many others, for the benefit of the ordinary man. There are many things wrong with the under-recovery (fuel subsidy) because we are supplying more than we need; we are supplying the whole of West Africa. Therefore the under-recovery (fuel subsidy) itself is so over-bloated because we are subsidising the whole of West Africa! That has to stop,” he said.
Inconsistent policy
Stakeholders have faulted the Federal Government’s inconsistent approach to policy implementation, especially as it relates to sale of petrol in the country.
The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed said the Federal Government is putting the enabling environment in place for private sector players in the downstream oil sector.
Hear her: “What we are doing is enabling the petroleum sector to actually grow. There have been a number of refineries that have been licensed for several years. None of them was willing to start refining under the regime that we had where fuel (price) was controlled.”
It is strange the role an agency such as Petroleum Products Pricing Regulatory Agency (PPPRA) still has to play in a deregulated environment.
Oil marketers believe the Federal Government is paying lip service to the implementation of total deregulation of the downstream oil sector.
Acting under the aegis of Major Oil Marketers Association of Nigeria (MOMAN), the group faulted the continued interference of the government with the pump price of the product, a situation it said is antipodal to the spirit of deregulation.
Its Chairman, Tunji Oyebanji, in a telephone interview, said as the situation stood today, the Federal Government is still determining the pump price of petrol in the market. He said what stakeholders prefer is authentic deregulation in which case, the market forces of demand and supply, at equilibrum, determine the prices that are agreeable to the final consumers.
Oyebnji who is the CEO of 11 Plc, said what the Federal Government said the government is not working its talks.
He said: “What government says is that it wants deregulation. However we from time to time see situations that are confusing such as the announcement that government and labour have agreed to a certain reduction in the pump price of petrol.
“PPRA has recently unveiled guidelines which will determine how things are done in the industry. This is not consistent with deregulation.
“We like the Federal Government’s pronouncement about deregulation but their action is not consistent with the spirit of deregulation. We are however hoping that the government will live to its promise this year.”
Oyebanji faulted the argument that if the price of petrol was left to the whims and caprices of market forces, considering the fact that crude oil is subject to the volatility and shock of the international community, it might go far beyond what would be affordable by the average Nigerians.
According to him, Nigerians are also members of the global community that depend on the importation of other products that are subject the instability in foreign exchange (forex). He said should the exchange rate fall to about N600/$, would the country stop the importation and consumption of essential goods.
He said the root of the problem is that Nigerians are used to price fixing and wondered if the prices of crude oil go up in the international market, country stops exportation of the commodity for that fact.
Like Kyari, Oyebanji said the propensity of Nigerians to waste is what must be stopped. He said the habit of one person putting three, four, five cars on the road simultaneously is what must be addressed to adjust and save cost.
It is not clear if the Federal Government is waiting for big players such as Aliko Dangote to stream his plant before taking the bull by its horns.
