Stillbirth of Nigeria’s private refineries
About 657,000 barrels per stream day (bpsd) capacity of private refineries granted licences by the Department of Petroleum Resources (DPR) have not be able to come on stream due to several factors, such as non deregulation of downstream sector, lack of fund, non availability of crude oil to service the refineries among others.
For instance, the DPR granted licences to 18 private refineries to operate, but it is only Niger Delta Petroleum Resources, Ogbelle, River State with the capacity to produce 1,000 bpsd capacity that is operational.
Amakpe International Refinery, Eket, Akwa Ibom State; Resource Petroleum & Petrochemical Incorporated, Ibeno; Kainji Resources Limited; and Omega Butler Refineries are yet to start refining.
Amakpe International Refinery was suppose to process 12,000 barrel per day of Qua Iboe crude into gasoline, diesel, naphtha and fuel oil .
Indeed, virtually all the licensed operators had serially defaulted on their respective deadlines to commence production, leading to licence withdrawals on their part, with even increased reluctance for mandate renewals as stipulated in the enabling law.
Factors cited as challenges for the take-off of the various projects by the licensees included huge upfront start-up fee; lack of sovereign guarantees to secure cheaper loans from the international finance market; and uncertainty over guarantee of free market pricing policy.
Also identified as challenges is the government’s stand on deregulation, which means that the independent operators would buy crude at the current price in the international market; yet they would have to sell at a price determined by the Federal Government.
Many of the licence holders have also accused DPR of shifting the goal post in the middle of the game concerning sourcing of crude, the major raw material.
According to them, “the initial arrangement was that there would be a sovereign guarantee of steady supply of crude by DPR to Nigeria-based refineries. A situation where no priority is accorded and operators would have to rely on off-shore crude sourcing is a major worry. Instead of selling crude to foreigners as a matter of priority, operators are demanding that national interest and investors concern should take precedence in arriving at a decision”.
They believed that the current oil subsidy regime by the Federal Government also constitutes a big headache for intending refinery owners. “Except for diesel, all other petroleum products are currently being sold at a highly subsidised rate. With the possibility of private refinery operators production cost being higher than the current subsidized rates, there are fears that they might run into a huge loss if they invest in the refinery business”.
Speaking on the issue, the Major Oil Marketers Association of Nigeria (MOMAN) said that deregulation of the downstream sector of the oil and gas industry remained the best option to encourage private refining business.
The Executive Secretary of MOMAN, Obafemi Olawore, said that deregulation would bring in investments into the sector, adding that only deregulation would encourage the establishment of private refineries in the country.
According to him, the Federal Government should summon the courage to fully deregulate and remove subsidy or embark on continuous subsidy regime payment as at when due.
“If government likes, they can introduce gradual removal of subsidy but it should not go beyond six to 18 months period.
“If fully deregulated with rules, you will have the serious investors coming in to invest adequately,” Olawore said.
According to him, deregulation is the answer and the government must talk to the people and let them understand the advantages.
“The governemnt must also show that in the areas where there have deregulation, people are gaining and that whatever comes in as funds will be used for the benefit of the people.
Also, the Managing Director of Seplat Petroleum Development Company, Austine Avoru stated: “When those licenses were given seven years ago, I predicted that a lot of them wouldn’t work because there is a method to it.
First, who were the people licensed? The most important element in the entire crude oil value chain is refining. If you refine crude without the right experience, or by getting mere license, you don’t need a soothsayer to tell you that nothing will come out of it. Two, when you are going into a capital intensive segment, it becomes even more critical — 150,000 barrels of crude oil per day will cost nothing less than $3 billion. If you go to bankers to borrow $ 2.5 billion and have equity of $500 million and government controls the market into which your product will go fixed price and your only competitors are government refineries, you will never raise that money from any bank. So no serious refining has started.