Without the passage of the Petroleum Industry Bill (PIB), the construction and operation of greenfield refineries will be pretty difficult. All the licensees want to be sure of how they will recoup their investments.
The government has no business in doing business. Therefore, the Federal Government will privatise the refineries after reaching an understanding with the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and the Nigerian Union of Petroleum and Natural Gas Workers (NUPENG).
This was always the alibi of the government for not establishing new refineries till early this year.
But now, even as the government is yet to pass the PIB into law, the music is changing gradually, especially now that the NNPC is to remain the sole importer of petroleum products.
The Presidency and its team in the NNPC are demystifying the impossibilities in the sector seamlessly. Both in action and words, the Group Managing Director of NNPC, Dr. Emmanuel Kachikwu has been demonstrating the readiness of his team to drive the corporation for the benefit of the citizenry.
Addressing reporters in Kaduna last week, he broke the news that plans are underway for government to build new modular refineries within the premises of existing ones. He was quoted as saying that “what is obtainable is that most of our refineries are close to 30 to 40 years old, we need to begin to look at building new refineries in the same land space where they can share facilities so that you will have something to lean on when these old ones are beginning to kick out.”
Should the corporation make good its promise, the government that is now hurriedly rehabilitating existing refineries for optimal utilisation would double domestic supply of petrol to an extent that there may be no need for importation of petroleum product.
The establishment of additional refineries will no doubt lead to job and wealth creation. It will secure the future of petrol supply for Nigeria. With the pronouncement, the corporation has altered the economic equation in the downstream sector as the nation will now have reprieve from those that feed fat on allegedly bloated fuel importation and subsidy.
As brilliant as this idea is, some analysts have raised some questions about the rationale behind plans to establish greenfield refineries following the dwindling oil prices and the future of demand for oil. Some are also concerned whether the new refineries will run profitably in view of the fact that public corporations hardly yield profits in Nigeria.
But the NNPC helmsman noted that private investors will run the new refineries but the government will only provide the land.
His words: “I am pushing to build new refineries next to our existing plants in order to boost the nation’s refining capacity for the common good. Prior to his appointment, he had spent 28 years working for private International Oil Company (IOC). There is therefore no gainsaying that his background has prepared him for profiteering.
Besides, the GMD has already spelt it out the NNPC under his watch must run the existing refineries profitably.
His determination to reposition the corporation accounted for his employment of 12 experts from the private sector to assist him jump-start start a new business outlook to enhance the operational environment as a profit-driven business as against the then civil service orientation in the NNPC on his assumption of office.
His explanation that government is only providing the land for the construction of the refineries has simply made it a Public Private Partnership (PPP) since the land belongs to the government.
Although the NNPC is yet to unfold the full plans, it is clear that he must have done his home work before breaking the news. Whichever way it goes, some countries are still the sole owners of some refineries. For instance, 25, Jebel Ali, which the Emirate National Oil Company (ENOC) operates in Dubai, is owned by the Dubai Government. The Libya government also owns the Zamiya Refinery and Tobruk Refinery. In Iran, the government owns nine refineries, including Abadan, Terran refineries and others. But, a private firm also owns Arvand Refineries. In Ghana where oil was discovered a few years ago, the government owns a petroleum refinery.
Besides, Patromax Refinery Limited is privately owned in Bangladesh. In the Eastern Refinery Limited -a subsidiary of Bangladesh Petroleum Corporation the government controls 70 per cent shares while private owners hold 30 per cent equity. Somoil Refinery Limited is privately owned in Angola. In Sonagol Refinery Limited, the government owns 34 per cent share while the reminder belongs to private shareholders. These examples show that both government and private owners are still big players in petroleum refineries globally.
Privately-run firms have indicated interest to establish refineries. The construction of the Dangote Oil Refining Company, Lagos, started recently and it is expected to begin production by 2018. The IPMAN has secured some acre of land in Kogi for the construction of a refinery. It has received an offer from a Californian firm – Kanen Refinery – to build the association’s $70 million refinery within a year.
According to the association’s Vice Chairman, Alhaji Abubakar Dankingari, the modular refinery was constructed in 1974 in California where it will be dismantled and reassembled in Nigeria.
A Nigerian firm, Green Energy International Ltd, recently secured a license from the Department of Petroleum Resources (DPR) for Modular Refinery to produce diesel and other refined products.
Besides, reports had it in August that President Buhari granted approval to 65 indigenous firms to build modular refineries in the country.
As the corporation looks forward to production of petroleum products it is also battling to reduce expenditure on fuel importation since the payment of oil subsidy has become burdensome for government to bear with the escalating foreign exchange differentials on bank loans which it grants to marketers.
For a start, President Buhari has directed the corporation to reactivate the country’s refineries to reduce fuel import. To implement the measure, Central Bank of Nigeria (CBN) Governor Godwin Emefiele, last month said the government was doing everything possible to ensure that the NNPC becomes the sole importer of petroleum products.
The CBN chief noted: “Now, there are other actions that the Presidency is putting in place to ensure that we reduce importation of petroleum products where the NNPC will solely, almost solely be responsible for procuring refined petroleum. Those who are importing petroleum products will only just need to go to the NNPC and pick up petroleum products.”
In a bid to ensure steady provision of petroleum products since there is still a gap between demand and supply of fuel, the corporation has secured an interim Offshore Processing Agreement (OPA) with three of its Joint Venture Companies (JVC), namely Duke Oil, Carlson and Napoil to boost the supply of refined petroleum products.
NNPC spokesman Ohi Alegbe said the stop-gap OPA arrangement has been designed to run for three months, an arrangement he said will enable the Corporation allocate a certain volume of crude oil within the period for refining at offshore locations in exchange for petroleum products at pre-agreed yield pattern.
The OPA arrangement will help augment in-country production of refined petroleum products from the nation’s refineries to meet local demand.
Responding to how the measures will impact on the country, NLC Secretary-GeneralOzo Eson extolled the plans.
He described them as laudable measures that would attract local operators to invest in domestic refineries. He explained that in the long-run, Nigeria will become self-sufficient in fuel supply and would not have any reason to import the products.
The NLC scribe added that the current importation regime is a burden on the nation’s economy, noting that it leads to high demand for foreign currency and puts pressure on the Naira. He submitted that should NNPC succeed in its plans for refineries, there will be job and wealth creation that will accelerate economic growth.
He said: “These are correct measures. If we get the domestic refineries to work, and we expand the capacity of domestic refining, by building new refineries and using incentives to make private investors to also build refineries.
“With time, we will become self-sufficient in petroleum products so that we do not need to continue to import. The current importation of petroleum products heavily weighs down the economy. On the one hand, it leads to a huge demand for foreign currency, which then acts as pressure on the value of the local currency.
“But apart from that, if we refine domestically, we will create jobs. Because when we continue to import, we are exporting jobs-other people are doing the jobs. One, we have the raw materials, we send the raw materials abroad other people benefit from the process of refining.
“We can reap those benefits and they will assist our economy to do better- to become more stable and to become more resilient. So these are laudable decisions of government on policy. Nigerians should rally round the government for support.”
The oil and gas industry has been characterised by series of unrests following plans to deregulate the sector and sell off the national refineries as well as remove subsidy.
However, with the recent measures that the Buhari’s administration has adopted to tackle fuel supply challenges in the country he has simply earned the accolades and respect of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) that masterminded the protests.
Responding to government’s intervention in the refineries, the association told The Nation that the new measures, which are basically in line with their position, have impressed the oil workers.
According to PENGASSAN’s spokesman Emmanuel Ojugbana, retaining refineries under government ownership is a welcome development.
Restating that PENGASSAN is not opposed to deregulation, the association maintained that supply of petroleum products should not be income based. It noted once there is local refining at the four entities complemented by modular refineries, fuel scarcity will dwindle drastically, too, the measure will boost job creation.
PENGASSAN said: “The NNPC is trying to ensure that it rehabilitates the four refineries in the country for optimal utilisation that would reduce importation of petroleum products. This was one of the conditions that the labour leaders asked the Federal Government to meet before the sale of refineries or removal of subsidy.”
Lauding President Muhammadu Buhari’s intervention that has changed the NNPC fortune, the association explained that his measures are in tandem with the stipulations of the Organization of Petroleum Exporting Countries (OPEC) that every member country should be at the apex of its economy.
The oil workers said: “Yes, this is one of the conditions we gave before the downstream of the oil and gas industry can be deregulated and we really appreciate President Buhari’s resolve to ensure that the refineries are back on stream and to retain the refineries under the government ownership. This is in tandem with the OPEC’s mandate that every member country should be at the commanding height of its economy.
“We are not averse to deregulation but our argument is that it must be import driven. There should some level of local refining of petroleum products in the country. This is why we have been clamouring for encouraging investments in the establishment of refineries, especially modular refineries. This will not only increase local refining of petroleum products and stem down scarcity but also enhance job creation in the sector.
“We also argued that it is not saved for Nigeria to sell its national assets that is why we are against the outright sales of the refineries. We therefore propose a model just like the Nigeria LNG model whereby the government will own 51 per cent and the private investors will own 49 per cent. With this model, the managements of the refineries will have some levels of administrative and financial autonomy to ensure adequate running of the refineries.
“PENGASSAN has said times without number that abrupt removal of subsidy can further cause chaos in the country. We advocate that the government should have a timeline for ending importation of petroleum products and increase local refining.”
Since NNPC has earned not only the cooperation of the oil workers, but also the willingness of the operators to invest in building new refineries and the old ones are eyeing optimum production, the current measures will certainly cushion the burdensome fuel scarcity in the country, guarantee the security of existing jobs in the refineries and create fresh employment opportunities. Above all, the multiplier effects will trigger a spiral increase in the nation’s circular flow of income.