By Adewale Sanyaolu
If stakeholders’ submissions are anything to go by, then the dream of the country to attain self-sufficiency in domestic petroleum products refining from 445,000 barrels per day (bpd) to 1,429,000bpd may not see the light of the day.
The experts who spoke to Daily Sun in separate interviews, said unless issues surrounding ease of doing business, incentives, insecurity, especially in the Niger Delta, and a clear cut fiscal regime are addressed, no investor will be willing to commit resources into building of refineries in the country.
Minister of State for Petroleum, Mr. Ibe Kachikwu, had last week, said that International Oil Companies (IOCs) operating in Nigeria must stop treating the country like a “trading colony” and instead invest in the energy sector if they want to retain access to the nation’s resources. Such investment, according to him, includes crude refining locally.
Some of the world’s biggest independent oil traders, the Minister said, had benefited for years from exporting Nigeria’s crude and selling to the country refined petroleum products without putting money into developing the sector.
“We have to get selfish on this,” he told the Financial Times in an interview. “If you have been selling to me (refined) products for six years and you can’t put a foothold in the country, then I shouldn’t be buying products from you.”
Failed efforts to involve private sector
In 2002, 18 License to Establish (LTE) were granted investors to build refineries by the Department of Petroleum Resources (DPR) but as at today, only one of them had come on stream with just 1,000 barrels (bpd), capacity.
The refinery is operated by Niger Delta Petroleum Resources (NDPR), which produces only automotive gas oil (AGO), popularly called diesel.
The Nigerian National Petroleum Corporation’s (NNPC)’s refineries located in Warri, Kaduna and two in Port Harcourt, has an installed capacity of 445,000bpd.
More worrisome is the fact that despite efforts to increase local refining capacity to conserve foreign exchange, the country’s three refineries could only produce 43,743,273 million litres of petrol in July as against the country’s daily consumption of 40 million litres.
This means the country’s forex request for imports of petroleum products, which currently stands at 35 per cent will further increase in the coming months unless something drastic is done about the state of the refineries.
Though the corporation had hinted of plans to ramp up production from the 445,000bpd to 1,429,000, the plan had yet to materialise as the refineries are now operating at less than 40 per cent capacity.
According to DPR, the increase in refining capacity is to be achieved from the licensing of 25 private refineries by the agency.
DPR had, in a statement in March, said contrary to claims that it had withdrawn the licences of some private refineries hitherto issued to operators, it never did.
Rather than withdraw licenses, the department maintained that it was in alignment with government’s aspiration of improving Nigeria’s refining capacity by strengthening its regulatory oversight function of the petroleum sector in Nigeria.
Former Executive Director of Shell Petroleum Development Company (SPDC), Mr. Malcolm Brinded, had said the company cannot build a refinery in Nigeria because there are surplus refineries across the world, adding that refineries were no longer profitable, hence the decision of the company to invest in the gas sector.
Brinded, who was in-charge of the Upstream International Unit of the company said rather than build new refineries, the company was divesting from those it had interest in around the world.
“With respect to downstream, two comments there. Shell is divesting from refineries all over the world because there is a surplus of refineries; we no longer own any refineries even in the United Kingdom.
“I will also say because of the surplus of refineries available, in a way, one has to look very closely whether building new refineries is a good investment for anyone not just for Shell but for countries involved.
“In today’s world, not looking at the past but where we are today, there is surplus of refinery capacity which essentially means many refineries in the world run at a loss. Which also means one can get refined products back again and pay very little for it to be refined,’’ Brinded had said.
Partner, Bloomfield Law Practice, Mr. Ayodele Oni, explained that while most of the IOCs are already overburdened with the huge cost involved in operating in the upstream sector of Nigeria, questions have been raised as to the economic sense in investing into the downstream sector.
For one, he explained that the strong involvement of the government and the economic environment tightened by the unwillingness of the government to deregulate the sector overtime had put a clog in the efforts to secure IOCs’ commitment in the downstream.
‘‘Although licenses had been given to foreign investors to build refineries, including Akwa Ibom Refinery and Petrochemicals, Tonwei Refinery, Badagry Petroleum Refinery, Clean Water Refinery and a host of others, none of the IOCs has committed to an actualisation.
On the other hand, he said Nigeria currently has pressing challenges with regard to foreign participation in the oil sector.
According to him, present concerns are as to the level of willingness to invest in the Nigerian oil sector in comparison to the strong drive during the 1st and 2nd Republic. He added that several reasons can be adduced to the reduced participatory interest of IOCs in investing in Nigeria’s oil sector.
‘‘It is is a well-known fact that the control and profits of oil reserves are largely split between host countries (NOCs) and the IOCs. In the Nigerian case, oil reserves are split between the Federal Government which, by virtue of series of legislations and regulatory frameworks, has the major controlling share,’’ he said.
President, Nigerian Liquefied Petroleum Gas Association (NLPGA), Mr. Dayo Adeshina, said investors would only go to countries where they are sure they will get return on investment, and won’t be swayed by sentiments.
Adeshina argued that the current foreign exchange distortions in the country would not encourage investment just as the fiscal regime is not clear on where the government stands and what investors stand to benefit.
The NLPGA boss said the insecurity in the Niger Delta region is a big minus for the country as most investors are not keen on either making new investments or expanding existing ones because critical oil and gas infrastructure assets are being destroyed on a daily basis.
‘‘The issue of investment is that of collaboration. It is not enough for government to tell investors or compel them to come and invest. The fiscal regime must be clearly stated out before the investment can begin to come.
“A situation where the investor makes provision for his security, takes care of the community from its meagre resources and still battles with hostilities, is uncalled for. Government must be ready to play critical role because the investors equally carry out their own risk assessment proposal. And if the result is not favourable, the expected inflow won’t come,’’ he said