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Expiring Licences Threaten Bid for Nation’s Local Refining

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  • Expiring Licences Threaten Bid for Nation’s Local Refining

Thirty-two companies granted licences to establish (LTE) and approval to construct (APC) private refineries with a combined capacity of 1.352 million barrels per stream day (mbpsd) in the country may lose their permits as their June 2018 deadline approaches.

Statistics obtained show that the medium- to long-term (18 months to three years and above) permits, granted by the oil and gas industry regulator, Department of Petroleum Resources (DPR), are nearing their terms.

If the licences expire without the coming on stream of the facilities, the country’s quest to attain self-sufficiency in refining petroleum products could be frustrated. The Federal Government hopes to buoy the nation’s refining capacity through these private refineries, as the existing ones remain largely under-utilised, with an average monthly capacity put at 28.10 per cent as at February end, according to official data.

The coming on stream of these facilities is geared at drastically reducing the huge capital flight to fuel importation, while also meeting local demand and possible exports.

The nation’s existing refineries – Port Harcourt 1 and 2, Warri and Kaduna, all operated by the Nigerian National Petroleum Corporation (NNPC) and Niger Delta Petroleum Resources Limited have a combined capacity of 446,000bpd – but grossly inadequate to meet national daily demand.

Of the 32 licences issued between December 2007 and June 2016, only five have progressed to the APC stage. The other 27 are at the LTEs level while 23 others are yet to commence work.

Amakpe International Refinery, with the oldest revalidated licence (ATC December 2007), is among the old batch of licensees that got stuck due to funding challenges.

If the licences expire, history might well be repeating itself as it was in 2002 when DPR granted 21 LTE permits with an 18-month tenor to private companies which never yielded result largely due to financial and feedstock (crude supply) issues.

The LTE is the first stage of the permit, which progresses to APC after satisfying all the terms. “Under the terms, the LTE and APC are valid for a period of 24 months, but are subject to renewal based on the level of work done,” according to the DPR.

The regulator admitted that the licensees were mostly challenged by funding given the precarious foreign exchange situation in the country. But it insisted that there would be no feedstock guarantee for any investor.

The agency went on: “The refineries will source for their own crude. They can buy from the international oil companies (IOCs) or marginal fields operators (MFOs) at prevailing international market prices.”

The investigation revealed that some of the investors would not rely only on domestic crude as they might import oil from Angola, Gabon, Liberia, Middle East and some South American nations.

For instance, investors in the Dangote Oil Refinery Company, whose LTE was granted in September 2014 with actual capacity template of 500,000bpd, have promised to deliver the project in the last quarter of 2019.

Though the licence expires this September, work has progressed to the Front End Engineering Design (FEED), indicating that it might be renewed for an onward progression to the APC.

The Group Executive Director of Dangote Industries Limited, Devakumar Edwin, who is overseeing the construction, said that operations would commence on the promised date.

He disclosed that the facility, often quoted to have 650,000 bpd capacity, expects no problem with feedstock, as it would source content from crude terminals instead of specific oil fields.

Edwin continued: “So the location of oil wells and their reducibility have no relevance to crude supply to the refinery.

“Dangote Oil Refinery is designed to use various grades/blends of crude just as a means of ensuring flexibility should Nigerian crude be disrupted. However, normally there should be sufficient Nigerian crude to meet the refinery’s needs.”

In a copy of the Final Environmental and Social Impact Assessment report, the company said the proximity of the Lagos Free Zone (LFZ) to new oil and gas deposits was instrumental to its siting.

The company, according to the document submitted to the Federal Ministry of Environment, further confirmed the sources of its crude.

“This crude oil shall be transported to the refinery by marine tankers. Berths for these crude oil marine tankers shall be situated along the refinery’s terminal, which shall be located on the coast of the Atlantic Ocean. At the marine terminal, the cargo of crude oil is discharged through pipelines to storage tanks in the refinery,” it added.

Expressing concerns over crude supply to the private refineries, the Head, Energy Research, Ecobank Plc, Dolapo Oni, noted: “The refineries must be adequately supplied with crude oil. This is another challenge I think the Dangote Refinery would face except it sources its own crude from abroad, without relying on Nigerian crude.”

Oni also decried the under-utilisation of the existing refineries, which he described, as so badly managed and operating at below 50 per cent capacity for many years.

The Deputy Director, Emerald Energy Institute, University of Port Harcourt, Prof. Chijioke Nwaozuzu, suspects that based on its location, the project was positioned more for export. “The location of the refinery is close to the Atlantic Ocean, which would suggest that as part of contingency plans, they intend to use the ocean for crude oil deliveries as well as refined products export.”

To avoid a repeat of the past ugly incident, Nwaozuzu urged government to divest some of its equities in the IOCs JVs for the private refineries.

“An ingenious way by which government could provide Dangote Refinery and others with crude feedstock would be to sell some of the JVs percentage holding with the IOCs.

“Since government owned 55 to 60 per cent interests in the JVs, it could offload up to 15 to 20 per cent to the private refineries.”

This, he noted, would ensure the security of supplies of feedstock to the refineries. “Government will also generate significant revenues, which, if spent wisely, could enable Nigeria to come out of economic recession and stagflation,” he added.

But the Chief Operating Officer, Gas and Power, NNPC, Saidu Mohammed, saw no big deal in feedstock guarantees. He cited several countries that are big refiners of petroleum products but do not produce crude oil.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Guinness Nigeria Postpones Spirits Importation Exit, Extends Deal with Diageo

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Guinness Nigeria Plc has announced a delay in its plan to halt the importation of spirits as it extended its agreement with multinational alcoholic beverage company Diageo until 2025.

The decision, communicated through a corporate notice filed with the Nigerian Exchange Limited on Tuesday, cited a longer-than-expected transition period for separating its business from Diageo’s.

Initially slated for discontinuation in April 2024, the importation of premium spirits like Johnnie Walker, Singleton, Baileys, and others under the 2016 sale and distribution agreement with Diageo will now continue for an additional year.

The extension comes as the process of business separation between Guinness Nigeria, a subsidiary of Diageo, and Diageo itself faces unexpected delays.

In October, Guinness Nigeria had announced plans to cease importing spirits from Diageo, a move aimed at reducing its foreign exchange requirements.

However, the separation process has encountered unforeseen hurdles, necessitating the extension of the importation agreement.

The notice, signed by the company’s Legal Director/Company Secretary, Abidemi Ademola, highlighted the ongoing efforts by Guinness Nigeria and Diageo to implement the separation, originally scheduled for completion by April 2024.

The extension underscores the complexity of disentangling the businesses and ensuring a smooth transition.

Guinness Nigeria reaffirmed its commitment to the long-term growth strategy, aligning with Diageo’s decision to establish a new, wholly-owned spirits-focused business.

Despite the delay, both companies remain dedicated to managing the importation and distribution of international premium spirits in West and Central Africa, with Nigeria as a key hub.

The postponement comes amid challenges faced by Guinness Nigeria, including significant exchange rate losses, which amounted to N49 billion in the 2023 half-year operations.

Despite these setbacks, the company remains optimistic about its future prospects in the Nigerian market.

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Private Sector Warns: Interest Rate Hike to Trigger Job Cuts and Inflation Surge

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As the Central Bank of Nigeria (CBN) announced a hike in the Monetary Policy Rate (MPR) from 22.75% to 24.75%, concerns have been raised by the private sector regarding the potential ramifications on job stability and inflationary pressures.

The move, aimed at curbing inflation and stabilizing the exchange rate, has prompted apprehension among business operators who fear adverse effects on the economy.

Representatives from the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) and the Nigerian Association of Small Scale Industrialists have voiced their worries over the increased difficulty in accessing affordable credit.

They argue that the higher interest rates will impede the private sector’s ability to borrow funds for expansion and operational activities.

This, they fear, could lead to a reduction in business investments and subsequently result in widespread job cuts across various sectors.

The Lagos Chamber of Commerce and Industry (LCCI) acknowledged the necessity of the interest rate hike but emphasized the potential negative consequences it may bring.

While describing it as a “price businesses would have to pay,” the LCCI highlighted the current fragility of the economy, exacerbated by various policy missteps.

They cautioned that the increased cost of borrowing could stifle entrepreneurial activities and discourage expansion plans critical for economic growth and job creation.

Experts have echoed these concerns, warning that the tightening monetary conditions could exacerbate inflationary pressures and hinder economic recovery efforts.

With inflation already soaring at 31.70%, the rate hike could further fuel price hikes, especially in essential goods and services, thus eroding the purchasing power of consumers.

However, CBN Governor Yemi Cardoso defended the decision, citing the imperative to address current inflationary pressures and ensure sustained exchange rate stability.

He emphasized the need to restore the purchasing power of ordinary Nigerians and expressed confidence that the economy would stabilize by the end of the year.

Despite assurances from the CBN, stakeholders remain cautious, calling for a more nuanced approach that balances the need for price stability with the imperative of fostering economic growth and job creation.

As businesses brace for the impact of the interest rate hike, all eyes are on the evolving economic landscape and the measures taken to mitigate its effects on livelihoods and inflation.

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Breaking Barriers: Transcorp Hotels CEO Shares Journey from Crisis to Success

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Dupe Olusola

Dupe Olusola, the Managing Director/CEO of Transcorp Hotels Plc, reflects on her remarkable journey from navigating the depths of a global pandemic to achieving unprecedented success in the hospitality industry.

Appointed in March 2020, amidst the onset of the COVID-19 pandemic, Olusola found herself at the helm of a company grappling with the severe economic fallout and operational challenges inflicted by the crisis.

Faced with a drop in occupancy rates from 70% to a mere 5%, Olusola and her team were confronted with the daunting task of steering Transcorp Hotels through uncharted waters.

Undeterred by the adversity, they embarked on a journey of transformation, leveraging creativity and resilience to navigate the turbulent landscape.

Implementing innovative strategies such as introducing drive-through cinemas, setting up on-site COVID-19 testing facilities, and enhancing take-away services, Transcorp Hotels adapted to meet the evolving needs of its guests and ensure continuity amidst the crisis.

Embracing disruption as a catalyst for growth, Olusola fostered a culture of collaboration and teamwork, rallying her colleagues to overcome obstacles and embrace change.

Through unwavering determination and a commitment to excellence, Transcorp Hotels emerged from the pandemic stronger than ever, breaking profit and revenue records year after year.

“It’s indeed been a great opportunity to learn and relearn, to lead and to grow. When you see success stories, remember it’s a journey with twists, turns, ups and downs but in the end, it will all be okay”, she said.

Olusola’s leadership exemplifies the power of adaptability and perseverance, inspiring her team to transcend limitations and chart a course towards unprecedented success.

As Transcorp Hotels continues to flourish under her stewardship, Olusola remains steadfast in her dedication to driving innovation, fostering growth, and breaking barriers in the hospitality industry.

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