Connect with us

Economy

Government Policy, Funding Stall Proposed Oil Refineries

Published

on

oil refinery
  • Government Policy, Funding Stall Proposed Oil Refineries

Government policy in the downstream sector and paucity of funds as well as inadequate technical capacity are pulling a plug on proposed private refineries in the country, even as government-owned plants continue to perform dismally with no new ones built in almost 30 years, ’FEMI ASU writes

For more than two decades, private investors have continued to indicate interest in building refineries in the country on the back of the inability of government-owned refineries to meet growing demand for petroleum products.

While many licences have been granted to investors, only a mini refinery owned by the Niger Delta Petroleum Resources Limited has come on stream, with a capacity to process 1,000 barrels of crude oil per day and produce only diesel.

Between 1976 and 1989, the government, through the Nigerian National Petroleum Corporation, built refineries in Port Harcourt, Warri and Kaduna, in addition to an existing refinery in Port Harcourt, which was built by Shell in 1965 (later bought over by the NNPC).

But the state of the 445 million-bpd refineries has worsened over the years and no new refinery has been built by the government since 1989, making the country rely heavily on imports to meet fuel demand.

Data obtained from the Department of Petroleum Resources showed that the capacity utilisation at the refineries, including the Niger Delta Petroleum Resources’ 1,000bpd refinery, plunged to as low as 4.85 per cent in 2015 from 23.03 per cent in 2011, resulting in increased petroleum products’ imports.

Petroleum products import rose to 13.56 million metric tonnes in 2016 from 8.63 million metric tonnes in 2008, the DPR said in its 2016 Oil and Gas Industry Annual Report.

“Even if all the refineries were operating at full capacity, the 445,000bpd would not be enough to meet our demand,” the Chairman, ARCO Group, Chief Joseph Akpieyi, told our correspondent in an interview.

Akpieyi, a former Chief Executive Officer, Nigerian Petroleum Refining Company (now Port Harcourt Refinery Company) and Warri Refining and Petrochemicals Company Limited, said, “The way to stop this importation of products is to build more refineries such that we have enough refining capacity greater than the country’s demand.”

According to the Deputy Director, Emerald Energy Institute, University of Port Harcourt, Prof Chijioke Nwaozuzu, the country requires a total refining capacity of 1.2 million bpd.

“This capacity would ensure domestic self-sufficiency in the supply of refined products, and provide extra supplies for the smuggled products across our borders,” he added.

An investigation by our correspondent revealed that the government’s long-standing policy of regulating the prices of petroleum products, funding constraints and lack of requisite technical capacity by the licencees were largely for the stalled refinery projects.

Licencees in limbo

With over 100 applications received from interested investors between 1990 and 2000, the Department of Petroleum Resources developed and sought approval of a procedure guide for the establishment of private refineries.

In 2002, 21 companies were granted licences to establish crude oil refineries, with a validity of 18 months. After the evaluation of the extent of engineering design work done, 17 of them were in 2004 granted approval to construct refineries, with a validity of 24 months.

Following the inability of the investors to make appreciable progress on the projects and the expiration of the construction approval, all the licences were cancelled in 2007. This led to a review of the statutory framework for licensing of private refineries and the issuance of the ‘Guidelines for the Establishment of Hydrocarbon Processing Plants in Nigeria’.

According to the DPR, there are a total of 39 proposed modular refineries with capacity ranging from 5,000 barrels per stream day to 30,000bpsd, and six conventional plants with a total capacity of 1.35 million bpsd.

It said 18 out of the 45 companies were still sourcing funds, some of whose licences to establish had expired, adding that 20 licences were active.

The agency said seven companies could break ground, namely Waltersmith Refining & Petrochemical Company Limited (5,000bpsd modular plant in Imo State); Clairgold Oil & Gas Engineering Limited (20,000bpsd in Delta); Niger Delta Petroleum Resource (10,000bpsd our in Rivers); Dee Jones (6,000bpsd in Cross River); Energia Limited (20,000bpsd in Delta); Southfield Petrochemical & Refinery Limited (20,000bpsd in Edo); and Starex Petroleum Refinery Limited (100,000bpsd in Rivers).

Funding and technical capacity constraints

The National Refineries Special Task Force, which was set up by the Ministry of Petroleum Resources in 2012, said it examined 35 greenfield private refinery licencees/applicants, and only seven were found to have reasonable potential.

The task force said it was evident that most of the applicants for a refinery licence did not have the requisite experience and background in petroleum refining and marketing.

“Their technical capability is rather doubtful and their ability to attract the quantum of funds required for refinery projects, running into billions of naira, is questionable. Besides, in many instances, potential financiers evidently insisted on crude supply agreements at rates below international market prices, owing to the prevalent subsidised products pricing regime, as a condition for further consideration of funding applications,” it said in its report.

The Chairman, Eko Petrochem and Refining Company Limited, Mr Emmanuel Iheanacho, described refineries as complex structures, saying interested investors must be able “to cross the hurdle of the technical capacity requirement”.

“The second issue is financing. The third issue that made it impossible for people to build refineries is the market structure and regulatory environment within which Nigerian private sector refineries could be built,” he told our correspondent.

Last year, Eko Petrochem and Refinery Company, which is working on a 20,000bpd modular refinery in Lagos, announced the signing of a grant of $797,343 by the United States Trade and Development Agency.

Iheanacho said, “Once we finish the detailed engineering design, which we are doing currently, we expect that it would take another 18 months before we can stream the refinery.

“Government has to engage more with the people who are committed to this process. They have to weed out those who are absolutely not serious or do not understand what is involved in it. They have to commit resources, not just giving licences.”

The Technical Consultant to President/Chief Executive of Dangote Group on Refinery and Petrochemicals Project, Mr Babatunde Soyode, described funding as perhaps the single most important obstacle.

Aliko Dangote, Africa’s richest man, is building a refinery with a capacity of 650,000bpsd in Lekki, Lagos.

He told Reuters last month that he had arranged more than $4.5bn in debt financing for his refinery project and aimed to start production in early 2020.

“We will end up spending between $12bn and $14bn. The funding is going to come through equity, commercial bank loans, export credit agencies and developmental banks,” Dangote added.

Deregulation as a key incentive

Many industry stakeholders have described the lack of deregulation in the downstream sector of the nation’s oil and gas industry as a major drawback to investment in refineries by private investors.

The prices of diesel and kerosene were deregulated in 2009 and 2016 respectively but petrol price is still being fixed by the government.

A former Group Managing Director, NNPC, Chief Chambers Oyibo, in a telephone interview with our correspondent, described government’s control of petroleum products’ prices as a major obstacle to private investment in refineries, saying, “The other thing is that many of these people who had licences didn’t have any source of crude.

“We had thought the government was going to deregulate. Then politics took over and then they didn’t do what they were supposed to do. Until they do that, private investors would be reluctant to invest. People will say, ‘What of Dangote?’ Dangote has put his refinery in a location where he is free to export all his products if he wants. He is free to also get his crude from whatever sources he can.”

Iheanacho said, “If you have a situation where government dictates the volume of products that can be brought into the country and the price at which it would be sold, it will be difficult to build a refinery because the cost factors and the pricing policy of the refineries might not be in tandem with what government wants.”

He noted that increased domestic refining capacity would save the nation a lot in foreign exchange; create a huge job opportunity, and opportunity for the acquisition of technology.

“The lack of deregulation is a major drawback. There is absolutely no need for us to continue to advocate a situation where we waste money in subsidising fuel. It has created a huge incentive for people to take products from Nigeria across the border to sell for a premium in other countries. We should stop that,” he added.

Soyode also acknowledged the lack of deregulation as a challenge, but said the Dangote refinery would operate profitably without full deregulation.

He said Dangote would buy crude oil at the international markets at the general price and sell refined products at international price, adding, “He will sell at the price at which sensible people in Nigeria would rather buy from him than import.”

On the idle refinery licences in the hands of private investors, he said, “They (the licencees) do not have money. Most of them want to use it to collect crude oil allocation and sell the crude oil. But when the government stopped that, nobody has built anything. Only Dangote has built.”

The crude oil allocation was meant to encourage interested investors to build refineries because the government realised that the capital-intensive nature of such projects.

The NRSTF, in its report, said the uniform and regulated pricing policy of the Federal Government for petroleum products was one of the most widely adduced reasons by prospective investors and entrepreneurs for the lack of investment in new refineries.

“It will, therefore, be necessary to fully deregulate prices in the downstream sector. This should, however, be subject to putting in place adequate palliatives to ameliorate the attendant social and economic burden on the populace,” it added.

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.

Continue Reading
Comments

Economy

Nigeria’s Plan to Review Oil Companies’ Gas Flaring Strategies

Published

on

Oil

Nigeria is ramping up its efforts to address environmental concerns in the oil and gas sector with a comprehensive plan to review gas flaring strategies of international and indigenous oil companies.

The Minister of State for Environment, Dr. Iziaq Salako, announced this initiative during a national stakeholders engagement meeting on methane mitigation and reduction held in Abuja, Investors King reports.

Gas flaring, a common practice in the oil industry, releases methane—a potent greenhouse gas—into the atmosphere, contributing to climate change and posing health risks to communities near oil facilities.

Nigeria aims to end routine gas flaring by 2030, aligning with global climate goals and commitments.

Dr. Salako explained the importance of reducing methane emissions and highlighted the detrimental effects on public health, food security, and economic development.

He outlined practical steps being taken to tackle methane emissions, including the development of methane guidelines and the engagement of government institutions.

The ministry, through the National Oil Spill Detection and Response Agency, will conduct periodic reviews of oil companies’ plans to ensure compliance with the gas flaring deadline.

Deloitte management consultants will assist in conducting comprehensive forensic audits to scrutinize the legitimacy of forward-contracted transactions.

President Bola Tinubu’s commitment to environmental sustainability underscores the government’s dedication to addressing climate change and fulfilling its multilateral environmental agreements.

The engagement event served as a platform for stakeholders to discuss methane mitigation strategies, existing policies, and implementation challenges.

Collaboration and dialogue among diverse sectors are crucial in charting a unified course towards sustainable methane reduction in Nigeria’s oil and gas industry.

As the country navigates its environmental agenda, ensuring accountability and transparency in gas flaring practices remains paramount for achieving a greener and healthier future.

Continue Reading

Economy

Interest Rate Jumps to 24.75% as CBN Takes Aggressive Stance Against Inflation

Published

on

Dr. Olayemi Michael Cardoso

The Central Bank of Nigeria (CBN) has announced a significant increase in the monetary policy rate, known as the interest rate, to 24.75%.

This move disclosed by CBN Governor Olayemi Cardoso during the 294th Meeting of the Monetary Policy Committee press briefing in Abuja, represents a bold step by the apex bank to address the mounting inflationary pressures faced by the country.

With inflation soaring to 31.70% in February, the CBN aims to moderate this upward trend by tightening its monetary policy stance.

This decision follows the previous hike in the interest rate to 22.75% in February, showcasing the CBN’s commitment to combatting inflationary forces.

While the bank opted to maintain the Cash Reserve Ratio at 45%, the significant increase in the interest rate underscores the urgency of the situation and the need for decisive action.

Governor Cardoso emphasized that these measures are essential to stabilize the economy and safeguard the purchasing power of the Nigerian currency.

The 294th MPC marks the second meeting under Governor Cardoso’s leadership, indicating a proactive approach to addressing economic challenges.

The next MPC meeting is scheduled for May 20th and 21st, 2024, highlighting the ongoing commitment of the CBN to navigate Nigeria’s economic landscape amidst inflationary pressures.

Continue Reading

Economy

Nigeria Braces for 10th Consecutive Interest Rate Hike by Central Bank

Published

on

Central Bank of Nigeria (CBN)

As Nigeria grapples with persistently high inflation, the Central Bank of Nigeria (CBN) is gearing up to implement its tenth consecutive interest rate hike in a bid to curb the soaring prices and attract investment.

Analysts surveyed by Bloomberg are anticipating a substantial 125 basis-point increase in the key rate to 24%, marking one of the most significant adjustments in the current tightening cycle.

The decision, expected to be announced by Governor Olayemi Cardoso on Tuesday at 2 p.m. in Abuja, comes on the heels of inflation accelerating to 31.7% in February, far surpassing the central bank’s target range of 9%.

This surge has been primarily attributed to the sharp depreciation of the naira, prompting authorities to devalue the currency twice since June to narrow the gap with the unofficial market rate and encourage investor confidence.

While these measures have seen the naira strengthen in recent days and bolstered investment inflows, including a fourfold increase in overseas remittances and significant foreign investor portfolio asset purchases, there remains a palpable need for more decisive action.

Giulia Pellegrini, a senior portfolio manager at Allianz Global Investors, emphasized the necessity for the CBN to intensify its tightening efforts to regain foreign investors’ confidence in the local bond market.

While acknowledging the positive strides made by the central bank, Pellegrini stressed the importance of a more assertive approach to prevent the diversion of investor attention to other frontier markets.

As the Nigerian economy navigates through these challenging times, the impending interest rate hike signals the CBN’s determination to address inflation head-on and foster a more stable economic environment.

Continue Reading
Advertisement




Advertisement
Advertisement
Advertisement

Trending