Production of petrol by modular refineries in the country may not commence unless a clear pricing template for pricing locally refined petrol is agreed upon by the investors and government agencies to pave the way for a more competitive pricing environment.
Nigeria’s modular refinery revolution is coming at a time the federal government is taking a firm stand on opening up the nation’s downstream oil sector to engender competition and reduce cost of fuel subsidy that has continued to grow exponentially.
Beyond the scarcity of funds, some industry watchers aver that the lack of a clear and transparent product pricing template for locally refined products is indeed a major reason most persons who have obtained licences to set up refineries have not commenced work, and the reason why others have developed cold feet with regard to completing refineries under construction.
Some questions agitating the minds of some of these investors are: when will the government remove subsidies? How much should locally refined fuel cost in a regulated fuel pricing environment where petrol is still subsidised? Will the Nigerian National Petroleum Corporation (NNPC) sell crude oil to the refineries at subsidised rate or at the international market price? When exactly will the government sell its refineries to allow for market forces of demand and supply to dictate pricing, etc?
With some of the modular refineries nearing completion and preparing to come on stream, LEADERSHIP findings indicate that their current plan is to produce only diesel which sells competitively, and industry analysts say the situation could remain so if the federal government does nothing to clean up the pricing template for fuel or remove fuel subsidies.
A cursory look at the website of the Petroleum Products Pricing Regulatory Agency (PPPRA) shows that there is no pricing template for locally produced petrol even though its mandate includes to: “determine the pricing policy of petroleum products; establish parameters and codes of conduct for all operators in the downstream petroleum sector; regulate the supply and distribution of petroleum products; create an information databank through liaison with all relevant agencies to facilitate the making of informed and realistic decisions on pricing policies, and to moderate volatility in petroleum products prices, while ensuring reasonable returns to operators, amongst other functions.”
When contacted to share their experience in the industry, especially their products pricing template, Eriye Waltersmith of Waltersmith Refining & Petrochemical Company Ltd (WRPC), assured that she would send an email, which she was yet to do as of press time.
WRPC began actual operations last October after developing a 50,000bpd modular refinery situated near the Ibigwe Field flow station through a phased expansion strategy.
The first phase, which is 5,000bpd, was officially commissioned on November 24 and is expected to deliver about 271 million litres of refined petroleum products into the domestic and regional markets consisting of heavy fuel oil, dual purpose kerosene and automotive gas oil.
The groundbreaking ceremony of the company’s 45,000bpd refinery was also carried out on November 24, and comprises a stand-alone 25,000bpd condensate refinery as well as the addition of a 20,000bpd refinery to bring the combined capacity of the complex to 50,000bpd. Its products are currently being distributed in Imo State.
But an industry source told LEADERSHIP that the price at which the company sells its products is only known to the NNPC and the management of WRPC.
An industry source, who spoke to LEADERSHIP, noted that there are lots of grey areas that need to achieve the much-desired transparency in the sector that would engender competition.
When contacted, our source in NNPC denied knowledge of any special concession with regard to crude supply to modular refineries.
However, our findings showed that crude is sold to any offtaker whether in the domestic market or outside based on existing global market price.
Market sources said even upcoming mega assets like Dangote Refinery are not expected to buy crude below the international market price.
More worrisome is the federal government’s ambivalent disposition towards the full deregulation of the downstream sector of the industry.
Though the government continues to make pious pronouncements on its readiness to fully deregulate the sector, its actions, like the recent pronouncement to rehabilitate the nation’s refineries with $1.5billion, has been interpreted by stakeholders in the industry to further delay the liberalisation of the sector.
Speaking with our correspondent in Lagos, the chairman, Integrated Oil and Gas Ltd and former minister of the interior, Capt. Emmanuel Iheanacho, said that NNPC is yet to conclusively adopt a lucid approach to end the refinery rehabilitation debacle and create a level playing environment for private refineries to thrive.
Iheanacho said he was yet to understand why the government took the step to approve such a huge fund for the rehabilitation of the Port Harcourt refinery when there were ongoing refining assets across the country.
He said the government had not run any commercial ventures profitably and wondered why they thought the refineries would be run differently if retained by the government.
In his opinion, “the refineries should be privatised using the most appropriate models,” adding “that private sector capital and operational control is the most promising option.”
He explained that liberalisation of the tightly-controlled downstream sector could offer an opportunity for both state and private-owned refineries to compete.
He noted: “Refining is a process; we need to understand the way it works. I am always being asked this question about NNPC coming with one policy and another. If we continue to struggle over this, how can we learn the technology and begin refining products in-country to create jobs and add value to this product?”
He stressed that corruption and mismanagement had hampered refinery performance, pointing out that a new policy direction was essentially required if the government wanted the refineries to start functioning on a competitive basis in a liberalised market.
Iheanacho expressed concern over the plan to spend such funds on a refinery that had hemorrhaged money for decades, and suggested that the best thing the government could do was to privatise the refineries as soon as possible.
He said that enabling the private sector to own stakes in and run the refineries was key to the project’s success.
The director-general, Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, argued that given the limited fiscal space available to the government, public-private partnership offered greater opportunity to attract private capital to support refinery rehabilitation.
Yusuf noted described the Nigerian Liquefied Natural Gas public-private partnership (NLNG PPP) model was a viable option.
“Ideally for a government with limited fiscal space, spending should be focused on projects which the private sector cannot readily provide. For a refinery, getting equity funding from private sector investors should have been ideal.
“A private sector-led model offers the best prospect for a sustainable turnaround of the refineries. But for this to happen, the necessary regulatory and policy reforms must take place,” he said.
SOURCE: leadership.ng