John Okoh, Lagos
The need to reorganize and transform the oil sector through diversification and deregulation at minimum cost was canvassed at the weekend by Pricewaterhouse coopers, PWC, and
Engr. Tony Ogbuigwe, Managing Consultant and CEO of Pejad Nigeria limited during the Lagos Chamber of Commerce and Industry second business clinic program.
Discussing the theme of the clinic, Modular Refinery: Merits and Challenges, PWC and Ogbuigwe canvassed modular refinery as one of the easiest, eco-friendly and suitable recipe for the current inefficient, corruption riddled and credit and infrastructural plagued oil sector.
Ogbuigwe who sized up the sector in two presentations, namely ‘the future of gas, petroleum refining and petrochemicals in Nigeria’ and ‘the commercial prospects for modular refinery and full-scale refineries’, contended that government’s staggered involvement in the sector for almost five decades stand in sharp contrast to less than a decade of sole private sector participation in terms of returns on profit, viability and sustainability.
He said; “Over the past 10 to 15 years, capacity utilization in the refineries has been poor at about 20 per cent. Similar performance by the EPCL led to its sale to Indorama. After sale, performance has been at 100 per cent.
“LPG supply from the refineries has similarly been poor. NLNG has been the savior”
He gave reasons for the current poor performance of the sector to include inadequate funding and lack of autonomy, poor governance and distant decision making, poor maintenance, interference by political forces, problem of subsidies, lack of competition and inefficiency as well as delayed turnaround maintenance.
He however prescribed six solutions for the sector to enable it translates its vast potential into commercial viability.
According to him, the downstream sector should be deregulated while government equity participation should be reduced to below the current 40 per cent and managed by the NNPC as in NLNG. In addition, government should allow the construction of large-scale refineries, like the Dangote Refinery and medium scale modular refineries, each of which should be an independent model.
Other recipe by him include the checking of desertification through deliberate policy to switch from kerosene and wood consumption to gas for cooking, the promotion of gas for vehicular use, the setting up of more petrochemical and fertilizer plants.
“Industrialization could enable Nigeria to substitute imports such as plastic, rubber and food and help diversify its exports base’’, he said, adding that the multiplier effects on the economy would be huge.
“Greater efficiency, jobs creation for youths, growth of the private sector, refine crude to meet daily needs and export”, would be impact the economy if the proactive steps he recommended were taken.
On the commercial prospects for modular refinery and full-scale refineries, Engr Ogbuigwe who is also an ECOWAS Regional Advisor, noted that the commercial prospects for modular and full-scale refineries were high with private sector involvement as it did in the aviation industry, railways and telecoms, which failed with government sole participation.
“Demand is foreseen to continue to rise right through to 2040, yet refining capacity continues to lag demand. Hence importation continues to be the major source of meeting the shortfall. This presents a clear opportunity for modular and full scale refineries”, he said.
According to him, there are many cost effective and social benefits that make the choice of modular refineries a feasible option in the face of projected and anticipated crisis that may arise when “aggregate demand rise to 2.7mb/d which the existing refining capacity cannot meet and consequently growth and industrial activity can be disrupted for a variety of reasons”
“For Nigeria with a population of 170-180million population, we would be the hardest hit with long queues, disruptions to economic activity, paralysis of movement, insecurity, political instability and civil disturbance”.
He therefore urged the authorities to enforce the proactive measures already put in place to encourage modular refineries.
These are the DPR publication on “Guidelines for the establishment of hydrocarbon processing plants in Nigeria, 25 private refinery licenses to establish LTE has been granted with three full-scale refineries and 22 to build modular refineries with capacity totaling 1429,000bpsd, removal of subsidy and investment in efficient storage and distribution infrastructure for the petroleum products”
In its own contribution Pricewaterhouse Coopers, which made a presentation titled Modular Refineries: Merits and Challenges, said there was compelling need to encourage modular refineries in the country.
According to the organization, the rising cost of importation of refined products worsened by exchange rate devaluation and difficulties in raising credits by marketers despite government’s intervention are major bottlenecks. Also are the subsidy regime still being borne by the NNPC with landing cost at N180 per liter and pump price at N145 per liter which have changed the dynamics of product importation to warrant the recourse to an all-time solution through the modular refinery.
It said; “For countries with the size and complexities like Nigeria, modular refineries can be scattered throughout the country to serve the needs of various regions of the country”
“To actualize the country’s quest for self sufficiency and end reliance on importation of refined petroleum products by 2019, modular refineries provide a cost effective, flexible and commercially viable option with the following benefits:
“Foreign exchange management with sufficient savings as Nigeria becomes a net exporter of refined crude oil products; employment generation as new refinery business are set up; increase in national revenue and Gross Domestic Products; bridging cost and logistic related issues associated with importation will be managed effectively and eradicate long standing socio-economic issues associated with importation of petroleum products”.
The company however concluded with the advice that certain themes from potential investors should be looked into. These are steady supply and sourcing of feedstock, effective and efficient regulations, incentives, improved infrastructure, asset security and unrest in the Niger Delta and deregulation of the market.
Earlier in the year the Acting President Yemi Osinbajo disclosed governments’ readiness to set guidelines for the establishment of modular refinery with the NNPC stating that 1,000 makeshift refineries in the Niger Delta would be sued as a template
Presidential aide, Laolu Akande announced on Tuesday that the ground breaking of the first set of the Modular Refineries would take place in August.
