The federal government says it will force oil majors producing crude oil in the country to either build their own refineries or take equities in existing ones.

These are the two avenues through which government hopes to increase
domestic refining capacity, ahead of the planned deregulation of the
downstream petroleum sector.

Currently, the cumulative refining capacity of Nigeria’s four
refineries is down to record lows of 6.7 per cent, leaving about 95 per
cent of domestic products needed at the vagaries of importation.

Speaking at a briefing in Lagos on Thursday, on developments in the oil
and gas industry in the third quarter, Billy Agha, the Director,
Department of Petroleum Resources, said government was being careful
“not to overdo things,” by deciding on the two alternatives.

Alternatives to refining

Mr. Agha, whose appointment has just been confirmed after more than a
year in an acting capacity, said, before the oil majors could renew
their concessions, they have the option of taking a downstream project.

The DPR director said “They (oil companies) either take equity in the
existing refineries, that is, use part of their equity to revamp a
refinery after doing their technical evaluation to bring it up to 100
per cent performance, or we use the international medium and get them
to pay the reserve value and use the money to invest in a private
refinery.”

So far, only two refineries – Amakpe Refinery and Anezon Refinery -
have been awarded licences to operate and approval to construct
refineries respectively. Mr. Agha added that about five more
applications are being scrutinised.

The same old song

But government has travelled this road in the past, when, in 2006, it
directed that 50 per cent of the crude oil produced by the majors must
be refined locally.

But the policy never got off the ground, due to a lack of commitment
and an inability to meet the oil majors’ demand to fully deregulate the
downstream sector.

As Mr. Agha noted, “The primary responsibility of these companies is
production of crude, which is an upstream activity and not refining, a
downstream project.”

“There is no alternative to deregulation if we must go into refining,”
a top official of one of the oil majors told NEXT in confidence. This
was corroborated by a top management officer with the Nigerian National
petroleum Corporation (NNPC), the majority partner in all the joint
venture oil and gas projects.

The NNPC source told NEXT on the telephone that “The oil majors say we
must deregulate fully because nobody will invest in refining under a
regulated market regime. This is because there is no guarantee on
return on investment.”

Stalemated meetings

The decision to force the oil majors to take one of these alternatives
is one of the palliatives being promoted by government to reduce the
impact of a fully deregulated downstream petroleum sector, which will
open up petroleum products marketing and distribution to market forces.

A two-day meeting between the representatives of government and 37
labour union executives and other civil society groups ended in a
stalemate on Wednesday, as the groups said they didn’t trust
government’s promises.

Indeed, the promise of palliatives is also not new, as this was the
mission of the popular Ibrahim Mantu-led Palliative Committee, which
recommendations were never implemented, even as pump prices of fuel
were hiked more than 10 times during former president Olusegun
Obasanjo’s regime.

But government appears to be desperate now, saying it can no longer
fund the subsidy regime, which Mansur Muhtar, the Minister of Finance,
put at over N2trillion till date.

Refining situation

Data from the DPR, the regulator of oil and gas operations in the
country, show that hardly any of the four refineries – Port Harcourt
1&2; Warri and Kaduna with combined refining capacity 438,750
barrels per day – is operating at any appreciable level. The DPR put
the average crude oil supplied the four refineries in the third quarter
in excess of 3.40 million barrels, while the refineries processed an
average of 2.72million barrels.

Mr. Agha attributed the low performance of the refineries to “Lack of
crude oil due to incessant line breaks, and frequent equipment
failure,” which was why the refineries cannot not process all the crude
supplied to them, as the plants are begging for maintenance.

Source: 234Next

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