DPR waves olive branch for downstream operators--Olusola Bello(businessdayonline)

The government policy of allowing private participation in crude oil refining was kicked-off in 1996, when three companies were granted licence to construct and operate private refineries in Nigeria. Five years later (2001), none of the three was able to make appreciable progress.

The DPR recently undertook a review of the guidelines for granting approvals to construct and operate private refineries in Nigeria and came up with the three stage process of licence to establish (LTE), approval to construct (ATC), and licence to operate (LTO). This was meant to tie standard to internationally recognised achievement in refinery projects to particular stages of approval that would assist the prospective refiners to deliver the refineries within specified periods.

Under this new setting, 18 companies out of the 105 that bided were granted licences to establish (LTE) private refineries in 2002, while the 1996 group had their licences converted to LTEs.

All the 21 LTEs each had a validity period of two years within which to fulfil conditions for the second stage of approvals (ATC).

The 17 ATCs with total refining capacity of 1,299,000 barrels per day (bpd) were granted between February 2004 and May 2005, each with a validity period of 18 months. These licences were granted based on company submissions, presentations and the vision of government to refine at least 50 percent of the national daily crude oil production locally.

Today, it is evident that there is no operational private crude oil refinery. Some of the companies have enjoyed 10 to 18 months after expiration of their ATCs.

In a bid to give opportunity to other applicants (about 23 being processed) and in line with reality of the terms of the grant, Chukwueke formally announced the cancellation of all the expired licences on March 2007 to a gathering of the companies granted ATC to construct private refineries.

The chairman, Private Petroleum Refiners Association of Nigeria, Justice Ilori, expressed the aggressiveness with which the refinery projects were pursued for timely actualisation and the difficulties encountered in securing foreign credible finance and technical partners. Some of the militating issues are; lack of documented incentives to encourage investors as obtainable in the gas sector, guarantee of crude oil supply and the international image of the country in terms of the business environment and the Niger-Delta crisis.

In recognition of continuing effort and some extent of financial commitments on the part of the licences, the director said the prospective refiners were free to apply for revalidation of their expired ATCs under a DPR proposed procedure guide to be ratified by the minister for energy. Mordecai Ladan, head, downstream, DPR, while presenting the proposed guidelines, said the agency would carry out thorough assessment of the projects and, as expressed by the director, revalidate only the viable ones.

Meanwhile, machinery has been put in place to identity and work with serious applicants who will physically deliver the private refinery projects and relief Nigeria of massive importations, with associated loss of foreign exchange and agonizing queues at filling stations.

The huge economic cost associated with massive importation of petroleum products as the sole source of supply to the domestic market, analysts said might push the DPR to step in with fresh strategies for recovery of the nation’s lost refining capacity. The strategies are to focus on arrangements that would build confidence among investors, funding partners and host community for seamless realisation of the projects and profitable operation of the refineries. The move followed the failure of previous attempt to encourage indigenous investors establish private refineries with concessionary award of licence, disruptions and alteration in the privatisation of existing refineries poorly managed by the Nigeria National Petroleum Corporation (NNPC).

Chukwueke expressed concern over the inability of the refiners to meet government’s expectations on the licences in terms of construction and operating of private refineries in Nigeria.

The policy of allowing private refining of petroleum products was conceived as part of the earliest plan for deregulation of the downstream sector of the industry for efficient creation of value across the chain.

Presently, apart from two or more companies that have actually gone to site or made convincing efforts in sourcing funding to actualise their projects, the rest appear to be at loss on what to do with the licences. Others that have broken the ground in terms of construction appear stuck with a host of community issues that are similar to the quasi-terrorist militancy in the Niger Delta.

In an interview recently at the Offshore West African (OWA) conference in Abuja, Energy Minister Edmund Daukoru dismissed the excuses as flimsy.

Daukoru accused them of hawking the licences in the international capital markets for quick cash instead of going for loans at the finance market for long-term gains and sustainable profits.

According to the minister, government has already provided generous incentives for private refiners under the downstream deregulation programme and also guaranteed steady feedstock for all refineries in the country.

The deregulation of the downstream sector has been marred by disproportionate pricing, sloppy playing field against investors.

An oil worker said over $5-billion or N650-billion had been spent on maintenance of the nation’s four refineries with combined processing capacity of 445,000 bpd, which were still moribund.

The National Union of Petroleum and Natural Gas Workers (NUPENG) and Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) recently in Lagos disclosed that NNPC had also spent about $20-billion or N2.6-trillion on petroleum products importation.

All these costs were incurred between 2003, when deregulation began till now.

Despite the promises of deregulation, sectoral reforms, transformation of NNPC, privatisation of public enterprises and local content policy in the industry, there is no significant economic growth impact due to absence of downstream processing facilities.

Former commonwealth secretary general and chairman, Orient Petroleum and Refinery Limited, Emeka Anyaoku, described the use of imported products to service the economy of Africa’s biggest crude oil exporter as "unacceptable paradox."

To address this problem, DPR is reviewing conditions for the award of licences for private refineries and also using award of oil blocs to attract credible investments in refining. This followed a result of analysis of the failed licences. In cancelling the licences of the companies that failed to initiate projects, Chukueke said about 23 new applications were being processed, while the 2007 bid round for oil blocs would prefer investors with downstream packages.

The cancellation has cleared the way for serious investors willing to meet new regulations that rule out obsolete technology in order to guarantee best products for commercial and industrial machinery in the economy.