Business
Still a Pipe Dream
By LUCAS AJANAKU, Tell 23/4/07
Apr 25, 2007 - 9:48:00 AM

Kupolokun, NNPC Boss When Olatunde Ilori, retired chief judge of Lagos State, chief executive officer, CEO, Union Atlantic Petroleum Limited and chairman, Association of Private Refineries Owners of Nigeria, APRON, got an invitation from President Olusegun Obasanjo for an audience with members of his association last year, he was ecstatic. Reason: it would provide members the golden opportunity, for the first time, to table their problems before the President. So, when he led his members to the meeting, he went with a bagful of demands, which include the establishment of a level playing field for all players, grant of right to lift crude oil, guarantee of crude oil supply and guarantee of returns on investment. At the end of the meeting, the President promised to grant their requests.

But several months after, most of the promises were not met, aside from the guarantee of 60 per cent crude oil supply. That was, however, contrary to the expectations of APRON. So, it was flustered APRON members that were assembled, mid-March, in Ikoyi, Lagos, by Tony Chukwueke, director, Department of Petroleum Resources, DPR, and tongue-lashed for poor performance and consequent revocation of their licences. This development puts a final seal to any hope that any private refinery will come on stream in the tenure of the Obasanjo administration. Justifying the action of the DPR, Edmund Daukoru, energy minister, said, “Every licence is subject to revocation if not utilised. The licences had technically expired since July 2006, so the announcement was a mere formality.”

Aside from Union Atlantic Petroleum Limited, notable among the firms whose licences were revoked are Orient Refineries and Petrochemical Company, chaired by Emeka Anyaoku, former Commonwealth secretary-general; Akwa Ibom Refinery and Petrochemicals Limited; Owena Oil and Gas Limited; Rivgas Petroleum and Energy Limited; Badagry Petroleum Refinery Limited and 12 others. On June 14, 2004, the DPR issued licences to 18 private firms to build refineries, having paid $50,000 (N6.5 million) application fees. This preliminary licence had a lifespan of 24 months within which they were expected to prepare their pre-front end engineering design, FEED, programme. Having cleared the first hurdle, they moved to the second stage — approval to construct, ATC, in October, 2004.

A director of one of the firms that got the licences told the magazine that it would require about $1.5 billion (N193.5 billion) to build a new refinery. He said that market studies gulped between $75,000 (N9.7 million) and $100,000 (N12.9 million), site studies attracted between $250,000 (N32.5 million) and $500,000 (N65 million), while environmental impact assessment, EIA, cost between $500,000 (N65 million) and $1 million (N129 million). According to him, liquefaction process modelling costs between $200,000 (N26 million) and $250,000 (N32.5 million). Those were not the only costs needed to start the project. He said detailed feasibility report and basic engineering design attract between $1.5 million (N193 million) and $3.5million (N452 million) and $2.3 million (N297.1 million) and $5 million (N545 million) respectively while FEED takes between $15 million (N1.6 billion) and $20 million (N2.2 billion).  Faced with the daunting task of mobilising this offshore finance, APRON members requested that government grant them the right to lift crude oil when the project “attains the point of no return” so that proceeds can be used to part-finance the project and pay interest on loans. But Obasanjo feared the grant of this request would be abused. “I don’t want a situation where someone will take crude oil and resell it just because he has a licence,” he stated.

The President’s fears may be justified. In 1996, the late head of state, General Sani Abacha, awarded  licences to two private firms — Qua Iboe Petroleum Refinery Limited and Brass Refinery Limited — to process 200,000 and 100,000 barrels per day, bpd, of crude oil respectively. Tam David-West, professor of Virology and former petroleum minister, said the licencees abused the privilege by lifting crude oil rather than building refineries. Ilori laments that “when the idea of private refineries came up, a document was issued which stated the incentives that should be given but when the incentives were not given, the association complained to the Senator Ibrahim Mantu-led Palliative Committee which had a refineries section headed by one Charles Ugwu". Like the meeting with the President, he recalls, “We were well received by the committee. They even wanted us to arrange with our foreign partners to get crude oil for them to refine (outside) and import back to Nigeria to solve the petroleum products problem of the country (at that time).”  But the foreign partners, according to him, would rather have the right to lift the crude oil. Beyond this, inconsistent government policies and the Niger Delta crisis were also keeping investors at bay. The deregulation policy, for instance, has been widely criticised. Diran Fawibe, CEO, International Energy Services, argues that the policy does not favour investors because it is only the price of diesel that has been completely deregulated, noting that petrol and kerosene, which take the largest market share, are still regulated thus putting doubts on the profitability of any investment.

Fawibe says the revocation of the licences was done in bad faith and was a mere “dance to the gallery.” The issue of grant of oil blocks to the firms has also not been addressed but the standing policy of government now is for firms willing to get oil blocks in the country to show “serious downstream commitment” before being granted licence. This was the pivot on which recent licences were said to have been issued by the DPR. Peter Akpatason, president, National Union of Petroleum and Natural Gas Workers, NUPENG, says investors may be unwilling to stake their resources in the oil sector in the country because of the prevailing problems in the Niger Delta. Added to this is the continued participation of the Nigerian National Petroleum Corporation, NNPC, in product distribution through its mega-filling stations, which dispense fuel at prices relatively lower than those of major and independent marketers. Also, the bureaucratic behemoth which government agencies have become is a cause for concern. Nigeria is Africa’s largest crude oil producer and the sixth largest contributor to the Organisation of Petroleum Exporting Countries, OPEC’s daily supply. It contributes some 2.3 million bpd to the oil cartel.

With a population put at 140 million by the last census figures, the nation’s daily gasoline requirement of 33 million litres is hardly met by the local refineries, whose combined capacity is to process 445,000 bpd. Until recently when her only petrochemical plant in Port Harcourt, Rivers State, was sold to Indorama Petrochemical Company of Thailand, the nation used to have four refineries — two in Port Harcourt, while Warri, Delta State and Kaduna, Kaduna State have one apiece. Under the pretext of turn-around maintenance, these refineries became a sort of conduit through which public funds were allegedly rail-roaded into private pockets by government officials. Funsho Kupolokun, group managing director of the NNPC, says this government has spent more than $1 billion, (about N129 billion) on fixing the near-moribund refineries in the last eight years, an amount analysts say could build a new refinery. That financial commitment notwithstanding, the nation now depends predominantly on imported fuel.  With this situation, the dream of turning Nigeria into the hub of finished products for the West African sub-region, after meeting domestic requirements, may just remain mere wishful thinking.