OTC 2013: Regulation frustrates greenfield refineries – NNPC

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Regulation of the downstream petroleum industry has been identified as a major hiccup for the take off three green field refineries in Nigeria, for which Memoranda of understanding MoUs, have been signed with a Chinese construction firm.

In 2010, the Nigerian government signed Memoranda of Understanding with Chinese firm, China State Construction Engineering Corporation, CSCEC, for the construction of additional three Greenfield refineries in Lagos, Kogi and Bayelsa states, but these have not yet been realised due to a number of challenges identified by the Nigerian National Petroleum Corporation, NNPC Group Managing Director, Mr. Andrew Yakubu.

Although they have not yet come on stream, but the NNPC, boss projects that the Greenfield refineries will enhance Nigeria’s refining capacity by additional 50 percent.

Yakubu, who fielded questions from journalists on the sidelines of the Offshore Technology Conference, OTC 2013, in Houston Texas, USA, attributed part of the challenges to the take off of the refinery projects to regulation of the downstream petroleum industry.

He said: “There are quite a number of things that are wrong, no investor will come and invest in a regulated environment. Today, the petroleum products are regulated and there are quite a number of things we need to do upfront to ensure that the business environment is conducive for investors to come and invest.

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“So it is not about Chinese or any other person bringing money; nobody is going to bring free money.”

Yakubu, who also declared open the Nigerian Pavilion at the Reliant Park, venue of the ongoing conference, argued that for these projects to take off the business models must be right and this cannot be achieved under a regulated system.

He, however, said that discussions were on-going to establish investors’ confidence, as current refining capacity from the nation’s four refineries with combined template of 445,000 barrels per day can barely meet local consumption.

Refining capacity

Yakubu noted that in view of population explosion and increased economic activities, local demand for fuel has more than doubled over the years, but this has not been met with corresponding refining increase.

For these reasons, he said the Greenfield refineries have become imperative, especially as current output from the refineries is a little above 10 million litres, which was just achieved last week.

According to him, “Our consumption is over 35 million litres on daily basis, and current in-country capacity is about 17 million litres; there is no doubt that we need the Greenfield so that we can make progress in this critical aspect of our energy requirements. But we must get the business model right.”

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Stressing the importance of increasing capacity, the NNPC boss said that steps were being taken to rehabilitate the old refineries, which have started yielding results with the recovery of the 10 million litres last week.

Indigenous capacity

Speaking on the poor contributions of indigenous operators to Nigeria’s crude oil production capacity, Yakubu said that efforts were being made to change the trend through divestments and acquisition programmes.

He said, “Indigenous participation has not been high enough, but I must say, it has significantly improved over time. As at last year, we had just about 10 per cent of total crude oil production. But because of increased government attention to expanding the capacity of upstream participation, within the last year or two, we have had significant divestment of assets from the majors and those assets were the ones that the majors actually did not focus much attention on. Shell in particular divested their equity share in about five assets and they were taken up by indigenous participants.”

Besides the Shell assets, he said there were also have a number of assets that are being listed for farm-in by indigenous participants, which are also assets that had not received adequate attention from the International Oil Companies, IOCs.

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He projected that ongoing divestments by ConocoPhillips and Total, may also be taken up by the indigenous operators.

He added that all abandoned assets are currently receiving presidential scrutiny and are being delineated by the Department of Petroleum Resources, DPR. “As soon as they are properly compiled, the bid round will start and those assets would be made available.”

Fiscal regime

With regard to the contentious fiscal terms being proposed in Petroleum Industry Bill, PIB, Yakubu insisted that it would be hasty to pre-empt the outcome of the Bill currently undergoing legislative scrutiny at the National Assembly.

But he gave the assurance that whatever the outcome” will be in the interest of the country in terms revenue flow, and it will also encourage investors to come in and play in the hydrocarbon business in Nigeria.”


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