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The Panacea To Nigeria’s Refining Problems

Nigeria has the third largest refinery capacity in Africa. The country boasts of an installed capacity of 445,000 barrels per day (bpd) only trailing behind South Africa with 540,000 bpd and Egypt with about 774,900 bpd. Unfortunately, Nigeria with its four refineries doesn’t produce wherever close to this put in capability, in reality the country’s refineries at the moment operate at solely about 20 percent capability. That is has occurred primarily because of neglect and the lack of a upkeep culture which has been the bane of each successive Nigerian Authorities because the 1980s.

That is despite the fact that Nigeria has routinely spent huge sums on Turn Around Maintenance (TAM) for these refineries, yet local needs nonetheless cannot be met and the Nigerian National Petroleum Company (NNPC) has had to rely largely on the foreign importation of petroleum products especially premium motor spirit (PMS) to meet the each day consumption wants of Nigerians. In January 2013, the federal government made it known that, as usual, it would be embarking on one other TAM that will gulp as much as $1.6 billion and which would possible finish by October 2014. However, just as it has always been, it seems nothing positive will come out of your complete process.

THE ARGUMENT FOR THE PRIVATISATION OF THE REFINERIES
As briefly highlighted above, successive administrations in Nigeria have embarked on expensive exercises in TAM, for example, General Sanni Abacha awarded a contract which was valued at $215 million in 1997 for the Kaduna refinery, whereas Abdulsalami Abubakar’s administration in 1998 also awarded $92 million for the four refineries and there was no visible affect on the refineries. Also apparently inspired by the country’s attainment of democracy, Obasanjo throughout his first time period in workplace between 1999-2003, spent about $254 million and $four hundred.Four million alone on the repairs of refineries and pipelines. Nevertheless, there remains to be no proof to point petroleum refinery engineering pdf 6th edition out that such big quantities of cash have been spent on the refineries at all. Moreover, it’s invariably clear that certain unscrupulous people are benefitting from the system by their affect on the award of TAM contracts each time a brand new government is in place.

Another potential cause behind the necessity for privatization is the evident gross incompetence of the government in managing the refineries. Not surprisingly, in a research carried out by the Nationwide Refineries Special Job Drive (NRSTF) of 42 oil refineries working in Africa in 2012, the four refineries in Nigeria recorded the worst performance in each efficiency and utilization capability with a median capacity utilization of only 18 % compared to eighty one % and eighty five p.c respectively for Egypt and South Africa in the interval of 2006-2009. Asides from the refineries gradually rotting away on account of neglect there have additionally been incessant fireplace outbreaks which have been attributed to sabotage efforts by some quarters. The refineries have progressively become out of date over time and may no longer compete with different refineries in the developed and growing world that are built and fitted with state-of-the-artwork equipment. Moreso, they aren’t properly managed like personal concerns which are maintained and protected from damage that could impression negatively on the refineries in the long term. Nations similar to Brazil, India, South Africa and Singapore have refineries which can be managed by personal firms and that are additionally extremely environment friendly. Subsequently, offered the refineries are offered by a transparent process to impartial private companies with the requisite capital and technical expertise, there isn’t any motive why the identical wouldn’t be potential in Nigeria’s case.

It is indeed shameful that despite her ranking as one in every of the largest oil producing nations on the earth, Nigeria nonetheless imports petroleum products from international locations like Brazil and India, which had been no where on the oil map of the world when Nigeria discovered oil in Oloibiri in 1956. Absurdly, Nigeria has additionally been importing petroleum products from Niger, a neighbouring West African nation which has a modest refining capability of 20,000 bpd. It’s instructive to notice that the Soraz Refinery in Niger is 60 per cent owned by Chinese state owned oil firm CNPC and was built with $980 million (on account of unexpected prices) whereas Nigeria earmarked greater than $1billiion for one TAM train on its refineries.

Moreover, the privatization of the refineries would additionally go so far as to minimize the alleged corruption and mismanagement associated with the NNPC in relation to points comparable to unremitted subsidy funds, the crude for petroleum products swap deals and in addition the hollow course of that’s TAM. For years, the Port-Harcourt Refinery I and II, the Warri Refinery and Petrochemical Company; and the Kaduna Refining and Petrochemical Firm, have been used as conduits to cream off billions of dollars below the guise of carrying out TAM. The personal sector may due to this fact fare too much better when it comes to transparency if given the chance to take over and maintain these refineries.

SOME Issues WHICH Have to be ADDRESSED
Subsidy

Government interference in the type of market regulation and price management in the form of subsidies urgently must be addressed. The elimination of the subsidy will foster transparency within the downstream sector and will encourage funding into the existing refineries in addition to to the construction of more personal refineries as properly. The Petroleum Merchandise Pricing petroleum refinery engineering pdf 6th edition Regulatory Agency (PPPRA), made it known by means of the speedy past Executive Secretary, Reginald Stanley, that it paid N832 billion as subsidy claims to petroleum products entrepreneurs under the Petroleum Assist Fund (PSF) in 2013 and it is instructive to note that this determine was primarily as a result of the fact that value slicing measures had truly been carried out. It could seem that the moribund refineries have additional paved the way in which for unscrupulous persons to learn from the subsidy regime. There’s clearly a monetary and structural imbalance created on account of the large sums of money at the moment being expended on subsidies and it will need to be addressed before satisfactory ranges of privatization or funding can happen.

Pipeline Vandalism and Oil/Petroleum Theft
It have to be noted that refineries in Nigeria also possess the distinctive conundrum of pipeline vandalism and oil/petroleum product theft. There have been a number of unforeseen shutdowns at refineries because of the vandalism of oil pipelines and the theft of crude being transported to the refineries and petroleum products from them. This can little doubt have had a adverse influence on the general efficiency of the refineries. If such points aren’t resolved adequately, there’s unlikely to be wholesome curiosity by investors within the refineries going ahead.

Regulatory Framework
Refining operations in Nigeria are governed by the provisions of the Petroleum Refining Regulations of 1974 and the Hydrocarbon Refining Act CAP 170, laws of the federation of Nigeria, 1990. The Petroleum Refineries Rules amongst other issues additionally provide the fiscal incentives for establishment of refineries in the nation (by private individuals/international investors). Crude and petroleum merchandise transportation and storage are overseen by the provisions of the Oil Pipelines Act, CAP 338 of 1990 and the Petroleum Product and Distribution Act, CAP P.12, LFN 2004. Petroleum Product Pricing is regulated primarily by the PPPRA Act of 2003, while the security and environment provisions of refining operations on the other hand are guided by Environmental Tips and Requirements for Petroleum Trade in Nigeria (EGASPIN) of 2002. The multiplicity of Laws and laws little doubt impedes on the effectivity and effectiveness of trade operations this could additional discourage prospective buyers. The swift passage of the Petroleum Business Bill is essential in changing the present disjointed laws and regulatory authorities within the downstream sector.

Labour’s Perspective and Opposition
The 2 major labour petroleum unions have frowned on the proposed sale of the refineries owing to the actual fact that it’s going to amount to selling the country’s nationwide monuments and will more worryingly mean the transfer of the country’s oil wealth to Government cronies. The Petroleum and Natural Fuel Senior Employees Affiliation of Nigeria (PENGASSAN) president, Babatunde Ogun believes that the refineries can nonetheless be put back on the right track while his counterpart within the Nigerian Union of Petroleum and Pure Fuel Workers (NUPENG) president, Comrade Igwe Achese towed the same line with Ogun as he opposed the sale of the refineries. It can be crucial for Labour to wake as much as the truth that the current situation with regard to the state of our nationwide refineries shouldn’t be an optimum one and nothing wanting privatization will clear up the present problems dealing with them. Regardless of the foregoing additionally it is the duty of the Federal Government to foster transparency in any potential privatization course of and to carry the labour unions alongside every step of the way if their opposition is to be countered.

THE DANGOTE Factor
The Federal Government, since 2002, has issued over 39 licences to private operators to establish refineries of various capacities within the nation, but up to now, only the Niger Delta Petroleum Sources run refinery, positioned in Ogbelle, Rivers State has commenced production of 1,000bpd of refined oil. As such, the choice by cement mogul, Aliko Dangote to establish a refinery within the Lekki Free Commerce Zone that will price round $9 billion is laudable given the present state of affairs in the refinery sector.

The Dangote refinery is envisaged for 2016 and the 400,000 barrels refinery is expected to add to the 445,000 installed capability of the 4 existing refineries in Nigeria. It will certainly end the apply the place unrefined petroleum products are exported at low costs processed overseas and introduced again at high cost to local customers. The institution of the refinery will even give room for employment opportunities with the envisaged creation of 85,000 direct and indirect jobs for Nigerians in the long term.

It should nevertheless be famous that Dangote’s refinery is not going to be immune to the issues that have plagued Nigeria’s present refineries. It’s more likely to be several years earlier than it is working at full capability depending on whether a few of the outstanding issues highlighted above are adequately resolved. Further to this can be the difficulty of pricing. Refining oil is a expensive course of and in the early phases of production, huge begin-up prices will prevent the new refinery’s petrol from being considerably cheaper than international imports. It is probably going that it might even be costlier. Given these issues one have to be cautiously optimistic in regards to the overwhelming success of this challenge. However, it is likely that Dangote will be able to convince the present and successive administrations to continue to be supportive of the project with regard to monetary incentives and in granting the all important working permits given the large financial advantages of this project.

In conclusion, if Nigeria continues to operate the moribund refineries with its ambiguous surreptitious TAM contracts along side the subsidy regime which is currently in place, it is very unlikely to attract competent traders to the downstream sector. Therefore, the federal government must take its fingers off concurrently from the refineries and control of the pricing mechanism in the downstream sector in order to revive the business. The resultant effect would be the heightened curiosity of international buyers who will finally establish with the transparency and financial viability within the downstream trade.