President Muhammadu Buhari has granted licences to 65 Nigerian companies to construct modular refineries.
The companies were selected from about 285 applications that were screened for the purpose.
Modular
refineries are mini-refineries with capacities ranging from 1,000 to
10,000 barrels per day, bpd, which can be assembled and separated easily
for enhanced performance and efficiency.
The decision to
award Licence to Establish, LTE, which was taken within 10 days of his
assuming office in June, may not be unconnected with his desire to see
the increase in domestic refining capacity to meet local demand, thereby
reducing huge import bills for subsidy.
Although the Department
of Petroleum Resources, DPR, the industry regulator, feigned ignorance
of the development, one of the beneficiary companies confirmed to
Vanguard that the measure is also meant to cushion the impact of
crashing oil prices at the international market.
The shock is not
only in the period the approvals were given, but also in the numbers
granted considering the fact that 18 LTEs were granted in 2002, but only
one of them had come on stream with just 1,000 barrels per day, bpd,
capacity.
The refinery is operated by Niger Delta Petroleum
Resources, NDPR, which produces only automotive gas oil, AGO, popularly
called diesel.
How approvals were granted
Chief Executive
officer of the beneficiary company, who spoke in confidence, said the
number was not unilateral, but “the mop up of all applications for
private refining since 2007.”
He admitted that the process took a
period of six months, dating back to former President, Goodluck
Jonathan’s administration, adding “the process was rigorous as they
looked at many issues including, land, investment, technical competence,
design and a host of many others.”
He added that licences were
offered on a two-year tenure, after which it will elapse, and that “the
beauty of these awards is that there was no lobbying, as the whole
exercise followed due process.”
In his opinion, there is nothing
wrong with the high number of awardees, arguing that “for a country like
Nigeria, the more in-country capacity, the better for us, because in a
falling oil price regime, the more you refine, the more value you add
and the more revenue you earn from your crude.”
DPR guidelines
A top management staff of DPR, when contacted, simply told Vanguard on telephone: “I am not aware of any such huge approval.”
When
prodded further, he added: “What I know is that DPR recently released
guidelines for the establishment of refineries, and we had road shows in
Lagos, Port Harcourt and Abuja, to sensitise investors.”
Ordinarily, there are three levels of approval for setting up private greenfield (new) or modular refineries in the country.
They are Approval to Establish, LTE; Approval to Construct, ATC, and Licence to Operate, LTO.
An investor must overcome the requirements in each level of approval before proceeding to the next, as shown in the guidelines.
DPR
had explained that the guidelines for the establishment of modular
refineries in Nigeria was configured with the aim of shortening the
approval time for licensing of refineries.
To woo investors to
the project, DPR also reduced the licensing fee for new refineries from
$1 million to $50,000. Government is desirous of refining at least 50
percent of its crude output in-country, not only to reduce import
dependence, but also be an exporter of refined petroleum products.
Challenges
Also
confirming the development, a petroleum expert from the Emerald Energy
Institute, University of Port Harcourt, Profesor Chijioke Nwaozuzu, said
he was more concerned with the challenges for establishing such
refineries.
According to him, such challenges are tied to political, land, funding, crude feedstock and market availability.
He
said: “These refineries are going to be located mainly in the Niger
Delta, and the state governments may want to get involved because it is a
high revenue earner, which grants only 28 days credit cycle.
“Also,
refinery requires huge land, and there may be issues with acquisition
from the land owners and to cap it all, refinery of any capacity
requires huge capital. You need at least $30,000 per barrel, which is a
huge sum even for a 1,000kbpd refinery.”
Feedstock… as in power sector
Furthermore,
he noted that if Federal Government does not guarantee feedstock for
those who complete the approval cycle, Nigeria may have a repeat of what
happened with the initial 18 licences granted in the past.
Nwaozuzu,
urged government to guarantee feedstock to the refineries, as it is
doing with the existing 445,000 combined capacity four refineries, in
addition to also guaranteeing the off-take of the products for the local
market.
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