The issue of deregulation of petrol (PMS) price has been a contentious issue for over two decades, as well as the deregulation of the refining business in Nigeria. However, we need to be clear on what the challenges are and how we go about deregulating the entire downstream petroleum sector.

Deregulation and liberalisation of this sector mean different things. Lifting price and supply controls and constraints constitute liberalisation of the sector, not full deregulation. However, full deregulation of the sector will entail privatisation of the government refineries, pipelines, product depots, loading and discharge terminals for crude oil and products, jetties, etc. Privatising some of these supply and distribution infrastructure may have severe national security implications

Deregulating the price of petrol will not automatically eradicate the shame of fuels importation into Nigeria. The exercise will only generate extra funds for the government which, if care is not taken, will likely be frittered away so long as it is shared by the three tiers of government.

The alternative would be to dedicate the entire revenue to major infrastructure development under a strengthened SURE-P Agency with competent management or subordinate the revenue under the Sovereign Wealth Fund for the same purpose.

The next issue will be a forensic analysis of the demand and supply situation with petroleum products in Nigeria, so we can determine the extent of refining capacity needed to bridge the supply gap.

Currently, we have a name-plate refining capacity of 445,000 barrels per day (bpd). As at 2016, the average capacity utilisation for all three refineries was about 13.7%, which dropped to 6.1% by the end of September 2017. Hence, the experienced fuel shortages and resulting massive imports!

However, the GMD of NNPC, Dr Maikanti Baru has assured that the refineries will achieve an average refining capacity utilisation level of at least 90% by the end of 2019. Considering that the newest refinery (the new Port Harcourt refinery) is 30 years old, it is unlikely that such a huge leap could be achieved in such a short time!

According to Organization of Petroleum Exporting Countries (OPEC) figures, Nigeria’s daily consumption of fuels as at early 2012 was as follows: 32 ml / day of petrol, 5.2 ml / day of kerosene, and 4.1 ml / day of diesel. The difference between what our refineries produce and these consumption statistics should constitute our daily imports. The unprocessed portion of the 445,000 bpd is supposed to be swapped for petrol by the Pipelines & Products Marketing Company (PPMC), a subsidiary of the National Oil Corporation.

At another end, the Petroleum Products Pricing & Regulatory Agency (PPPRA) used to issues petrol import licenses to selected marketers. What is not certain is how both agencies had reconciled the volumes of petrol they each import. It is against this background that the servicing of our existing refineries is welcome news. However, let us not be overly sanguine yet. Here is why!

In the most unlikely event that the recent turn-around maintenance of the refineries will deliver 90% capacity utilisation (about 400,000 barrel per day), this will translate to about 20 ml / day of petrol, 8 ml / day of kerosene, and 13 ml / day of diesel. The implication is that we will still be short of petrol. The fact is that even with a full rehabilitation of all the national refineries (which may take about 3 years to achieve) we are unlikely to achieve 90% capacity utilization considering the age of the refineries. The most we could possibly hope for is about an average capacity utilization of 60% ‘tops’!

To achieve self-sufficiency in the short term and provide for smuggled or diverted fuels, Nigeria needs a minimum refining capacity of 750,000 barrels per day. To produce surplus fuels for export, Nigeria will require at least one million barrels per day refining capacity. This will enable us to produce about 56 ml/ day of petrol, 19 ml/ day of kerosene, and 41 ml/ day of diesel.

This is achievable, considering that a private firm JAMNAGAR (RELIANCE) REFINERY INDIA has a total refining capacity of one million, two hundred thousand barrels per day.

Achieving these refining capacity targets would involve the construction of large-scale (100,000 bpd and above), medium-scale (40,000 to 99,000 bpd) and smaller-scale refineries (1,000 to 39,000 bpd). Smaller refineries could be in a modular format.

Government will have to be involved in the construction of the larger- scale refineries, at least at the earlier stages. This is because of the capital intensity of such plants and the need for ensuring investors’ confidence. For instance, the capital outlay for a 100,000 barrel per day (bpd) refinery is roughly $2.5 billion, while a 24,000 bpd modular refinery is about $250m (based on a feasibility study I carried out for a firm).

Therefore, it is easier for private firms to access funds for the modular refining units (through for instance US Ex-IM Bank) than funding the medium-scale to larger-scale refineries. The manufacturing timescale for plant, equipment and machinery for a plant of 100,000 bpd capacity is within the range of 3-4 years. Start-up for modular refineries of 24,000 bpd capacities is within a timeframe of 20-24 months.

The modular system allows the plant to be expanded to 100,000 bpd capacity in structured increments (say 5modules of 20kbpd each) should the refiner choose to do so. The increments can be funded with the cash flows from phase 1 and additional phases, and so the refinery will not incur additional debt for expansion after the first unit is installed. Unlike big capacity refineries, capacity expansion for modular plants can be done without shutting down production from existing modular equipment and plant. Revenue streams and pay-back periods are faster with the modular refining format, than with the larger capacity refineries.

The major short-coming with the modular format is that the plants are semi-automated or fully automated and therefore less labor-intensive, i.e. not many jobs can be created directly. For instance, 20 to 30 personnel can operate a 24,000 bpd modular refinery. Most of the spin-off jobs created are of a secondary nature, and are based around the location of the refinery, e.g. transportation, schools, hospitals, shops, restaurants, etc.

To sum up, modular refineries are simple, efficient and fast to start up. Such refineries usually operate at optimal capacity at all times. The relatively small investment cost allows for private investors to enter the refining business much easier. It also enables government to build the bigger capacity refineries using the modular format, but in incremental stages. However, government- built modular refineries should have full conversion facilities (i.e. catalytic reformers and naphtha hydro-treaters) to enable the refineries produce sufficient petrol.

However, it is unlikely that smaller modular refineries will bring about sufficient refining capacity additions. Perhaps, it may contribute 100,000 bpd at the most, given the paucity of funds. Large-scale Greenfield refineries will still be needed. To achieve this it would seem that the Nigerian Government (through its petroleum agency – Nigerian National Petroleum Corporation, NNPC) has to partner with the Chinese Government (through its petroleum agencies – e.g. Chinese National Petroleum Company, CNPC). Why?

In the past 20 years, only 3 Greenfield refineries have been constructed in Africa. These were built in Adrar (Algeria) and Khartoum (Sudan) with China National Petroleum Company (CNPC) partnering with the governments, with capacities of 13,000 bpd and 100,000 bpd respectively. The third one was built in Alexandria (Egypt) by Egypt General Petroleum Corporation, i.e. Egypt’s National Oil Company (NOC) with a capacity of 100,000 bpd.

Planned new builds in Africa were constructed by PetroChina at Ndjamena (Chad) and Zinder (Niger) with same 20,000 bpd capacity. The third is being constructed by Sonangol, Angola’s NOC at Lobito (Angola) with a capacity of 200,000 bpd. From the foregoing, refining in Africa is led by NOC’s, and new investments are dominated by the Chinese National Petroleum Companies.

•Prof Chijioke Nwaozuzu, Former British Chevening Scholar, Former PTDF PhD Scholar, is Deputy-Director at Emerald Energy Institute (for Energy & Petroleum Economics, Policy, & Strategic Studies), University of Port Harcourt. Email: cnwaozuzu@gmail.com. Tel: 070 6874 3617 (SMS Only)

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