The proposal by the Nigerian National Petroleum Corporation (NNPC) to refine crude oil abroad deserves critical cost-benefit analysis. The General Manager, NNPC London Office, Uthman Mohammed, recently claimed that a proposal to undertake such operations in partnership withrefiners in Hungary and Romania was awaiting approval of the NNPC head office and Minister of State for Energy (Petroleum) Odein Ajumogobia. The offshore refineries will add value to crude from Nigeria, and also facilitate sale in Europe, where retail prices of petroleum products are higher.
He said the partnership does not involve the purchase of refineries in Europe, but is to take advantage of the lucrative retail markets there. Subsequently, the profits would be used to develop the downstream petroleum sector in Nigeria, adding that NNPC was exploring the possibility of acquiring retail fuel stations in the United Kingdom (UK). Up to $3 billion could be saved yearly, according to Mohammed. He explains: “With such offshore refining arrangement, subsidy at home can easily be offset. For instance, today, a litre of petrol in London is one pound, 10 pence, about N270 at current exchange rate, while at home, petrol sells for N70 per litre at the pump. You can imagine how much savings can be made from refining our crude oil in Europe and cushioning the impact of subsidy at home.”
NNPC�s proposal, which is indeed curious, is coming at a time that the Federal Government has given signals that it isn�t interested in building freshrefineries to cope with growing consumer demands for refined petroleum products, the acute shortage of which has led to cyclical shortages and crises arising from a near-total dependence on prohibitive imports in the past nine years. Government�s lukewarm attitude toward domestic refining has manifested in the undue delay in repairing a damaged pipeline which crippled crude supplies from Escravos, Delta State, to Kaduna Refining and Petroleum Company (KRPC), and thereafter hampered industrial activities in the North for three years.
Most unhelpful is Government�s unchanging preference for export of crude oil over and above the necessity of developing the capacity for onshore processing and export of refined petroleum products. Government, through the Ministry of Energy (Petroleum) has not deemed it proper to encourage investors in refining by implementing incentives (like guarantee of crude supply to local private refineries) as was promised in 1993 and after. That has been one major reason why provisionally licensed prospective refiners have been unable to commence construction work. Government cannot be said to be serious about attracting foreign investors to come and build refineries in Nigeria at huge costs when they are required to source crude oil from the international market.
Regrettably, the near-monopoly of the NNPC in the petroleum downstream has stifled growth and continues to undermine the desired liberalisation of the sector, which should have enthroned a broader and more active private sector participation. The anti-investment Petroleum Act that is overdue for review makes the NNPC a virtual monopoly which, in our own somewhat peculiar circumstances, is incapable of efficiently managing national fuel supply and distribution.
The current proposal does not offer any prospect of better management and efficiency on the part of the Corporation. The corruption-ridden and inefficient NNPC cannot be entrusted with the establishment and management of chains of businesses offshore. If it feels otherwise, then let its Management present an audit of how it has managed the 445,000 barrels of crude per day it has collected over a decade when domestic refining capacity has been less than 200,000 barrels per stream day (bpsd).
Refining oil abroad instead of in Nigeria creates employment elsewhere and develops foreign markets, instead of Nigeria being projected to be the hub of refined petroleum products in Africa, being the continent�s largest producer of crude. Lost would be the benefit of expanding Nigeria�s oil-related petrochemical industries to provide sundry industrial, pharmaceutical, electronic components. An oil, gas and petrochemicals industry could support millions of jobs in production, distribution and marketing of processed products. Besides, oil producing countries that venture into buying refineries overseas first demonstrate competence by ensuring self-sufficiency in domestic refining. Venezuela, for instance, had attained adequate capacity in 1993 to refine all locally produced crude before its state-owned petroleum corporation initiated a vigorous investment drive abroad. That is not the case with Nigeria.
The Federal Government should urgently reverse all disincentives to domestic refiners, while working towards a review of the Petroleum Act. Appropriate legislation should be in place to guarantee investments in domestic refining. The abandoned bill seeking to prohibit the export of unrefined crude, over a graduated period of time, should be resuscitated by The Presidency and the National Assembly and passed into law. Value should be added to crude at home, not abroad, as canvassed by NNPC. It is by so doing that Nigeria would earn more revenues to redress grave infrastructure deficits, improve living conditions, mobilise more idle hands for work and really develop indigenous technical capacity to effectively take over control of the oil industry.
Mar242008