Why Private Sector Prevaricates over Investing in Refineries

02 Dec 2012

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Festus   Akanbi
An indication has emerged that the much-anticipated private investment in refinery projects may remain a dream until the prevailing investment climate is structured in a manner that it would encourage competition and devoid of government regulation.

Although about 23 licences for new refineries were recently approved by the federal government, out of which 20 went to private investors, THISDAY checks have revealed that apart from a private refinery owned by Niger Delta Petroleum Resources Ltd (NDPR), a subsidiary of Niger Delta Exploration and Production Plc in Rivers State, and Orient Petroleum Refinery in Anambra State, extensive work by private refineries is yet to take root in the country.

However, giving an insight into the delay, Managing Director, Oando Marketing Plc Yomi Awobokun said private investors were still waiting for the right environment before they commit their resources to private refineries.

He said, “Nigeria needs more refineries, no doubt about that but more than that, it requires for the downstream policies to be right for private sector to be comfortable to set up refineries.

“So if you invest $6 billion in a refinery, how will you make your money back? The policies have to be stable. The bankers and the investors need to know that it is not an investment that will go down the drain.”

Saying the current policy of deregulation would continue to scare potential investors, Awobokun said “You cannot have a private refinery in a regulated downstream sector because crude is deregulated. You cannot buy crude at international market and be expected to sell in a regulated market, it’s going to be tough. Once, there is any form of government intervention, like when the government becomes an investor, and then private investors become weary. Nobody wants to invest in a refinery when government has decided to subsidise your crude, what if the next regime doesn’t half way through your construction? These are some of the issues that make us believe the environment is not ripe yet.”

He explained the readiness of Oando to invest in private refineries, saying “Oando is very interested. We are the largest distributor of fuel so it only makes sense that should there be a private refinery in Nigeria, Oando should also be a stakeholder or an investor, we are still open to that but let us get the policy right and we should get the industry right. If the PIB is passed and the policy implemented, perhaps the environment for refinery will be more conducive for private investors but at the moment, it’s work in progress.

” A couple of years ago, we actually procured a piece of land in Lekki Free Trade zone and we thought of partnering Lagos State and some other institutions. We have done the feasibility studies, we spoke to a few banks and it is something we eagerly wanted to pull up. This was because we thought that there is opportunity in refining. The difference between that time and now is that we are a little wary as a company; we are tired of waiting and waiting for the environment to be right. We will invest in refinery wherever the environment is ready for business,” he explained.

Many Nigerians believe that the ever-present challenges of fuel scarcity and subsidy could be conveniently resolved if new refineries are built, since existing refineries lack the capacity to met local demand.  In recognition of this inadequacy, and in pursuance of deregulation of the sector, 23 licences for new refineries were approved; 20 of these went to private investors.

The Federal Government and Chinese investors are said to be working on building additional refineries in Kogi, Lagos and Bayelsa states.
Surprisingly, no licencee has shown much seriousness even after the federal government removed the policy of upfront start-up fee requirement which prospective investors complained about.

Chairman, House of Representatives Committee on Downstream Petroleum, Hon. Dakuku Peterside, recently called on private investors to take advantage of the opportunities in Nigeria’s refining sector.

But like Oando, Mobil Oil Nigeria Plc recently hinged its participation in investing in private refinery on the quick deregulation of the downstream sector.

Mobil Managing Director Adetunji Oyebanji told the media recently in Lagos that the outfit was ready to embrace the Federal Government’s policy on deregulation of the downstream oil and gas industry, stating that the policy was the best way forward for the industry and the country.

Oyebanji hailed government’s deregulation policy as the best solution to petroleum scarcity in the country, stating that it was the only condition on which the company would invest in building private refineries in the country.

He said: “We believe that deregulation is the best way forward for the oil and gas industry and the country because if the sector is deregulated, private operators would be able to build new refineries and there would be healthy competition.”

He said if the issue of subsidy continued to drag, it would be difficult for practitioners in the industry to build a new refinery.
Speaking further, he said the company would continue to operate as a profitable and resilient organisation, able to compete effectively in a fully-deregulated downstream industry.

Tags: Business, Nigeria, Featured, Refineries, Private Sector

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