The Present Situation
To appreciate the gravity of our situation, letâ€™s look at the statistics. Our national average production of refined products is currently about 6 million litres per day out of an estimated 35 million litres needed to meet domestic demand. Between January and December 2016, we spent approximately N3.35 trillion to import 20 metric tonnes of imported petroleum products. Also, about 30% of foreign exchange given by the CBN goes to the petroleum sector for imports – a huge amount of foreign exchange drain on the country.
The country experienced massive fuel shortages late 2015 and early 2016. We were only able to fix this difficulty when we moved onto the new liberalised pricing formula. But unless we focus on long term sustainability in refining and local supply of products, we are going to continue to face some potential challenges in terms of product supply.
Challenges that Demand Urgent Action
Pressure on NNPCâ€™s books: NNPC which has taken up the responsibility as the last resort importer of petroleum products still continues to take a lot of heat. Though we have stopped the upfront payment of subsidy, some of that will continue to show in the books of NNPC.
Uncertain investment climate: There is a lot of uncertainty in terms of investment climate. Those who want to invest in refineries want to know what will happen after they invest and begin to produce. They are concerned about whether they would be able to sell at prices that are competitive in the market.
Looming threat of job losses: A huge amount of job losses happens when refineries are not fully utilised. Yes, there is some level of job security, and people have been able to keep their jobs within the industry. But in a fairly competitive environment, if we do not get these refineries to work, new private sector driven refineries would come in and take up the market place. This will lead to redundancy and massive job losses.
Not enough transparency in the importation and distribution system: The process of one sector, one corporate entity importing all the products and dishing out allocations does not create the level of transparency that is essential to grow this business and expand the market place.
The Central Objective
We decided to do one specific thing: target 2019 as the year that we would cease importation of petroleum products. By doing so we hope to help conserve foreign exchange, create jobs and ensure stability of the market place in terms of pricing and production. In addition, we hope to earn some credibility as an OPEC member, an oil producing country which has been able to transit from importation to local refining and processing.
Mechanisms to Achieve the Objective
We must thank President Muhammadu Buhari who was clear from the start of this administration that he does not want to sell the refineries as scrap. He instructed us to seek financing to repair them and push to a later date the decision on what to do with them when they are working at full capacity.
1. Seek massive finance to repair & upgrade refineries: First we looked at our refineries: Port Harcourt, Warri and Kaduna. We are seeking financing to repair these refineries so they can work at optimal capacity and deliver value to Nigerians.
We have done extensive consultations within the global investing community and received a lot of interest from serious investors who have expressed willingness to support us in the financing of these repairs.
The plan is basically to finance repairs. We are going to establish refinery upgrade and maintenance companies who were involved initially in the building of these refineries: SAIPEM in Warri, CHIODA in Kaduna and they will help to do the work. But the financing and the support management after the refineries have been repaired would go to individuals who win the bids.
What we are doing is financing. It is neither a concession nor is it a sale. It is basically bringing in private investors with no stake in equity to bring the money that is required to get these refineries working to optimal capacity.
2. Support Greenfield investors: We are also engaging and supporting potential Greenfield investors. Dangote is working toward a 2019 target for its refinery. From the meetings we have held, there is a strong chance of meeting the delivery time-frame. If they succeed, that will bring in 650,000 barrels of locally refining capacity. If we add that with the 450,000 refining capacity that we would have after repairs then our collective refining capacity would be in excess of a million barrels. With that we would be able to meet 100 percent of our local consumption needs and begin to explore exports to other countries.
3. Mainstream modular refineries: We also plan to work with those who have modular refinery licenses to see what support they need in terms of finance and access to crude to enable them to get them started.
A Transparent Process
The process for financing these important repairs is very transparent. We have reached out and consulted especially with big refinery owners abroad to support us. We have developed the engineering analysis to show what needs to be done and have come up with a cost that we think is reasonable to achieve this objective.
A technical committee led by NNPC that reports to me as Chairman Steering Committee is looking at all these. The board of the NNPC and the FEC will be involved in the governance of approval and ratification.
So once we have done that, we would advertise for those who are to bring their consortiums and bids on the basis of the engineering and financial specifications. The more people we have participating, the better we can create commercial terms that are favorable to government. So itâ€™s not going to be childâ€™s play.
No Company Has Been Awarded Any Refinery
News reports of an award to any company upfront are simply not true. The process hasnâ€™t gotten to that stage yet. We have had lots of expressions of interest and we encourage anybody who is interested to be bullish about it because ultimately we need them to achieve these goal
Strong Local Community Participation Is Central
We have had issues of host communities seeking clarification about how they can participate in the process. The model that the technical committee has developed includes a robust, aggressive local content participation level that will be felt at the community level.
Govt Committed to Strong Engagement with the Nâ€™ Assembly
We recognise the strategic relevance of the National Assembly to the work that we have set out to do. We intend to build on our existing engagements with the legislature to deepen them even further so they are fully informed about the actions that we are taking.
We also recognise that organised labour is very important to our work. We have been proactive in carrying them along. But obviously, we would need to engage them on the refineries revamp project, reassure them and appeal for their understanding that the alternative to not doing this is going back to what they are afraid of which is job losses.
How Nigerians Can Support Refineries Revamp Project
First is to understand what we are trying to do. Itâ€™s a lot of work. We encourage Nigerians to make effort to understand the benefits of what we are doing. It is for a better today and a stronger future.
Second, is to support us based on this knowledge of the process and how critical it is to the country. Sourcing and mobilising foreign investment in this difficult time is tough. So we need to ensure that we do not frustrate the process.
Third is to ask questions and understand what the issues are before we get sensational.
We also encourage the media to come to us with their questions to avoid inaccurate and sensational headlines that are a disservice to Nigerians.
Overall, as optimistic as we are, we cannot deliver on the 2019 deadline of exiting importation of petroleum products if there are difficulties in terms of approval processes and delays by relevant agencies. We thank the President for his support on the fast track process. We need to continue that fast track process.
2019 will be realizable if all of us work together to deliver it. For the Nigerian people, if there is something that we need to deliver as of yesterday, it is getting these refineries to finally work, produce for the Nigerian people, create jobs, save foreign exchange and stabilize the downstream sector.
â€“â€“Dr. Ibe Kachikwu is the minister of State for Petroleum Resources.