The Executive Secretary of Lubricants Producers Association of Nigeria (LUPAN), Emeka Obidike recently spoke to journalists on the need for the federal government to formulate policies that would promote crude oil refining in Nigeria, in a bid to attract investors into a more industry-friendly clime. Kehinde Lawal presents the excerpts:
How would the Dangote Refinery benefit the lubricant and the downstream sectors?
Let me start by lauding the initiative of the President of the Group, Aliko Dangote for his audacious enterprise which is most timeous in its conception, coming on the heels of the inability of successive administrations to address the issue of fuel scarcity and a nation groaning from the burden of fuel importation; a situation made all the more ludicrous by the fact of Nigeria being the sixth largest oil producer in the world. The 650,000 bpd plant by Dangote will, to a very large extent, address the issue of fuel scarcity and shortages in the supply of other petroleum products.
For the downstream sector, I’d say it’s a welcome relief, albeit long overdue as it would impact positively and significantly on same. The country would finally be freed from the shackles of petroleum product imports and its attendant hassles, complexities and setbacks. However, it is in doubt whether the same could be said for the lubricant sector, as so far, no mention has been made of provisions for the production of base oil, just petrol, diesel and aviation fuel; then there’s the fertiliser plant. But there is no talk of plans to accommodate an industry boasting a minimum of 50 blending plants and almost 100 per cent local content, all licenced by the Department of Petroleum Resources.
It is quite disappointing really, after years of clamour to re-establish the burnt down refinery in Kaduna and refurbish the other refineries at Warri and Port Harcourt, followed by the call for modular refineries, to enable us to try our hands at refining all petroleum products, base oil inclusive. Nonetheless we are quite hopeful that in the not too distant future, due cognisance will be taken of the industry and plans would be put in place to cater to its growing needs.
What will be the refinery’s benefit to Nigeria’s economy, in terms of job creation, gross domestic products and others?
Once the refinery is commissioned, a boost in employment and the country’s GDP are both given factors. Of course, a project of such magnitude is bound to have a snowball effect on the country’s economy, albeit a positive one. The refinery is expected to retain about $7.5 billion spent yearly on importation of petroleum products, while new jobs to be created is put at an impressive minimum of 235,000, both direct and indirect labour. It will definitely check capital flight prompted by petroleum products importation, facilitate technology transfer. The 650,000 bpd estimated to be produced by the refinery would transform the country from consumers to exporters, and it will put paid to the issue of scarcity, not to mention the wrangling that accompanies the payment of subsidy.
Nigeria’s refineries are not able to meet local demand of petroleum products. What are the implications of this to the local economy?
The implications are multifaceted: we continue creating jobs for the youths of other countries, and strengthening their economy, while weakening ours and swelling our job markets. This in turn leaves us with restive youths, a constantly aggravated citizenry continually faced with the threat of scarcity and/or inflation of petroleum product which has a domino-effect on prices of goods and services, as they would be inflated to cover costs. Unless of course the manufacturer decides to cut corners by producing below standards in order to give his product a competitive edge in the market; and where they are unable to keep up the pace, they wind up, amongst others.
What do you think government can do to help Dangote Refinery meet its 2020 completion target?
Indeed, the growth of any industry requires a stable economic climate devoid of high inflation trends and draconian regulations. The first step would be for the government to put in place, industry-friendly policies, set up growth-oriented agencies with a progressive/developmental outlook. The need for proper infrastructure and basic amenities cannot be over-emphasised; the need for incentives such as funds, moratorium, waivers, to enable these new organisations recover from the expenses used to set them up and get them running is imperative. There is also a glaring lack of synergy between the agencies, as each, in a bid to generate revenue, directly or indirectly invalidates the processes and/or licenses of other agencies by confiscating products and sealing up business premises, tank farms or depots; this should be thoroughly addressed to avoid instances of duplicity of procedures, at immense cost to the investor.
Also, to be put in place are legislations to dissuade counterfeiters and adulterators; laws to set up departments within the agencies to prosecute perpetrators of these heinous crimes and also enforce the levying of severe penalties. I again applaud the gumption of the President of the Dangote Group for this laudable, grand project aimed at strengthening the economy and alleviating the suffering of the masses with regards to the availability and purchase of petroleum products. It is the hope of lubricant blenders in the country that soon enough it would also bring an end to the era of base oil importation into the country. There is however anxiety in some quarters that see a single refinery virtually handling the nation’s supply of petroleum products as putting all one’s eggs in the proverbial basket; and further fuelling these inhibitions is the country’s past antecedent on maintenance culture.
Global standards stipulate that process equipment be serviced and inspected at least every five years, and an on-stream mechanical integrity programme be implemented and documented. Nigeria’s oldest refinery was built in 1965 and is barely, along with the other three refineries, utilising 40% of its installed capacity. Meanwhile, all the refineries have a combined installed capacity of 445,000 bpd.
If there are ethics guiding the industry they are clearly not being applied. Should the facility suffer a mishap, the confusion and turmoil the country would be thrown into is best left to the imagination. However, should the antecedent of business enterprise and proficiency of the Group’s President be considered, such reservations should not be given credence by a single moment’s thought.
Do you think government is doing enough to encourage investment in private refineries?
There has, unfortunately, not been enough done by the government to encourage refining in Nigeria; on the contrary whatever is being done by the government and its agencies is prompting investors to take their investments to a more industry-friendly clime. The Petroleum Industry Bill (PIB) that looked to be the elixir of the petroleum industry, due to the prevailing circumstances to wit, unrepresented interests of both multinationals and legislators, was virtually Brought in Dead and its replacement, the Petroleum Industry Governance Bill (PIGB) fared no better. The refurbishing of the burnt Kaduna Refinery became a herculean task akin to building castles in the air. Then there’s the usual chorus of stringent policies and series of administrative bottle necks and protocols with their attendant fees, levies, lack of infrastructure and basic amenities, to snuff out whatever ambition is left in the bosom of investors. One only has to see the level of hassle being faced by small scale industrialists to repent of any noble intent to invest.
What are the current challenges in the downstream industry and what role do you want the government to play in solving these challenges?
The challenges facing the downstream sector, stems largely from a patent lack of industry friendly policies, which in most cases give birth to regulatory agencies with quixotic, unfeasible and in most cases stringent rules, procedures and guidelines. Also, any government intervention by way of funds is usually encased in iron clad policies and rules for accessing same, and ironically some of these measures designed to rejuvenate, end up sealing the fate of ailing and struggling industries. There is the inability by most to access forex at government approved rates and when done, at impossible exchange rates; most investors bear the full risk of their venture by sourcing loans at astronomical rates through the banks due to lack of or inaccessibility of intervention funds.
Also, prevalent, is the recent unprecedented scramble by various agencies to license a single product under spurious jurisdictions, designations and initiatives. An entrepreneur desiring to venture into the sector either finds himself besieged and/or beholden to three or more agencies, all licensing a single product, or a situation where each of the agencies involved subject a single product to several processes of certification and authentication, each bearing its individual administrative costs. Unfortunately, the disposition of these agencies towards local industry borders on hostile, as they are wont, at the slightest hint of irregularity, to confiscate products and seal up premises, without trying to explore options or avenues of assisting these establishments to regularise.
It is truly ludicrous where an agency, in a bid to secure administrative fees or dues in the sum of N350,000, or simply carry out its duties would remorselessly cause the company to incur expenses by way of demurrage to the tune of $20,000. The above stated in turn encourages the unscrupulous dealer to opt for evading the radar of said agencies, a myriad of inspections and supervisions by said agencies, threat of penalties and sealing, amongst other bureaucratic clogs and freedom from the financial commitment of setting up a standard plant. There is also the ever present menace of counterfeiting and faking of genuine local products, which we believe stems from the issue of multi-licensing; so many agencies licensing a single product it becomes difficult to keep track of what comes in and what goes where, which bodes well for the corrupt elements.
The loss that can be attributed to the activities of counterfeiter and faker is inestimable – whether it be the loss of manpower, breakdown of machineries, increase in production cost, as the expenses arising from continuous repairs will invariably be added to the final pricing of the product to allow manufacturers break even; reduction in work hours, turnout of low quality products manufactured by faulty machines, amongst many other ills.