The Federal Government of Nigeria has directed the Nigerian National Petroleum Company Limited (NNPC) to sell crude oil to operators of modular refineries at the official dollar rate of N460/$1 as local refiners face complete shutdown due to lack of feedstock.
According to operators, for the past two months, local refiners have been paying for crude at the global benchmark price but settling in naira at the official exchange rate, a situation that creates another subsidy. Operators, however, sell refined products at market rates, boosting their bottom lines.
Modular refineries are crude oil processing facilities with capacities of up to 30,000 barrels per day (bpd), and are being built as part of plans to curb oil theft and promote peace in the country’s main oil-producing region.
For the past two years, they have been struggling to secure enough crude feedstock to keep their machines running as the Nigerian government prioritise selling its share of oil from joint venture arrangements with local and foreign oil firms to have access to the greenback.
Some of the modular refineries have waited for more than a year to receive crude from NNPC and in the process, their plants are rotting away as they surmount one hurdle to another including a plethora of regulatory approvals they must get from the authorities.
“Nearly all of Nigeria’s requirement for petroleum products is imported, representing a major drain on the country’s depleting foreign reserves but rather than this sparking an aggressive push by NNPC’s senior managers to support the promoters of local refineries, there is as yet no rule or protocol at NNPC for the transition,” an owner of a modular refinery told BusinessDay last year.
NNPC has taken a 20 percent stake in the Dangote refinery in Lekki, Lagos, and signed a crude oil supply deal with owners of the 600,000bpd plant, but operators of modular refineries, a few months ago say they have waited endlessly for attention from the NNPC.
Last August, the promoters of modular refineries under the aegis of the Crude Oil Refiners Association of Nigeria (CORAN) met with chiefs of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) to vent their anger and frustration
The owners of the modular refineries listed their major challenges as lack of access to feedstock, lack of access to foreign exchange (it costs about $40 million to set up a 10,000 bpd reformer unit that can produce PMS), high cost of license renewal fees, unusual difficulties in clearing their equipment at the seaports, difficulties in accessing the duty waiver for modular refineries as approved by the president as well as the absence of rules on crude oil transaction currency.
CORAN members, led by Emmanuel Iheanacho, their Board of Trustee’s chairman, made the appeal during their visit to the leadership of the NMDPRA in Abuja last September.
They urged the NNPC, the regulators, the Nigerian Midstream and Downstream Petroleum Regulatory Authority, and Nigerian Upstream Petroleum Regulatory Commission to engage with the licensed modular refineries in order to develop an appropriate commercial model that would guarantee reliable feedstock.
According to Olusegun Ilori, secretary of CORAN, who presented CORAN’s position, the association requested that the NNPC should consider taking equity or grant loans to modular refineries via the provision of reformer/other requirement units to ensure adequate production of PMS based on agreed offtake conditions.
They equally suggested that the issuance of the import duty waivers for modular refinery equipment be done by the Federal Ministry of Finance after due certification of the equipment that qualified for waiver was done by the Ministry of Petroleum Resources.
This year, the Federal Government directed petroleum sector regulators as well as the NNPC to consider some of their demands. The NNPC Ltd is now selling crude to the refiners at the CBN official rate but their troubles are far from over.
To secure supply from the NNPC, local refiners have had to work with private companies or contractors who apply for licence to lift crude from the NNPC adding to their operational costs.
The NNPC Limited insist that licences issued must be volume-based usually around 60,000bpd and when the company exhausts the quota, they have to go back and pay for a fresh license and run through the process all over again which includes bribing corrupt NNPC officials.
Some operators accused the NNPC of deliberately complicating the process to create room for kickbacks. The company has yet to provide a response to the inquiry.
The lack of crude oil for oil refining in Nigeria is the direct result of oil companies pulling their investments from the Niger Delta on account of rampant crude theft and NNPC’s inability to repay its share of oil production.
Consequently, oil production including condensates at 1.6 million bpd is not enough to fund the budget as well as keep local refineries humming. This is a challenge waiting for the 650,000bpd Dangote Refinery whose facility would require half of Nigeria’s current crude oil production.