A Review of the Nigerian Energy Industry

Deregulation and removal of fuel subsidy to promote Nigerian content

1 November 2011, Sweetcrude, Lagos – Nigeria needs to establish a Refinery and Petrochemical Plant Development Commission (RPPDC) to increase its GDP, deregulate the downstream sector of its oil and gas industry and remove fuel subsidy to avoid bankruptcy and anarchy. It is no longer news that Nigeria can not afford to sustain its export of crude oil and importation of petroleum products at a subsidised cost which is estimated to be between N1.2 and N1.5 trillion per annum. Fuel subsidy would be better spent on improved infrastructure, health, education and job creation through the promotion of SME’s to jump start a vibrant economy.

Deregulation is a necessary step that must precede investment in refineries. However, Nigeria needs to have in place the necessary framework, resources, fiscal terms, conducive environment and instrument of Government that would act as an enabler for investors who just may be interested in locating a refinery within its shores. Without increased local refining capacity, the removal of subsidies would be tantamount to robbing Peter to pay Paul as the same fat cats who are involved in the export and import business would jeopardise the good intent of deregulation and begin to extort money from the masses through a hiked price of products which has been the case whenever there is fuel scarcity.

There is a need to have a government commission that is specifically assigned with the task of accelerating the establishment of refineries (modular and standard). An investor friendly process which removes repetitive and non-value adding requirements for data, certificates, reports, proposal and financials and has the required synergy to prevent duplicity of effort would go a long way to encouraging investment in the design and construction of new refineries. Struggling through DPR, NNPC, FIRS, Ministry of Environment and Financial Institutions is too cumbersome for investors who are used to non-complex processesA commission would act as a one stop shop and remove encumbrances that pose a deterrent to investment in the downstream sector of the Nigerian economy thus reducing project costs..

Every committed government that intends to achieve a goal, such as increased in-country refining of crude oil and production of a surplus of finished products for export, in an accelerated, transparent and fair manner would be wise to use a commission with key performance indicators (KPI’s) to drive such a target. If the penalty for non-performance should be clearly stated in the appointment letter issued to the Director General, a clear and ethical road map for investors would be adhered to and implemented.

Specific objectives for a refining and petrochemical development commission would include:
1. Examining the existing policy, legal, regulatory and institutional framework on refinery development in Nigeria vis-à-vis approvals being sought and concluded within 3 months.
2. Providing the framework for registration with CAC, Ministry of Environment etc and issuance of DPR License to operate a refinery whilst ensuring that all bottle necks that had hitherto resulted in non-performance are removed from the implementation process.
3. Examining the issues which need to be addressed at national and regional levels for the purpose of promoting optimal refinery development in the most viable locations for establishing a refinery.
4. Ensuring that refineries can come on-stream within 24 – 36 months from license award.

A RPPDC if established as a service oriented enabler would go a long way to encourage foreign investment in the downstream sector of the Nigerian Oil and Gas industry. Furthermore it could serve as an interface between downstream operators, contractors and service providers and NCDMB to increase Nigerian Content Capacity, capability and competencies can be built on the front and back end of the refineries and petrochemical plants projects.

We must in this critical dispensation ensure that proceede from the removal of subsidy after deregulation are utilized to:
1. Develop refineries that are located as close as possible to the source of sustainable supplies and prolific basins.
2. Ensure that adequate Pipelines exist for the transportation of finished products and value is maximised through the robust distribution networks.
3. Develop an integrated production, processing, distribution, transportation and sales network which creates wealth and jobs for Nigeria SME’s and multinational business
4. Provide adequate storage and export facilities such as tank farms, jetties, marine and logistics.

Whilst it is necessary to deregulate and remove fuel subsidy, it must be phased and planned such that there is adequate in-country refining capacity without which an unsustainable products supply system would lead to bankruptcy or the inability of Government to service other very important sectors of the economy thus leading to anarchy.

About the Author

Dr. Ibilola Amao is the Principal Consultant with Lonadek Oil and Gas Consultants, a firm of technical consultants with their core competence in the area of human capital and vendor development. For more information or to reach Dr. Amao you can email her at lolaamao@lonadek.com or visit www.lonadek.com

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  • Adamu musa

    Deregulation is da first key 2 anarchy subsidy is da only aminity dat a common nigerian enjoys and now is trying 2 go in joepardy dis is da remark dat proves president Goodluck ebele as da worst president ever… Nd we will neva 4giv him 4 dat

  • Chekwube madichie

    Deregulation of downstream oil sector is an imperative if nigeria should zoom out its interlocking vicious cycle of fuel scarcity.Removal of fuel subsidy on the other hand is a sine qua non if nigeria should fight corruption to the core.The nigerian pure water billionaires who own a total of 15 refineries outside nigeria each employing an average of 20,000 foreigners have been holding this country at ramson.Nigerians had lost 300,000 jobs to foreigners who pays taxes to their own states while nigeria fund their uninterrupted power supply since they cannot run refineries on generator.It has also been revealed that subsidy accounts for over 90% of corruption in the downstream as the pure water billionaires end up smuggling our fuel to the neighboring countries where can make unearned profits given the higher prices of fuel in those countries while they work hard to disstabilise the polity of nigeria.Fellow nigerians let us say no to subsidy regime while we support and hope in our president so that in the longrun we shall see the benefits.

    • 9. In-built wastages in PPPRA Template: Demurrage and Ship to Ship: are the real cost? Is deurumage captured in the template of other countries eg Ghana, South Afrca, etc?10. Recommended 5% margin of error in subsidy computation instead of 10%. What is that? Where did the committee get margin of error built into subsidy payment and how enjoys this build in error?

  • the stats are blatantly WRONG.. the refineries at full capacity cannot provide that amount of petrol..the 445000barrels capacity is TOTAL capacity. There are other petroleum products in every barrel of crude (Diesel, Kerosene,LPFO,HPFO,etc)

  • 11. The committee reommcends the immediate reinstatement of subsidy for Kerosene not later than second quarter, 2012 at pump price of N50 per Litre and yet is asking NNPC to refund subsidy of N310,414,963,613 on kerosene that they sold at N50 per liter (which made up part of the ridiculous fraud amount they are brandishing?12. Accusing of over spending Budget of N245 Billion in 2011 and yet proposed more than N800 billion for 2012? Didnt something tell them that something was wrong (maybe with their ability to rightly estimate previously which they do not want to admit) when the proposed N245billion and still didnt want government to deregulate? How would they have paid for the difference?