Forex: Petroleum import continue impact, pending massive refining – Kachikwu

*Dr Emmanuel Ibe Kachikwu, Nigeria's minister of state for petroleum resources.

*Dr Emmanuel Ibe Kachikwu, Nigeria’s minister of state for petroleum resources.

21 August 2016, Lagos — The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, yesterday, blamed the continued fall in the value of the Naira against other major currencies on the huge demand for foreign exchange (FOREX) necessitated by the importation of petroleum product into the country.

According to the Minister, the sector accounts for between 30 and 40 percent of foreign exchange demand, adding that the failure of the nation’s refineries to work optimally has led to the shortfall in the availability of FOREX in the open market.

Speaking in Lagos yesterday, the minister painted a gloomy picture of the industry stating that proactive steps are required to bring Nigeria’s economy back on positive track.

He said, “We need to get our refineries to work optimally, in order to inject funds back to the economy. It is taking us four to six months to go through processes and bureaucracy even to get investors coming into the country and inject money to take the refinery to the point where it is needed.

“And the reality is that unless we do that, the dream and hope I had was that in 2018 we should begin to reduce drastically petroleum product import into the country and in 2019, we should be able to exceed total local demand, and so, if we can take care of that alone, the pressure on foreign exchange will reduce. The foreign exchange conversion rate, the exchange rate will improve in favour of the Naira.

Vandalism
On vandalism and the impact on the economy, he noted that between January and June 2016, over 1,600 incidents of vandalism was recorded resulting in a loss of 109 million liters of petroleum products and 560,000 barrels of crude oil to refineries.

“An additional 1.1 million barrels of oil per day is required to be produced between now and year end to meet targeted annual production.” He explained that compared to the 2.2 million barrels per day targeted in the budget, the country currently produces 1.56 million barrel per day resulting in a shortfall of 700,000 barrels per day translating to 29 percent fall.

He further added that for the desired diversification of the nation’s economy to be successful, “the government will still have to depend on the petroleum sector to provide the required funds needed for the growth.”

Cash Call
Speaking further on the sector’s performance in recent time, Kachikwu, stated that the industry is challenged by $6 billion Cash Call indebtedness accumulated over the last five years.

He noted that the dwindling finances at the disposal of the government, it has been unable to meet its part of Cash Call requirement leading to inadequate financing in the industry, adding that no investment has occurred in the sector in the last five years.

Gas Production
The Minister attributed the colossal loss of 60 percent decline of gas production, to the activities of militants in the Niger delta area. He revealed that between 2010 and 2015, the industry recorded over 3,000 incidents.

According to him about 850 million standard cubic feet of gas production has been shut-in due to the impact of crises and power outage exposure of 2,700 Mega Watts to 3,000 Mega Watts.

On power
On his part, Minister of Power, Works and Housing, Mr Babatunde Raji Fashola, stated that the government continues to work tirelessly to ensure a sustainable power supply across the country.

The Minister who was represented by the Acting Managing Director/CEO of Niger Delta Power Holding Company Limited, NDPHC, Mr. Chiedu Ugbo, said “the road map we are embarking on is to develop solar and other renewable energies which will also play a major role in our road map to incremental power.

We have recently signed 14 PPAs for the delivery of 1,125MW of solar power. “Other renewable energy projects, such as the 10 Megawatt, MW wind plant in Katsina, are also in various stages of completion.” Continuing, he argued that “this does not mean we are ignoring our gas powered plants.

Indeed, my team and I recently inspected the dual fired 215 MW plant in Kaduna and the 450 MW Azura plant in Edo and both are progressing very well. “Other Hydro initiatives such as the 40MW plant in Kasimbilla, the 39 MW in Dadin Kowa, 30MW in Gurara and the 700 MW in Zungeru are all in various stages of construction. Many of these sites had been abandoned, but workers are now back on site and work will be completed by the end of next year on some of them.

Similarly, the Gbarain Power Plant is completed while the Distribution Companies are equally encouraged to develop and procure Embedded generation in their areas of franchise. These are the strategies that we believe will add incremental power coupled with the expansion of our Transmission capacity and metering of consumers.

*Ediri Ejoh & Iloaze Blessed-Odidi – Vanguard

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  • ABEL IKE

    Dear Hon. Minister
    A very good day to you.
    Please what incentives do Nigeria government have for people that has got license to establish modular refineries in Nigeria ?

    I am very sure from Dpr to Nnpc to NIPC to FIRS NONE.
    1.No source of feedstock,
    2.No tax breaks(income tax holiday) ,
    3.No pioneer status , nnpc/ppmc has refused to sign crude/refined products purchase agreement as Nigeria sales her crude on yearly contract terms with usd$500m turnover as qualification mark . 4.No import duty exemption has been granted for equipment and materials used in the construction and operation of the Refinery from the customs.
    5.No CBN policy on foreign exchange approvals for the Projects. 6.No policy or agreement that will grant the domestic refining industry the first right of access to local crude oil, and the first right to supply petroleum products to local markets based on import parity price (“IPP”) model etc etc

    According to Segun Akpata (GM, Total Nigeria), “multinational oil firms stay away from acquisition of stakes in Nigeria refineries and the establishment of new, private refineries because the conditions set by government for owning and operating refineries are very unclear. There is no specific guarantee by government that it is possible to recoup investment made in private refineries”.

    Mike Mullier (Shell Global Leader, Crude Trading) also has this to say “Shell has no intention of developing its downstream portfolio in Africa…….low returns on downstream investments and peculiar situation in some African countries where government regulates prices of petroleum products are part of the constraints which have necessitated the decision”.

    Ed Johnson (CEO, Sirius Petroleum) opined that, “besides security considerations, there is no incentive for companies to invest in the downstream as they know the regulatory laws makes refining unprofitable”.