Funds, investors’ demands stall private refineries

[TGD]

 SEVEN years after the administration of former President Olusegun Obasanjo licensed some private operators to set up 18 refineries in Nigeria, none of the projects has fully taken off.

Although they were given two years to begin construction in 2005, most of the licensed operators are yet to mobilise to the sites of their projects or even carry out the mandatory Environmental Impact Assessment (EIA) on the projects and the host communities.

And the blame for the development is placed at the doorsteps of the Federal Government and its institutions, which have been accused of creating a hostile business environment in the country.

Added to this is the fear allegedly expressed by foreign investors over the government's penchant for changing the rules in the middle of the game.

Consequently, they (foreign investors) have reportedly demanded guarantees from the government that their investments would be well protected through stable policies and creation of an enabling environment for them to operate.

Some owners of the "refineries" licensed by the government through the Department of Petroleum Resources (DPR), who spoke with The Guardian, listed lack of funds and unstable business environment as major impediments to the projects' take- off.

It was learnt that one of the projects with capacity to produce 12,000 barrels a day, which had made appreciable progress, recently became enmeshed in controversy, leading to the foiling of its operations.

The same fate is now befalling the Amakpe Refinery, adjudged as setting the pace for other private refineries. The Akwa Ibom State government, a major stakeholders' pull-out of the N9 billion project, is seen as a major blow to the scheme.

The other 16 plants are still very far from commissioning, due principally to poor funding, which the operators claimed had been worsened by the "negligence" of the government.

At present, Nigeria has four refineries, which operate far below their 445,000 barrels per day (bpd) installed capacity.

Meanwhile, the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) has accused the government of failing Nigerians in all facets of life, especially its inability to produce petroleum products locally.

President of PENGASSAN, Mr. Babatunde Ogun, stated this at the Government House, Port Harcourt, when he led the National Executive Council (NEC) of the body to visit Governor Chibuike Amaechi.

Ogun said: "The fact is that government has failed in all facets of life. Government has already failed by not making sure that petroleum products are not produced locally. As a union, we believe that import parity cannot subsist for the price of crude oil or refined products in Nigeria."

Amaechi asked the union to always pursue the welfare of the common man, saying, "mankind is more important than the association because at the end, it is not the benefit of individuals that matter but the society."

When the Obasanjo administration licensed the private refineries, it gave them deadline of two years to start construction. At the expiration of the deadline and without most of them not hitting the ground, the DPR in March 2007 cancelled all the licenses and ordered them to meet the "new licence revalidation requirements."

Among the requirements then was that the DPR would not refund the $1 million paid for approval, but the then Minister of State for Petroleum Resources, Odein Ajumogobia under the government of the late President Umaru Musa Yar'Adua, directed that the clause be removed to enable the refineries take off. The incentive did not sway the winners of the bid for the refineries, who are yet to come to their sites, four years after the government's overture.

The chairman of Private Refinery Operators in Nigeria, retired Justice Samuel Ilori, said the issue of funding has been a major obstacle to the development of the refineries. He also described government's attitude to the projects as discouraging their foreign financiers.

Ilori told The Guardian at the weekend that the investors needed guarantee from the Central Bank of Nigeria (CBN) and the Bank of Industry (BoI) before they could invest in the projects, but the government has allegedly declined to grant the request.

"A guarantee given by any of these two institutions is just what our partners or investors need. But that has not been done. In fact, it would not cost the government a kobo to do so. It is because of that lack of guarantee that we cannot secure funds for the projects.

"We booked an appointment to see the former president, some of the foreigners who want to bring the money went with us to the meeting and what they asked for were four guarantees; the first is security guarantee in the sense that after the refineries have been built, the government will not nationalise them, which I think was a very good thing for them to ask for. Second, they want guarantee that crude oil would be made available to the refineries, I mean they are not coming here to refine water so they must have crude oil.

"They also want guarantee that there will be no change in government's policy of allowing private refineries to function in Nigeria, and fourth, that they be allowed to repatriate their money at the appropriate time," he said.

Ilori said when the four requests were put to the government, the President at that time said "all right, you have given these requests to us, I can't answer you here, you write a letter to my officials and then you can sort it out with them. At that meeting, the Chief of Staff to the former president, the Minister of Petroleum, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) and the Director of DPR were in attendance.

"After that, we wrote many letters, we did not get any acknowledgement or a reply. So, we could not have these guarantees and the people who came with us went back to their countries disappointed," he added.

The government has however granted some incentives (not guarantees) to the investors. The government assured that crude oil would be given up to 60 per cent on the turn-round value of the oil needed. The government also pledged to allow the operators lift crude and preference in the allocation of oil blocks.

Ilori said the investors appreciated the incentives but needed the guarantees that would give their foreign financiers safe-landing and take-off of the projects.

He, however, raised hope that some two projects would soon spring up in phases and produce 100,000 bpd each, if the government created the enabling environment.

Some of the licensed refineries are Resource Petroleum and Petrochemicals International (100,000 bpd), Sapele Petroleum Limited (120,000 bpd), Antonio Oil (27,000 bpd) and Amakpe Refinery (12,000 bpd).

Others are Ologbo Refinery Limited (12,000bpd), Amexium Refinery (100,000bpd), Gasoline Refinery (100,000 bpd), Rehoboth Refinery (12,000 bpd) and 1000 bpd diesel stripper to Niger Delta Petroleum Resources Limited.

The government later reviewed some of the conditions for default in meeting the deadline and for relocating the refineries.

In Section 3.4 of the DPR's guidelines, the government said in the event of "an Approval To Construct (ATC) a private refinery or a hydrocarbon process plant expires without actualisation of the project and the ATC holder is still interested in completing the project, the information and documents that shall be forwarded to the DPR for consideration towards revalidation of the ATC include:

• An application in writing declaring the intent to revalidate the ATC; and

• a comprehensive project status report shall be attached to the application, which shall itemised reasons for non-performance during the period of validity of the expiring ATC.

The government also requested that a defence for the revalidation with the revised work scope and project execution schedule be attached.

Instead of the earlier non-refundable application fee of $1 million, the DPR pegged   it at $50,000 while the DPR service charge was reduced to N500,000.

However, a deposit of $1 million for every 10,000 bpd capacity is required to support proof of funds for the project. This amount is refundable with interest upon adherence to revised project execution schedule within 18 months; otherwise, it is forfeited to the government.

Section 6.3 of the guidelines stipulates that "on application to relocate a petroleum process plant, the statutory non-refundable application fee of $50,000 for licence to establish a refinery/plant and the prescribed deposit of $1 million for every 10,000 bpd, including the DPR service charge, shall apply.



The Guardian