Towards a vibrant petrochemical industry
The significance of a vibrant petrochemical industry to an economy cannot be over-emphasised. The petrochemicals industry, a sub-sector of the petroleum industry, occupies a key place in the world economy. It produces the crucial raw materials and inputs of petroleum, kerosene, liquefied natural gas (LPG), diesel, ethane, plastic, rubber, yarn and other intermediary goods consumed by the packaging, electronics, automotive, construction, textile and agriculture sectors.
Interestingly, Nigeria, Africa’s top oil producer, is blessed with vast oil and gas resources necessary to drive its petrochemical industry, but the enormous potential of the vital industry is being stunted by factors ranging from weak infrastructure to legislation.
For instance, the sorry state of the nation’s four refineries, which are supposed to be major sources of feedstock for petrochemical plants, has continued to put the brakes on the industry. Another headwind is the delay in the passage of the Petroleum Industry Bill (PIB), which is expected to incentivise investment in gas development.
The country’s low refinery-capacity utilisation over the years has resulted in lower petrochemical yields, creating a need for imports.
It is in this light that we welcome the proposed privatisation of the refineries, which is expected to begin in the first quarter of 2014, as it would afford private investors the opportunity to reverse the dwindling fortunes of the refineries as has happened to Eleme Petrochemicals Company Limited.
The recent growth recorded in the petrochemical industry can be attributed to the remarkable transformation of the then near-moribund Eleme Petrochemicals Company Limited by the Indorama Group following the privatisation of the company in 2006.
Indorama Eleme Petrochemicals Limited (IEPL) now accounts for the majority of local production of petrochemicals and provides about 40 per cent of local plastic industry needs. In 2011, the company accounted for about 10 per cent of Nigeria’s non-oil exports. Between 2007 and 2011, its expansion reduced the country’s petrochemical imports by 25 percent.
IEPL, which is considered to be one of the most successful privatisations in Nigerian history, has massively increased polymer production. The transformation of Eleme has brought about huge multiplier effects on the market, driving growth in industries such as packaging, plastic bags, containers, and woven sacks.
We believe that Nigeria’s aspiration to become a hub for petrochemicals can be realised if more efforts are targeted towards creating the enabling environment to attract investors replicating the success so far achieved by IEPL. Government has to take a cue from less resource-rich countries such as South Africa that have developed a strong petrochemical industry, which is one of the largest in Africa.
The South African petrochemical industry is largely centred on coal feedstocks. The country is relying on Mozambique for gas. Sasol, a petrochemicals company in the country, currently imports gas from Mozambique through a pipeline linked to its facilities in South Africa. But Nigeria, which has plentiful gas reserves to feed the petrochemical industry cannot be said to have maximised the potential of the industry for economic development.
We cannot agree more with analysts that the strengthening of the petrochemical industry, which is pivotal to industrial manufacturing, will help to deepen the forward and backward linkages of the petroleum sector with the rest of the economy. It will create massive jobs for the swelling ranks of the unemployed in the country as well as reduce the amount of foreign exchange being spent annually to import petrochemical products into the country and diversify our foreign exchange earnings potential.
Thus, government has to quickly and surely address the infrastructural and regulatory bottlenecks to the growth of the industry, as this would encourage more investors in the industry.
BusinessDay