Investors scared of non liberalisation of the downstream sector
Stakeholders in the downstream sector of the petroleum industry have sounded a note of warning that no investor would be ready to invest in the downstream sector of the industry as long as the price of premium Motor Spirit is caped.
They said complete liberation of the sector is what can motivate investors to invest in refineries because that is when they can be guaranteed return on their investments.
Their warning is coming against the background of the current move in the country by the government to encourage private individuals to establish modular refineries in the country.
The stakeholders who spoke at the 20th anniversary Lecture of Rainoil Limited said there is no enabling environment for the private investors to thrive because all there are no parameters on ground to justify anybody put down an investment in the region $250 million minimum and he would be able to recoup his investment.
According to them 50 per cent of the revenue generates comes from Premium Motor Spirit (PMS) or petrol.
Akin Akinfemiwa, managing director of Fotre Oil and chairman Major Oil Marketers Association of Nigeria MOMAN while making his own contribution said no investor would come except the downstream sector of the Oil and Gas industry is completely deregulated
Reginal Stanley, former managing director of the defucted Pipeline Products Marketing Company and executive secretary of the Petroleum Product Pricing Regulators Agency advised the promoters of Modular Refineries to be very careful of the business the plan to go into as refining is a tough business. He said in the last five years over 28 refineries have shut down in Europe and out of this number only four are trying to restart. He said currently Europe is in crisis because they are faced with barrage of products from more efficient refineries from America, Middle East and from Asia pacific. “if you don’t know what it takes to run a refinery it better you keep out of it”.
On why refineries in Algeria and Ghana are working and those in Nigeria are not working, he said the reasons is very clear stating that the margin on refinery products are very volatile and said if the refineries in Nigeria had not worked in 30 he does not think they would work now saying that NNPC should allow the refineries to go private investors.
He said refineries must be run as commercial business, adding if the product yield of the refinery does not pay for the cost of crude and production then such an investors does not have business in refining stating what then is happening is called value disruption.
But Henry Ikem Group Executive director and chief operating officer Downstream, NNPC, however disagree with other speaker on their view on modular refineries saying that the economics support the establishment of modular refineries
The Federal Government recently reiterated its commitment to build modular refineries in oil-producing areas of the Niger Delta.
The Minister of State for Petroleum Resources, Ibe Kachikwu, made the commitment as part of efforts to woo businessmen in Houston, United States.
Vice-President Yemi Osinbajo had on March 25 assured that the proposed modular refineries would be sited only in oil-producing areas as part of measures to address the developmental challenges in the area. “Now that the Vice-President has visited the area, I will go round and make a workable plan to kick-start the modular refineries, we need to move away from state-ism to a pan-Nigerian development. “We have to boost local refinery. The concept of producing crude and selling it off barrel per barrel is some policy we have to look at. “I hate to sit over a ministry where we can’t be self-sustaining. The Niger Delta has shown that it can cooperate and ensure peace if focus is on developing the region,” he said. t