NOT one out of the 18 private petroleum refineries licensed in 2002 has begun serious construction works. The licences were apparently issued to provide a faade behind which the cronies of top government functionaries could corruptly enjoy the attached sweeteners in the form of access to regular allocation of crude oil for export and the opportunity of bidding for oil exploration blocks. The initial terms of the licences which were intended to keep away any enterprising but unfavoured applicants have been so watered down that there is no real risk of revocation of any licence. Licencees just pay relatively token fees, tag along and continue to relish the sweeteners as they please.Although functional private petroleum refineries do not exist yet, there is a group called Private Refinery Operators in Nigeria (PRON) whose chairman has been offering excuses such as hostile business environment and other reasons for the tardiness exhibited in the takeoff of the refineries. But it was expected that the promoters of private refineries would beforehand familiarise themselves with the business environment (which has not changed since 2002) in which they planned to invest. The PRON chairman also cited securing funding for constructing refineries as a major obstacle. This is surprising because the pre-qualification vetting by NNPC of prospective investors as well as the initial advance deposits of money were intended to sift and identify promoters that possessed relevant expertise and financial muscle to build and run refineries. That promoters were facing funding constraint establishes that the licencees would not have made it if the NNPC had carried out thorough due diligence on them. The chairman let the cat out of the bag when he said that foreign partners would be funding the refineries thereby revealing the Nigerian promoters as fronts. Such an arrangement poses some dangers. It is also a pointer to the sad fact that the absence of a conducive economic environment had prevented the promoters from securing domestic bank financing for even petroleum refineries that should ordinarily be profitable projects.Another reason given for the non-construction of the refineries was that government did not accede to PRON demands for guarantee not to nationalise any refineries if they were built or not to change the policy establishing private refineries. The demands impinge on national sovereignty. It is usual to spell out possible penalties that would arise in the event of nationalisation within the context of appropriate legislation. It is now 13 years since government set up the Oil and Gas Sector Reform Implementation Committee of 1999 whose recommendations gave birth to the Petroleum Industry Bill. Failure by the National Assembly to pass this law has provided an irrefutable excuse for the long delay in the construction of the licensed refineries.The PRON also sought a guarantee that crude oil would be allocated to the refineries. This is practically a request for preferential treatment. The corollary would be a call on government to purchase their refined products as well. But as private commercial enterprises, the refineries should position themselves to procure crude oil at arm's length from anywhere at going international price and prevailing conditions as well as to dispose of any refined products the same way. Nonetheless, even as laymen, we are keenly aware that the preceding ideal is hard to find in the real world. For energy security considerations and as a shield against oil sharks who routinely corner excess refined products at the disposal of the international oil majors, some governments set up petroleum refineries to cater for the domestic market. There is a telling lesson in the fact that the Senegalese government refinery in 2009 relied on direct NNPC crude oil supply to achieve optimal refining capacity and sought to double its installed capacity if the Nigerian government undertook to both provide the required crude and import the refined products. In effect, there is no free competition in international oil trade.Hence, it is quite evident that successful private petroleum refineries in Nigeria would not be owned and run by the neophytes that have done nothing with the licences that they have held for nine years. Also, a present and any future Nigerian government refineries (no thanks to corruption, interference and politically dictated sitting) will in all probability fail to operate optimally, and to exploit to the full the benefits of the petroleum industry. Instructively, NNPC joint-venture companies that own many petroleum refineries overseas have neither acquired any of the inefficient NNPC refineries (is the organised labour to blame here'), nor chosen to set up any new ones. The scapegoat has been the contentious and recurring issue of deregulation of petrol prices, which is fraught with uncertainties and set to be long-drawn-out. Experience shows that any accord on the issue will be short-lived and at best generate a wait-and-see attitude among potential investors.Therefore, government should take steps to quickly bring into being efficiently run private petroleum refineries via a win-win arrangement that would be totally insulated from rows over domestic petroleum product pricing. As proposed in our editorial of June 17, 2010, the long-awaited Petroleum Industry Act should inter alia stipulate the shortest feasible time frame within which joint-venture operators should construct on commercially suitable sites of their choice. They should manage refineries with adequate capacity to refine a duly specified proportion of joint-venture crude oil output under the existing or appropriately revised export processing zone (EPZ) scheme. The country could then import refined petroleum products directly from the EPZs while excess refined products could also be exported to other markets under mutually agreed terms. With EPZ petroleum refineries on Nigerian soil, the full range of petrochemical industries would spring up and create jobs to be governed under relevant Nigerian laws. That way Nigeria could within three years boast of well-managed functional refineries with firm taproots for a flourishing petrochemical subsector.
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