Deregulation: A blessing for private refineries?

Genuine investors in private refineries may be up for a time of their lives if the federal government is committed to see through its decision to fully open up the downstream sector of the petroleum industry.
On the 27th of February, the federal government announced proposed a complete deregulation of the downstream sector of the petroleum industry. The pronouncement wasn’t devoid of any of the talking points- national debates and resistance from labour and the civil society- that usually trail similar attempts in the past by government to open up the sector.
While many disagree with the new policy, this is perhaps, the best opportunity for investors to set up private refineries to meet the ever increasing domestic demand of refined petroleum products. Off-course, if government will follow through with the policy and not bulk under the pressure from labour and other vested interest groups.
Part of government’s argument is that maintaining the refineries have become unbearable. Rilwan Lukman, energy minister, remarked that “"We [government] are not ready to put any money into the refineries again, No more. Our refineries have not been well run in the past. They have been mismanaged and the problem was compounded by the regulatory agencies and that is why we want to address the issue.”
“If we have the correct ambience, people will come to build new refineries."
Diran Fawibe, the Chief Executive of International Energy Service, revealed that if the policy is fully implemented, “private refineries will have a place under a deregulated downstream sector. In fact, one of the major constraints against the establishment of private refineries is the fact that the downstream sector wasn’t deregulated.”
Energy experts had often argued that government’s regulation of the sector was the major impediment that deterred the establishment of private refineries.
Mr Fawibe puts a little perspective on the issue, adding that “in a situation where you’re refining products and the price is fixed, probably at a level that you not be able to recover your cost, it makes prospective private refiners agitated and they’re not too sure whether the environment is conducive.”
He agreed that funding might be a concern but he argues that “though Nigerians might not be able to put down the money, they will depend largely on foreign investors.”
Mr Fawibe added that “the investors that will put down the money have to be comfortable with the enabling environment, and of course, the guarantee that if they set up refineries they will get crude supply.”
In 2004, the Department of Petroleum Resources, the industry regulator, licensed some private refiners but “in March 2007, government cancelled all licenses issued to those who could not actualise the objective for the award of the licenses” said Adeleke Oladele, Head, Pipelines, Plants and Installations of the regulatory agency.
Currently, Amakpe International Refineries Nigeria Limited, Resource Refinery Limited, and Rehoboth Refinery Limited are at various approval stages.
Some of the stipulated guidelines for setting up private refineries include “payment of statutory application fees of US$50,000, DPR Service charge of N500, 000, and a refundable deposit of US $1 million for every 10,000 bpsd refinery capacity.”
“Refund is subject to adherence to project execution schedule within the first eighteen months and achievement of 70% detailed engineering otherwise the sum deposited is forfeited to government.”
Amakpe refinery is at the fore; having crossed the 70 percent detailed engineering benchmark which qualifies it for the $1 million refund.
Paul Osu, spokesperson for DPR, told NEXT that “the [Energy] minister has approved the refund and has sent it to the AGF [Accountant General of the Federation].”
However industry experts say the guidelines are too steep and ambiguous in some areas, and this might put investors off.
But Mr Oladele explained the rationale behind the guidelines say; “when the programme started in 1996, crude oil allocation was part of the incentives. But we found out that the people abandoned the refinery project in favour of the crude oil. That was why there was the resistant that we will not give crude to anybody to build refinery. You build first, and then we give the crude oil.”
According to him, “Amakpe will focus more on AGO, kerosene, and fuel because of the size of the plant. It will be coming up between the first and second quarter of the year.”
Experts say that government needs to provide more incentives to encourage investors into the refining business. Albeit, potentially the future appears bright for private refineries but with governments chronic history of policy reversals, sceptics argue that the road to establishing these refineries remain long and treacherous.