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Buhari’s fuel price hike claim: Why some Nigerians disagree with him

IN keeping with the tradition of the yearly celebration of national Independence Day, President Muhammadu Buhari gave one of the most comprehensive Independence Day address since coming into office in 2015.

Coming at time many discontented Nigerians are preparing to openly confront the government over the fuel price hike and electricity tariff increase, Buhari’s introspective look into the journey of Nigeria, thus far, may have to be measured from a deeper economic perspective.

As the President noted, in addition to public health challenges of working to contain the spread of the Coronavirus, Nigeria has suffered significant drop in its foreign exchange earnings and internal revenues due to 40 percent drop in oil prices and steep drop-in economic activities, leading to over 60 per cent drop in government revenue.

“Our government is grappling with the dual challenge of saving lives and livelihoods in face of drastically reduced resources. In this regard, sustaining the level of petroleum prices is no longer possible. The government, since coming into office has recognised the economic argument for adjusting the price of petroleum. But the social argument about the knock-on effect of any adjustment weighed heavily with the government,” he said.

On the contentious increase in the price of petrol, Buhari outlined the cost of petrol in some neighboring and other African countries.

Making the argument why Petroleum prices in Nigeria are to be adjusted, he said the country, currently, sells petrol at N161 per litre.

“A comparison with our neighbours will illustrate the point: Chad which is an oil producing country charges N362 per litre. Secondly, Niger, also an oil producing country sells 1 litre at N346, in Ghana, another oil producing country, petroleum pump price is N326 per litre and further afield, Egypt charges N211 per litre. Saudi Arabia charges N168 per litre. It makes no sense for oil to be cheaper in Nigeria than in Saudi Arabia,” said the President.

In the face of glaring possibilities that enable an environment for the availability and affordability of the product, the President’s position does not really hold much ground.

The long awaited 650,000 barrels per day Dangote Refinery, which had been billed to commence operations since 2019, appears to have been forgotten in the downstream equation by the managers of the country’s Oil and Gas industry. There are other smaller private refineries; some are nearing completion, while others are at various stages of construction. 

Some may advance the usual worn-out argument that government has no business in helping the private refineries. The reality confronting the country today, demands the application of the doctrine of necessity.

In a situation where the Nigeria National Petroleum Corporation (NNPC) has continually fed the four dead refineries with 445,000 bpd of crude oil with no returns, it would not be out of place to ask the government to divert those stocks to these in-country private refiners with a deal to get them to sell their refined products cheaper to Nigerians.

Regardless of what the so-called experts may say in the contrary, it is not impossible for government to apply the crude swap model it ran from 2017 till early 2020 to these domestic refineries since the bottom line is easier and cheaper access to petroleum products.        

It will be recalled that between 2005 and 2010, NNPC tried to bridge the supply gap with Greenfield refineries. For the purpose of ensuring the projects are actualised, the National Oil company set up the NNPC Greenfield Refinery Projects Division (GRPD) late 2005 as a strategic response to a lack of visible progress on the 18 Licenses issued by government for private refineries in 2002 and also, the negative consequences of massive importation of petroleum products against the backdrop of low capacity utilisation in the existing three (3) refineries (445KBD capacity).

In view of urgent need for increasing in-country crude oil refining capacity and the inability of private investors to perform due to lack of project development capabilities and credible foreign financiers/technical partners, it became apparent for NNPC to lead the promotion of new private refineries.

JUST as the case is today, Nigeria was experiencing deficit in the supply of white petroleum products, most of which were imported into the country. Consumption of gasoline or Premium Motor Spirit (PMS), at that time, was estimated at 35 million litres per day, while that of kerosene was 10 million litres per day. 

In order to meet the deficit in supply, Nigeria was spending between $12 and $15 billion annually and it was the desire of government, then, to stem the flood of imports by investing in additional refining capacity along with interested Equity Participants.

Studies by stakeholders in the industry revealed that a new refining capacity of at least 420 KBPD would be required to meet the existing refining gap. The study projected that if this gap would last till 2016 at the growth rates of between 3 percent and 5 percent per annum, the estimated refining gap in Nigeria by 2016 would be 500-560 KBPD. This formed the basis of the effort to establish at least three new refineries of approximately 400-550 KBPD capacity in Lagos, Bayelsa and Kogi States.

The vison at the time was to promote the development of Oil and Gas Process Plants for the elimination of domestic and regional deficits in petroleum products and Hydrocarbon derivatives, with a mission to develop Industrial Parks for the establishment of Oil and Gas conversion Plants and associated utilities through strategic alliances and profitable businesses that will participate competitively in domestic, regional and International markets.

From the point of view of business direction, the idea was not for NNPC to build Greenfield Refineries on a sole risk basis. The strategy was to develop investment consortia (in partnership with other prospective local and foreign investors) for these projects while holding reasonable but minority interests.

The refineries were to be ring-fenced and operated strictly on a commercial basis; completely market oriented and profit motivated and as such issues of location, configuration and shareholding structure will be determined not solely by NNPC but by the consortia collectively.

The refineries were to be modern state-of-the-art facilities which were projected to yield very high percentage of white petroleum products. The proposed ventures were to operate as import substitution refineries, supplying refined products to consumers in the Nigerian domestic market and export surplus to regional and other international markets.

The successful development of each new refinery was expected to create enormous opportunities to transform Nigeria into a refining and trading hub in the region. This implies that all other countries in the West and Central African region would look up to Nigeria for supply and discontinue importation from North West Europe, Middle East and Asia. It was hoped that the refineries would stem the flood of imports into the region and reverse the flows outwards from Nigeria.

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 Pursuant to the corporate objective of adding value to the nation’s oil and gas resources by establishing downstream hydrocarbon processing plants, Greenfield Refinery Projects Division was structured into two departments — Crude Oil Conversion Department and Gas Conversion Department. The purposes of these departments basically were to:

a.    Develop Conceptual business plans for downstream processing that include crude oil refining and associated petrochemicals plants and natural gas processing plants like petrochemicals and fertilizers plants. 

b.    Develop and manage strategies for the promotion of investment in the in new downstream crude oil and natural gas processing plants in partnership with the private sector investors.

c.    Coordinate the provision of the engineering and technical support required to ensure the technical, commercial and economic viability of new downstream processing plants projects.

d.    Provide engineering and technical services covering Project Development and Execution Activities of new downstream processing plants that include the Feasibility Studies, Basic Engineering Designs, Process Technologies Licensor selection, Front End Engineering Design (FEED), Detailed Engineering Procurement and Construction (EPC) and Commissioning.

Read Also: Buhari’s Independence speech draws mixed reactions

Products & Statistics

DETAILED Feasibility Studies undertaken by Messrs Wood Mackenzie Energy Consulting Limited and Messrs Foster Wheeler Energy Limited in 2011 for three Greenfield Refineries to be located in Lagos, Bayelsa and Kogi States confirmed that all three refineries would be economically feasible at the respective sizes of 200,000 BPD for Lagos, 100,000 BPD for Kogi and 100,000 BPD for Bayelsa. With the introduction of these refineries, the following additional volumes of petroleum products were estimated to be available for domestic consumption:

Out of a total of 400kbpd expected to be allocated to the refineries, the three were to produce a combined total of 390 tons of LPG, 27, 780, 957 litres of PMS daily, 7,540,893 of Dual-Purpose Kerosene (DPK), Liters/Day, 24,648,021 of Automotive Gas Oil (AGO), Liters/Day and 1,097,259 of Light Sulphur Fuel Oil (LSFO), Liters/Day.

ALL that grand plan seems to have evaporated with the steam of corruption, ineptitude, mischief and outright sabotage of NNPC’s facilities plans, and policies.

But today, there exists the Dangote Refineries with the capacity to produce the petrochemical needs of the country and a robust export capability.

The largest single Petroleum Refinery in the world with the capacity of 650,000 barrels per day and after refining the crude oil the refinery will produce: 57 million litres of Petrol/day (Nigeria requires 53 million litres per day), 1 million litres  of Kerosene* /day (Nigeria requires nine million litres per day, nine million litres of Aviation fuel/day* (Nigeria requires 1 million litres per day) and 27 million litres of Diesel/day (Nigeria requires 10 million litres per day).

With a Gas Treatment Station, Propylene Plant 838 KTPA (Kilo-Thousands-Tons Per Annum), Polyethylene Plant 500 KTPA, Carbon black feedstock 584 KTPA, Sulphur Plant 36 KTPA, the facility has Air Emission Control system (Control), a Tank Farm of 177 Tanks with the capacity of 4.742 billion litres.

The complex was swampy and swallowed a number of 15,000 piles, adjudged as the largest piles in the world in a single project, in the Guinness book of records

The Fertilizer Plant is the world’s largest Urea plant with three million tons per annum on about 500 hectares of land. It is the world’s largest Granulated fertilizer Complex in the entire fertilizer Industry in the World

In addition to employment generation, surely these projects will save and earn foreign exchange for Nigeria. With over 5,000 direct employment, about 205,000 indirect jobs, 113,000 contractors including service providers, 113,000 contractors including service providers, 900 Engineers and 250 Artisans from the neighborhood of the Lekki Community trained and employed, the refinery certainly has the potentials to solve the nation’s petrochemical needs, today. 

Clearly, Dangote Refinery contradicts the hopelessness, managers of the Nigerian Oil and Gas sector may want the country to believe. If NNPC could take its crude oil across the seas to refineries in other countries, it can take the same stock to an indigenous refiner located in Lagos and other sites scattered in parts of the country.

Worrying is government’s insistence that the refinery would sell PMS to Nigerians at international price, when it commences operations. This does not connect with logic or reasoning since government can partner with the refiner by donating crude oil or sell at a discount to the refinery so he would be made to sell the products to the country at a hugely affordable rate.

For instance, if NNPC were to give Dangote the 650kbpd, it could enter an agreement for his refinery to sell to the State Oil firm, at say, N20/liter, while NNPC, in turn, sells the product to the Nigerian end consumer at N30/ liter.

Another reason the President may have been misinformed about the capacity of the nation’s Downstream hydrocarbon to give the petrochemical products available to Nigerians at a highly affordable rate, recently showed up in the Liquified Petroleum Gas (LPG) also known as cooking gas, the Minister of State, Petroleum Resources, Timipre Sylva said government is preparing as a cheaper alternative source of fuel for Nigerians.

According to him, Nigerians could buy the product at a PMS equivalent pricing of between N70-80/liter, in order to alleviate the hardship Nigerians would experience from the crushing price of petrol. However, the Petroleum Products Pricing Regulatory Agency (PPPRA) imposed a N2.5b Administrative Levy or ‘Administration Tax’ on LPG, which has been rejected by the Nigeria Liquefied Petroleum Gas Association (NLPGA).

NLPGA had barely celebrated its victory, earlier this year, following a 10-year battle by the body, in which the Federal Inland Revenue Service (FIRS), finally conceded to removing Value Added Tax (VAT), from domestic LPG (Cooking gas), that PPPRA imposed its levy on the association.

The VAT burden at the time was worth N1 billion annually and was removed in an effort to support Federal Government’s stated objective to deepen the adoption of gas as a clean fuel for cooking in Nigeria.

Over the last 10 years, LPG has been a fully deregulated petroleum product and as such, the PPPRA, being a price regulatory agency, has no business whatsoever with LPG.

Such a levy would have further put avoidable pressure on the poor and rural consumers. PPPRA’s blockading terminals from loading out gas has been frowned at by the association.

The question is, what does the PPPRA need this administrative levy for?

On a final note, these are some of the reasons why Nigerians may not agree with the President; t the facts on ground do not support the rationale behind government’s increase in the price of PMS or any other petroleum product in the country.

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