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Scenario #2: Partial Deregulation OF Only the Demand Side.

The inherent assumptions of this scenario are that:

The Federal Government, though fully aware of the glaring inadequacies of the existing state-owned supply and distribution systems in Nigeria, would prefer to restructure the decrepit refineries, pipelines and depots, so as to enable them compete in tandem with the proposed new refineries that would be built, and managed by private investors.

Federal Government monopoly, control, and/or coordination of petroleum products importation would stop.

 

Private investors would have open access to state-owned facilities like petroleum reception jetties at Okrika, Effurun, Calabar, Escravos, and Atlas Cove (Lagos), including the storage tanks at PHRC, WRPC, and KRPC, and at non-discriminating tariffs, for expediting the logistics of importing petroleum products into Nigeria.

 

Private products marketing companies would form strategic alliances or mergers in order to optimise operating costs.

 

Price fixing, "uniform pricing", and so-called "bridging" subsidies by the Federal Government would stop.

Barriers to new entrants into wholesale, or/and retail marketing of petroleum products would be eliminated by law.

 

Clearly, because of the lead-time to effective attainment of improved performance, and adequate supply of refined products by the existing state-owned refineries, coupled with the lead-time necessary to build and operate new private refineries to complement existing supply sources, the availability of refined products may not be much different from what obtains currently. Therefore, the market segments (Majors and Independents) may also alter very marginally.

 

However, opportunities exist for private importers to complement shortfalls in product stocks. With this scenario, there may be an upsurge in private importation of petroleum products. Recent acquisition of import reception facilities by Independent marketers indicates a potentially competitive market for both marketer groups: Majors and Independents. This scenario forces mergers on the existing Independent marketers in order for them to be cost-effective.

 

The emergence of post-deregulation private refineries in Nigeria would be very dependent on the policies of the Federal government with respect to the price of crude oil allowed both private refiners, and the state owned refining companies. With the current disparity between the open market price of crude oil and that conceded to the state-owned refineries, it is not likely for private refiners to invest under such conditions. In this scenario, the state-owned refineries would remain protected, probably selling their products at international rates. Though pipeline operations may still be monopolised by NNPC, very likely, "bridging" and "uniform pricing" could cease to apply. Potential private Nigerian and foreign refiners would not be attracted to invest under such policy regimes. Consequently, the only possibility for expansion of refining capacity would be dependent on new state-owned refineries that may be added to the existing pool.



 

Scenario #3: Complete Deregulation of the Downstream Sector.

The inherent assumptions of this scenario are that:

The Federal Government is conscious of the gross inadequacies of the downstream sector of the Nigerian petroleum industry. However, government would restructure all state-owned refineries, pipelines, and storage depots, prior to their unbundling, and final acquisition by private investors.

 

The Federal Government desires to maximise supply sources for the refined products market in Nigeria, including the build-up of a so-called "strategic nation reserve" of refined petroleum products.

 

A critical mass of qualified private Nigerian investors exists that can take over the state-owned downstream petroleum businesses, now ran by NNPC, and manage them efficiently and profitably.

Two (2) separate and independent downstream policy formulation and enforcement agencies would be established by the Federal Government to monitor the sector effectively, post de-regulation.

 

Private businesses may import refined petroleum products and sell such products at competitive prices.

 

Barriers to new entrants into all segments of the downstream sector would be eliminated.

 

Unnecessary (legal and illegal) impediments, including the existing overbearing procedures for granting licenses to private refiners, and other potential investors in the downstream sector, must be abolished by law, with maximum despatch.

 

There must be open access to state-owned monopolistic facilities such as jetties, storage tanks, and pipelines, through non-discriminatory tariffs to private operators.

Price fixing in any guise, by government, must stop.

 

As in Scenario #2, because of the lead-time to attainment of improved performance and adequate supply of refined products by the existing state-owned refineries, the availability of refined products may not be much different from what obtains currently.

 

Therefore, the market segments (Majors and Independents) may only alter very marginally in the short to medium terms. However, if and whenever full price deregulation starts to apply, opportunities could emerge for private investors to move in and compete effectively.

 

With this scenario, there would be an initial inertia in private sector participation, to be followed by a trickle of private refiners, and operators of existing state-owned product pipeline networks (if any). With such private refineries, effectively competing at global pricing and other standards, refineries would be retail outlet-specific. This scenario forces mergers on the existing Independent marketers in order for them to be cost-effective. The scenario would also result in Major marketer refiners preferentially directing their distribution to their own outlets. In this scenario, the supply and primary distribution of refined petroleum products in Nigeria would very likely be under the control of the Major marketers, ultimately.

 

Scenario #4: Phased Deregulation Starting From The Upstream Sector:

The inherent assumptions of this scenario are that:

The Federal Government would ensure the effective implementation of a planned phased transition to comprehensive deregulation of the entire petroleum industry (upstream and downstream) in Nigeria.

 

The Federal Government would enforce applicable conditions for stimulating competition in the market, while concurrently discouraging monopoly behaviour in the domestic retail market.

 

Private suppliers of crude oil to Nigerian refineries would be encouraged. Prices of crude oil and refined products would be set in line with international benchmarks, and prevailing foreign exchange rates.

 

All NNPC Joint Venture contracts with multinational E&P companies operating in Nigeria would be replaced with Production Sharing contracts.

 

Crude oil produced by private operators would be theirs to sell at competitive market prices in Nigeria or overseas.

 

NNPC and its subsidiaries would be restructured in phases and subsequently broken up.

Regulatory role of the DPR must be redefined to enhance its capacity to effectively monitor and enforce compliance as an independent agency of the Federal Government.

With a well-articulated plan of phased deregulation of the entire petroleum industry in Nigeria, starting with the upstream sector, the availability of crude oil to the local refineries would be based on competition among private suppliers. This would encourage private E&P investments, particularly local marginal field operators. With the removal of both monopoly advantages, and mandatory JV contracts with multinational E&P companies from NNPC, the state-owned company would undertake more PSC contracts with foreign and Nigerian partners in the short to medium terms, if ownership of the crude oil were reviewed in favour of the producer.

 

At the stage of full deregulation of the entire oil industry, private crude oil marketers could compete to supply feedstock to the local refineries, either as affiliates, or as independent suppliers. Private pipeline companies could operate the existing petroleum products primary distribution networks, and storage depots. This scenario forces mergers on all players in order for them to be globally competitive.

 

The scenario would also result in Major refiners preferentially directing their distribution to their outlets in Nigeria and overseas. Supply and primary distribution would ultimately be under the control of the big players in this scenario. It appears rather strange that, to date, very little or nothing has been said or done by the Federal Government about the deregulation of the upstream sector of the Nigerian oil industry. The implication of this observation is not trivial, and could in fact adversely influence the deregulation process in the downstream sector if not addressed quickly.

 

Scenario #5: The "Do Nothing Option":

The inherent assumptions of this scenario are that:

Deregulation of the Nigerian oil industry is not in the "security, and overall national interest" of the country, and therefore, not desirable.

 

Existing inefficient government-owned facilities in the downstream sector can be satisfactorily upgraded.

In a sense, the "Do Nothing Option" represents the worst-case scenario, and is also the most probable scenario in Nigeria. In this scenario, the status quo remains: i.e. "Business unusual, as usual".

 

Private players are not, (and will not be) motivated to invest under the prevailing state-protectionist regulatory framework. The chances of improved performance in the state-controlled petroleum refining, and refined products supply and distribution systems, are near-zero, with no meaningful competition to the existing sick, and severely dilapidated refineries, and product pipeline infrastructure.

 

Predictably, the entire Nigerian petroleum industry becomes progressively moribund, unattractive to both Nigerian and foreign investors alike, in both the upstream and downstream sectors, then comes to a grinding halt, and finally collapses.

 

In conclusion, the role of the Federal Government, vis-à-vis the Nigerian petroleum industry, is being redefined, little by little. Possibly, state-owned monopolies like NNPC may, in the end, be dismantled completely. State interventions, such as the Petroleum Equalisation Fund (PEF), price fixing, uniform pricing, including the so-called "bridging reimbursements" may, one day, cease to be, and, hopefully, the Nigerian petroleum products market could be meaningfully reformed and effectively deregulated ultimately.

Indeed, opening up crude oil and petroleum products markets to transparent competition is not easy. Nevertheless, it is central to the successful implementation of petroleum industry reforms worldwide. This involves facilitating access to capable importers and exporters of both crude oil, and refined petroleum products, consequently forcing the local (private or state-owned) refineries, and products marketing companies to face serious and meaningful competition, which must be in place, a priority, for the deregulation process to succeed.

 

Deregulating the downstream sector of the Nigerian petroleum industry requires a change in pricing policy. Product prices, before tax, must be set in line with economic border prices. Taxation must not discriminate between local and foreign investors. However, several sub-Saharan, Latin American, Caribbean and Asian countries have allowed for a short transition phase that ultimately led to full deregulation in the downstream sector. It is therefore necessary to design a systematic basis for introducing economic pricing before price deregulation, so as to ensure the continued meaningful participation of private operators in the business.

 

Distortions in the prices of petroleum products need to be reviewed. For Nigeria, as sub-regional integration progresses within the ECOWAS sub-region, cross-border prices will become increasingly harmonised, while the usual excuses, indeed, the very notion of smuggling of petroleum products within the sub-region will become progressively meaningless.

 


 

APPENDIX C:

MAP AND AERIAL VIEW OF ONDO STATE



 

 

Appendix D:

Olokola Free Trade Zone Layout

 

 

 

Appendix E:

OKFTZ Aerial View

 


 

APPENDIX F:

ONGOING INFRASTRUCTURAL LAYOUT WORKS

 


 


 


 

Appendix H:

Nigerian Petroleum Information

 

 


 

Appendix I:

West African Refineries

There are eight (8) functional Crude Oil Refineries located in West Africa, with a combined capacity of about 600,000 BPD when in full operation and a market demand in excess of 900,000 BPD.

 

Port Harcourt Refineries - Nigeria:

There are two refineries at Eleme near Port Harcourt in Nigeria's southernmost province, Rivers State, known as Port Harcourt I and Port Harcourt 11. Port Harcourt I is a topping and reforming refinery with a nameplate distillation capacity of 60,000 BPD. It was originally opened in 1965 but largely burnt down in 1989. The refinery has recently been rebuilt and refurbished. Port Harcourt 11 is a complex refinery with a nameplate distillation capacity of 150,000 BPD.

 

The Plant came on stream in 1988 and was originally intended to serve as an export refinery but had since been supplying the domestic market owing to the frequent disruption in supplies from the country's other 3 refineries. The refineries are owned by the Nigerian National Petroleum Corporation (NNPC) and operated by a subsidiary company, the Port Harcourt Refining Company.

 

Warri Refinery - Nigeria:

The Warri refinery located at Warri in Nigeria's Delta State, is a complex refinery with a nameplate distillation capacity of 125,000 BPD.

 

The refinery, which came on stream in 1978, is owned by NNPC and operated by a subsidiary company, the Warri Refining and Petrochemical Company (WRPC). The refinery is jointly managed with a petrochemicals plant, which produces 13,000 tons per year of polypropylene and 18,000 tons per year of carbon black

 

 

Kaduna Refinery - Nigeria:

The Kaduna Refinery in Kaduna, northern Nigeria is a complex refinery with a nameplate distillation capacity of 110,000 BPD. The refinery is owned by the NNPC and operated by a subsidiary company, the Kaduna Refining and Petrochemical Company (KRPC).

 

Since coming on stream, the Kaduna Refinery has undergone a series of expansion projects. The main contractors were Japan's Chiyoda Corporation. The refinery also has capacity to manufacture petrochemical products such as linear alkyl benzene (30,000 tons/year), benzene (15,000 tons/year), and kero solvent (30,000 tons/year).

 

The refinery has been plagued by technical malfunctions and breakdowns. The plant is operating at reduced capacity following a shutdown of the sour processing unit, which was damaged in a fire accident a few years ago. The FCC unit, associated lube plant and bitumen-processing unit are out of action as well.

 

Tema Refinery - Ghana:

The Tema Oil Refinery in Tema, Ghana, is a topping and reforming refinery with a nameplate distillation capacity of 45,000 BPD.

 

The refinery is owned by the Ghanaian Government through its parastatal, Ghana National Petroleum Company (100% ownership) and was originally opened in 1963. The Tema Oil Refinery Company Ltd (TOR) operates the refinery.

 

The refinery runs typically on imported Bonny Light / Brass River Crudes from Nigeria and produces 91 RON Unleaded Gasoline, Kerosene, Gas Oil and low sulphur Straight Run Fuel Oil for markets in Ghana and neighbouring states. The refinery also produces excess fuel oil which it occasionally sells to Europe and the USA. The distillation capacity was upgraded from 25,000 BPD to 45,000 BPD in 1997, as well as replacing or modifying heat exchanger and pumping facilities.

 

The upgrade was financed and constructed by a South Korean consortium led by Sunkyong. However during start-up following the upgrade, a major fire broke out, putting the refinery out of operation for some time. The refinery has also announced plans to build a cracker unit to process its surplus residual fuel oil into Gasoline and Kerosene to meet increased local demand.

 

The Societe Ivoirienne de Raffinage (SIR) refinery

The Societe Ivoirienne de Raffinage (SIR) refinery in Abidjan, Ivory Coast, is a complex hydro cracking refinery with a nameplate distillation capacity of 71,000 BPD but generally operates at approximately 93% of nominal capacity.

 

The refinery, originally opened in 1963, is owned by Petroci, on behalf of the Ivory Coast government (47.2%), Total (10.3%), Elf (15.10 %), Shell (10.3%), Mobil (8%), the Burkina Faso government (5.4%) and Texaco (3.7%). The refinery typically processes crudes from Nigeria, Equatorial Guinea, Kuwait, and Venezuela. It is the only refinery in West Africa that produces significant quantities of white oils in the West African region. The refinery has a staff complement of around 800.

 

SAR Refinery, Dakar - Senegal:

The Societe Africaine de Raffinage (SAR) refinery at M'Bao (Dakar), Senegal, is a topping and reforming refinery with a nameplate distillation capacity of 26,000 BPD, though operation tends to be around 50% of rated capacity. The refinery is owned by the Elf (41.80%), Shell (23.60%), Total (12.80%), BP (11.80%) and the Banque Nat. du Senegal (10%). Management of the refinery is controlled by Elf who has a 42% interest in SAR.

The refinery is aging and survives on a state subsidy. The aging plant produces only 7,000 bbls per day and produces few quality products.

 

Monrovia Refinery - Liberia:

The refinery at Monrovia, Liberia, is a topping and reforming refinery with a nameplate distillation capacity of 15,000 BPD. It is owned by the Liberian Government through its Liberian Petroleum Refining Company.

 

West Africa Oil Refinery - Sierra Leone:

In February 2005, Majestic Oil (Sierra Leone) bought the Nigerian Government's 48.4 percent stake in the West Africa Oil Refinery in Freetown. Majestic also acquired Unipetrol Nig LPC's 24.2 percent share, when the company failed to invest in the rehabilitation of the facility.

 

 

 

Appendix J: OKFTZ Refinery Feasibility Study Questionnaire

 


Date: 2015-01-29; view: 858


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