Operators see increased downstream investment in petrochemical as huge FX earner

Industry players and operators in the Nigerian oil and gas sector are optimistic that an increased downstream investment in petrochemical is a potential foreign exchange (FX) earner for Nigeria. This is as the country grapples with the effect of the slump in oil price, which has significantly affected government earning from crude sales, BusinessDay findings reveal.  

They maintain that with right government incentive and an enabling environment, there is great opportunity for further downstream investment in petrochemicals. Carbon black, bitumen and other by-products of petroleum refining would fetch the government huge FX.

The expectation is that once government through a sustainable framework encourages private sector, it would be willing to invest to exploit the huge gas resources, build fertiliser plants that will utilise gas to bridge the huge domestic demand and generate FX from export.

It is possible to get the private sector to create more income for Nigeria than we ever earned from oil, but it will require the government to do something revolutionary and strategic, Sam Ohuabunwa, chairman, African Centre for Business Development Strategy and Innovation, observes.

According to Ohuabunwa, “There is the possibility of earning more from processed hydrocarbon substrates than what we have ever earned from crude petroleum.”  

Ohuabunwa in a recent presentation observes that development of the aromatic phase of the petrochemical chain will yield other solvents and pharmaceutical grade chemicals, saying all these today are imported at great pressure on Nigeria foreign reserves; “we can reverse the flow and earn plenty of forex for the nation.

“Government sector must take a deliberate effort to disempower itself and transfer power to the private sector. This can be done through the deliberate policy of deregulation and privatisation. Every activity or function that has commercial potential should be transferred to the private sector, including running of certain hitherto government or public sector activities or services.”

Nigeria failed to take appropriate actions to reduce the risk of excessive dependence on crude oil as its main source of national revenue and foreign exchange, despite several warnings over many cycles of oil boom and burst.

“The benefits of unleashing the private sector on the economy will ensure it be diversified, focusing on our areas of comparative and competitive advantages. Sustainable wealth will be created, jobs will be created and tax revenues from corporations and individuals will rise,” Ohuabunwa adds.

Analysts insist that the government should provide a bouquet of irresistible incentives to attract the private sector to invest in any area of its needs, no matter the risks. As long as the incentive is competitively attractive, the private sector and private capital will migrate to such project.

Ken Abazie, chairman, Petroleum Downstream Group of the Lagos Chamber of Commerce and Industry in an interview with BusinessDay, reveals that statistics have shown that proceeds from crude oil sales contribute in the neighbourhood of about 88 percent of the total revenue accruable to the Federal Government of Nigeria. This trend has remained so in the last 50 years without any significant infrastructural development in the downstream.

Abazie opines that government, as a matter of urgency must declare emergency on the refining of petroleum products in Nigeria, saying, “It is a big shame that after over 55 years of the commencement of drilling of crude oil in Nigeria, we don’t have a functional refinery. Government should go out of its way to get investors to invest in refinery in the country. Nigeria should be able to refine all its 45 million litres daily requirement and even export.”

On his part, Tunji Oyebanji, managing director, Mobil Oil Nigeria plc, notes that easing of regulatory environment will boost investor considerations, and hence bring about a competitive environment that will in turn bring about self-sufficiency in local refining.

Oyebanji observes that the supply challenges the country is experiencing will not go away until government reviews its import allocation system, as the sector has not progressed due to the pervading participation of government in the affairs of the industry, and until that is cleared, “we will not see the benefits that accrue to the consumers and the economy at large.”