BusinessDay

Investors scared of non liberalisation of the downstream sector

Stakeholders in the downstream sector of the petroleum industry have sounded a note of warning that no investor would be ready to invest in the downstream  sector of  the industry as long as  the   price of premium Motor Spirit is caped.

They said complete liberation of the sector is what can motivate investors to invest in refineries because that is when they can be guaranteed return on their investments.

Their warning  is  coming  against  the  background of  the current move in the country by  the  government to encourage  private  individuals  to  establish modular refineries in  the  country.

The stakeholders  who spoke at  the 20th anniversary Lecture of Rainoil Limited said  there  is  no enabling environment for the private investors  to  thrive because all there are no parameters on  ground   to justify anybody put down an investment  in the  region $250 million minimum and he would be able to  recoup his  investment.

According to them 50 per cent of the revenue generates comes from Premium Motor Spirit (PMS) or petrol.

Akin Akinfemiwa, managing director of  Fotre Oil and chairman Major Oil  Marketers Association of Nigeria MOMAN  while making  his own contribution said no  investor would come except the downstream sector of the Oil and Gas industry is completely deregulated

Reginal Stanley, former  managing  director  of  the  defucted  Pipeline Products Marketing Company and executive secretary  of the  Petroleum Product Pricing Regulators Agency advised the promoters  of Modular Refineries to be very  careful of the business  the plan to go into  as refining  is  a tough business.  He said  in the  last five years  over 28  refineries have shut down  in Europe and out  of this number only four are  trying  to restart.  He said currently Europe is in crisis because they are faced with barrage of products from more efficient refineries from America, Middle East and from Asia pacific.  “if you don’t  know what it takes  to run a refinery it  better  you   keep out  of it”.

On  why  refineries in Algeria and Ghana are  working  and  those  in Nigeria  are  not working,  he said the  reasons  is very  clear stating that the margin on  refinery products are very volatile and said  if  the  refineries in  Nigeria  had  not worked  in 30 he  does  not   think  they would  work now  saying  that NNPC  should allow  the refineries to go private  investors.

He said  refineries  must be run as  commercial  business,  adding if the product yield of the refinery    does  not pay  for the cost  of crude and production  then such an investors does not have business  in   refining stating what then is happening is called value  disruption.

But Henry Ikem  Group Executive  director and  chief  operating  officer Downstream, NNPC, however disagree with other speaker on  their view on modular  refineries saying  that the  economics support  the establishment  of  modular refineries

The Federal Government recently reiterated its commitment to build modular refineries in oil-producing areas of the Niger Delta.

The Minister of State for Petroleum Resources,  Ibe Kachikwu, made the commitment as part of efforts to woo businessmen in Houston, United States.

Vice-President Yemi Osinbajo had on March 25 assured that the proposed modular refineries would be sited only in oil-producing areas as part of measures to address the developmental challenges in the area. “Now that the Vice-President has visited the area, I will go round and make a workable plan to kick-start the modular refineries, we need to move away from state-ism to a pan-Nigerian development. “We have to boost local refinery. The concept of producing crude and selling it off barrel per barrel is some policy we have to look at. “I hate to sit over a ministry where we can’t be self-sustaining. The Niger Delta has shown that it can cooperate and ensure peace if focus is on developing the region,” he said. t

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