Nigeria Can Cut Enormous Cost, Rescue Naira with Local Refineries, Says Ihenacho

 

 

Captain Emmanuel Ihenacho, a former minister of interior and active player in oil and maritime sectors, affirmed that government should provide enabling environment for the emergence of private refineries.

 

How can the oil and maritime sectors be integrated for the benefit and advancement of the country?

It is very important for us to optimise the benefits we derive from oil trade by ensuring there is proper integration of the transport element of maritime into the oil trade. One of the issues we have talked about for years is that we sold oil on Free On Board (FOB) basis and by so doing; we allowed vessels under other national flags to carry the crude. In so doing, we lost a lot of benefits, because our oil has zero value. What gives it value at the international market is when you have appended transport to it, and you can lift it from our oil wells and take it into the market.

So, selling oil on an FOB Basis doesn’t really help us. It would be very nice, if there were maritime businessmen with the capacity to run international ships, who can make available their vessels for carrying crude to the refineries. The same thing goes for when the goods are refined to be brought back to the country. Currently, we depend on vessels that belong to non-Nigerians. It would be nice and beneficial, if we had an arrangement, where ships owned by Nigerians bring refined products back to the country.

What has Nigeria been losing as a result of this?

We are losing a lot. The transport element is a significant element of cost in terms of the volume of oil we consume. The value chain starts from when the oil is produced and lifted from oil wells and taken to the refinery. Another opportunity for value addition is when the oil is brought back after being refined. It is the total of all these cost that we incur as consumers of the end product. So, if we were to find a solution, it is either we allow the oil to be carried by Nigerian vessels or we create the situation, where we can refine the oil on Nigerian soil. Then we can completely cut the cost of transporting the oil there and bringing it back again and the only beneficiaries would be the consumers, the Nigerian people.

Would growth be stimulated in the maritime sector, if Nigeria should jettison FOB for CIF?

It won’t stimulate growth, and I think the nature of the change we require has been overtaken by events. Remember that 10 years ago, we were talking of providing ships to carry crude, but that is not the case today. Now, it is refining the crude in Nigeria that we are talking about. So, you can see that the nature of the agitation has changed. All the refineries should be along our coast and wherever we can establish them. What we really need to do is make Nigeria the hub for the supply of finished oil products. We should be selling AGO and PMS and not depending on imported oil.

Has this affected job creation over the years?

The shipping business is one that has a multiplier effect. There are major benefits that are lost in terms of income not spent and forgone job opportunities. We can only capture these things, if we have proper policy provision that recognises the interrelationship between oil, and its eventual transportation back to Nigeria for consumption. We need to make adequate provision for empowering Nigerians to provide the transport in this stream. One of the key problems we have identified in times past is that of money to buy ships, because shipping is a capital-intensive business. The more the money required to buy the vessel, the more foreign money required to buy the input, get the bunkers, spare parts and all those things.

Again, these are the things that have to be provided for. But the good part is that even if we require foreign money to do all of those things, the earnings that will come from successfully operated Nigerian shipping business is also denominated in foreign currency. So, at the end of the day, we stand to gain positive benefits through our ability to invest in shipping.

Nigeria is currently experiencing fuel shortage. What do you think is the cause, and what are the solutions?

It is really a question of supply and demand. There is a lot of demand, as we have lots of vehicles requiring fuel. We need adequate supply, which has to be backed up with availability of foreign currency. It isn’t anybody’s fault that oil price went down at a critical point, to the extent that foreign currency became short in supply. These are part of the problems we are trying to cope with. I think those in charge of policy making in the oil sector are doing their best in the short term to ensure adequate supply in the market. But on a long-term basis, the measure, which we ought to consider, is building more refineries so that we can refine our own crude.

We intend to build a 20,000 Barrels Per Day (BPD) modular refinery and our plan is that once we have the authority to construct, we should be able to have the refinery up and running within 18 months. If that is the case, then all the things I said about adding possible value to the trade and cutting of extraneous cost we currently spend on the transportation of the oil to foreign refineries will no longer happen. So, we will be able to produce the oil sufficiently cheap and the net beneficiaries will be Nigerians.

Why have the individuals issued licences years ago to operate private refineries been unable to do anything since? Are they entertaining any fear?

People should not trivialise what building a refinery entails. It is not an easy business. It is technologically complex. Such issues as land or location of the refinery are very important considerations, when thinking of building a refinery. A refinery has to be built where it can be easily accessed by tankers that will bring crude oil, as well the vessels that will take out the refined products. The technology is also a complex one. It is not every Tom, Dick and Harry that can build a refinery. There are so many issues to be considered. For instance, there is environmental consideration, where you ensure that the environment is not harmed in the process of establishing the refinery.

All of these things put people off. Refineries are very expensive facilities to build. Take for instance the 20,000BPD refinery. This is an investment of about $250m, which isn’t easy money. So, when all these factors are taken into account— the technical requirement, capital, location and acquiring adequate land among others, you know it can only take certain people to go into the building of refineries. A lot of enthusiastic people that venture into the business initially drop out along the line, when they discover what is required. But we will work very hard to achieve what we set out to do. The project would be seen to a successful completion. We’ve gone quite far, having articulated the feasibility proposal, and made a presentation to DPR concerning our business philosophy; what is driving us, where we are going and how we’ll get there.

If you pass that stage and the DPR is satisfied, then they issue you a licence to establish a refinery, which is what we have done. We got the licence five months ago and we have moved on from that point to do other necessary things. We are moving on to the next level, where we are authorised to construct. Once we get there, all we then need is the money. If the commitment is in place, we will definitely start building a refinery. We are very hopeful because we have met nothing that tells us we cannot do it, and in a few more months, we will invite important players in both maritime and oil industries to come and witness the turning of the sod and by the grace of God, in 15 or 18 months from that day, we will invite you again to come and see us launching the refinery, and you will see it working.

Since you started working on this modular refinery, what have been the challenges?

We haven’t had any formidable obstacles. We’ve handled the process from a business perspective and not from the engineering one. We understand the process enough to be able to talk about it and articulate whatever plans we have for moving things forward. But we have had some unpalatable experiences with some funny characters, people whose stock in trade is to extort money from others. They raise baseless alarm, but they have been discovered and discountenanced. However, we are forging ahead. We are doing something that will bring great benefit to our economy, and we would not let any unserious person distracts us.

How do you hope to break even, if the government continues to regulate the price of petroleum products?

I don’t think that is a big issue. The government is fully aware of what we are doing and at the appropriate time, the government will look at what policy provision to take to ensure that people like us are encouraged. So, I really have no fear whatsoever. One cannot sit back forever and only look at the negative aspects, which prevent from going forward. When we get to the point of talking about the pricing, we will deal with it. But for now, the challenge facing us is being consistent. We need to be absolutely focused and do what we have to do to ensure that our refinery becomes operational within the next two years.

Aside pricing, what is the assurance of appropriate crude oil allocation to private refineries?

Crude allocation is not a big issue. We are a major oil-trading nation, and we produce crude, which we sell to third parties. Won’t it be a big paradox, if we produce oil and sell to third parties and then refuse to sell to Nigerians operating refineries? I don’t think that will happen. The NNPC and the Federal ministry of petroleum resources maintain incentives, which they give to Nigerians going into the business of operating refineries. They actually guarantee you a certain proportion of the feed; so we hope that we will benefit from that and we don’t think there is any problem there. We are not pessimistic.

Aside cost, what are other benefits of multiple local refineries to the country?

Nigeria is a big country blessed by God. We have a lot of resources in the country. People look up to us to do so many things. In Africa, Nigeria is considered a big brother, a place where technology is growing. If Nigeria can change from a net consumer of imported products to producer of those products for export, it will enhance our reputation tremendously in the continent and in the world. People would say that Nigerians have really arrived, as they are now able to establish refineries, maintain them and make them work.

So aside cost benefits, we would also gain from the world of technology that would be represented in our ability not to only fabricate tools for refineries, but to operate them and maybe take the technology to other places. Why can’t we be like Iran or Iraq? Iran is a nuclear power, wouldn’t it be nice to have a Nigeria that is a nuclear power? But you can’t be a nuclear power, if you can’t operate your own refinery.

What is your view of the situation whereby crude is being produced in the Niger Delta region, but the refineries are being mostly established in Lagos?

When they talk of nearness to the source of raw materials, it isn’t such nearness. Lagos is only a day run from Escravors, which is really nothing. The only time when you should be complaining is when we are talking of building a refinery in Rotterdam, where it would cost about 14 days steaming time by sea, and will create job opportunities up there. But there are oil fields offshore in Lagos. It is not as if Lagos is so far away from the Niger Delta area. It is definitely not London.

Government is considering establishment of a national fleet, which may deplete the already lean government resources. Is this what Nigeria needs now?

It is absolutely unnecessary for anybody or government to be thinking along that line now. What is a national fleet? They are ships that fly the Nigerian flag. They are not going to make anything out of that, except waste the nation’s resources. The Nigeria National Shipping line (NNSL), is a case point. Political factors set in to ensure it never existed as a commercial enterprise. The same happened to the National Unity line, which went down because of interference of political factors. But if experienced private sector operators were picked and empowered financially to set up a national fleet and run it as private commercial enterprises, it will work.