Strengthening Nigeria’s Refinery Sector Oil and Gas Investments in Nigeria Conference Nasir Ahmad...

Strengthening Nigeria’s Refinery Strengthening Nigeria’s Refinery SectorSector

Oil and Gas Investments in Nigeria Conference

Nasir Ahmad el-RufaiDirector General

Bureau of Public Enterprises

Hotel Inter-Continental, LondonHotel Inter-Continental, London

22ndnd-3-3rdrd May 2002 May 2002

Strengthening Nigeria's Refineries

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IntroductionIntroduction

Privatisation Plans for Nigeria’s existing refineries

Key sectoral reform issues

Programme for licensing new refineries


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BackgroundBackgroundNigeria Oil and Gas reserves

are put at about 2.2 billion barrels, and 130 trillion cubic feet respectively

Oil accounts for 40% of GDP, 70% of Government revenue and 95% of foreign exchange earnings

Production level is about 2.2million bpd and 2 billion cubic feet per day


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Overview of the DownstreamOverview of the Downstream

Downstream consists of

Four Distribution network made up of Pipelines and Storage depots, managed by PPMC, one of NNPC’s subsidiaries

Refineries

Other downstream assets like Nigerian Gas Company, and Eleme Petrochemicals


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Downstream Sector ProblemsDownstream Sector Problems- 1- 1

Inadequate refinery maintenance and performance

Inadequate distribution logistics Product shortages Massive importation of fuel Inadequate margins for various

stakeholders: refineries, marketers, dealers, transporters


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Downstream Sector ProblemsDownstream Sector Problems- 2- 2

Inadequate reception facilities for imported refined products

Inconsistent policy direction and government interference in pricing regimes

Smuggling of products to neighboring countries


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Recent Short to Long Term Recent Short to Long Term Problem Solving Initiatives by Problem Solving Initiatives by GovernmentGovernment 2002 –Price of Crude supply to NNPC

increased from US$9.50 to US$18 per barrel

Jan 2002-Prices of refined petroleum products indexed at then world market crude price of US$20

2002 – Program launched to license new grass root refineries

2002- NNPC has signed TAM Contracts for the refineries with private sector operators


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Sector Reform AgendaSector Reform Agenda Full deregulation Liberalisation Policy Review and formulation Review of legal and regulatory

framework Privatisation


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Imperatives for Sector ReformImperatives for Sector Reform-1-1 To increase capacity utilisation in the

refineries

To create competition for improved customer service levels

To improve the regulatory frame work and liberalise prices and imports

To diversify supply sources and improve transparency


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Imperatives for Sector ReformImperatives for Sector Reform-2-2 To create adequate margins for all

stakeholders and attract investments into the sector

To eliminate petroleum products scarcity and set the stage for coordinated export to the West African sub-region.

To progressively re-establish the fuel supply-demand balance

To create the necessary environment for privatisation


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Sector Reform EffortsSector Reform Efforts To set the pace for reform, 6 sub-

committees of the Oil and Gas Sector Implementation Steering Committee (OGIC) have submitted reports, which will be framework for new policy: -1)The Structure of the Industry -2)Legal and Regulatory Matters -3)Upstream Operations -4)Downstream Issues -5)Non-Core Investments -6)Gas and Petro-chemicals


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Deregulation and LiberalisationDeregulation and Liberalisation

First trigger to deregulation is the freeing of prices and pricing procedure

Attracts other participants Concomitant effect on investment

and competition Full deregulation required, not price

fixing


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The Refineries - 1The Refineries - 1

Port Harcourt Refining Company Limited - 2 refineries with total installed capacity of 210,000 bpd and Utilities, Offsite, Product Marketing and jetty facilities:


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The Refineries- 1(a)The Refineries- 1(a)

Old Port Harcourt Refinery-60,000 bpd, commissioned in 1965. Simple hydro skimming plant comprising of 3 Processing units:

-Crude Catalytic Unit (CDU) -Catalytic Reforming Unit (CRU) -Liquid Petroleum Gas Unit (LPGU)


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The Refineries – 1(b)The Refineries – 1(b) New Port Harcourt Refinery –

150,000bpd, commissioned in 1989- more complex refinery with 8 processing units:

-Crude Distillation Unit(CDU) – 150,00bpsd -Vacuum Distillation Unit(VDU) – 53,560bpsd -Naphtha Hydro treating Unit(NPU) – 33,000bpsd -Catalytic Reforming Unit(CRU) – 33,000bpsd -Kerosene Hydro treating Unit(KHU) –14,500bpsd -Fluid Catalytic Cracking Unit(FCCU) – 40,000bpsd -Dimersol Unit (DIMU) – 4,459bpsd -HF Alkylation Unit – 7,200bpsd -Gas Concentration Units


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The Refineries - 2The Refineries - 2 Warri Refinery and Petrochemical

Company Limited Refinery commissioned in 1978 Petrochemical Plant commissioned in

1988 Fuels Plant – installed capacity – 125,000bpsd Polypropylene Plant – installed capacity –

35,000 tons of polymer per year Carbon Black Plant – installed capacity –18,000

metric tons of various grade of carbon black per annum

Utilities and Offsite Facilities: Power Plant, Tank Farms, Jetty etc


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The Refineries - 3The Refineries - 3 Kaduna Refinery and Petrochemical

Company Limited Commissioned sequentially between 1978 and

1988, with installed capacity for refining 100,000 bpd

Fuel Processing Plant – capable of processing 60,000 bpsd of Nigerian crude into white petroleum products, namely LPG, Gasoline, Kerosene, Diesel Oil and Fuel Oil

Lubricating Oils Processing Plant- designed to process 50,000bpd of heavy crude oil imported from Kuwait or Venezuela, or Saudi Arabia Light Crude into lubes base oils, waxes and asphalts.

Petrochemicals Plant (Linear Alkyl Benzyl Plant) Utilities Production Plants Manufacturing Plants Offsite Plants comprising tankage and oil movement


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Combined installed capacity of 445,000 bpd

Actual production said to be about 230,000 barrels per day.

82 million barrels (or 59%) out of the 143 million barrels of crude oil purchased from Nigerian Government were processed by the refineries in 2001 –NNPC Operating Report


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World Bank Review envisages ability of refineries to generate pre-tax profit of US$393 million after covering normal annual overheads of around US$120 million, if managed and operating in an environment where domestic prices are set by world prices.


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The Refineries – Benefits of The Refineries – Benefits of PivatisationPivatisation

Privatisation will: Bring about necessary changes in the

management and operations of the refineries

Attract much needed investment for maintenance, rehabilitation and expansion

Position the refineries for improved performance in a liberalised environment


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Pre-conditions to PrivatisationPre-conditions to Privatisation

Deregulation of petroleum product market by removal of all barriers to internal trade, exports or imports of refined products.

Freeing of crude oil prices, so that refineries will pay the equivalent of world prices for crude.

Establishment of a Regulatory Commission for the Sector.


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The Refineries – Proposed Mode The Refineries – Proposed Mode of Privatisationof Privatisation

Partial Privatisation with strategic interest going to core investor.

Expertise in refining a key consideration


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The Distribution NetworkThe Distribution Network PPMC is responsible for the

sourcing and distribution of refined petroleum products across the country through a network of pipelines and depots

Distribution network is made up of: Over 5,000 km of pipelines 17 depots and 3 refinery-based

petroleum product tank farms 2 jetties and 1 export terminal


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Distribution network – Distribution network – Challenges for reformChallenges for reform Strategic storage of products Strategies for privatisation Security arrangements to forestall

vandalisation of pipelines Encouraging competition in the supply

chain and ensuring that participants who do not own facilities are not disadvantaged

Creation of a regulatory framework for gas, crude oil and petroleum products pipelines – common carrier status


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Distribution network – Common Distribution network – Common Carrier Status- possible optionCarrier Status- possible option

Unbundling PPMC along lines of axis defined by use and regional dependency

Privatising the unbundled units partially –Government to maintain some shares for strategic reserve management purposes

Regulatory Commission to be established to handle tariff, access and related issues


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Distribution networkDistribution network


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Privatisation Work PlanPrivatisation Work Plan

2nd Qtr 2002- 2nd Quarter 2003 – Sector Reform and Restructuring

2nd Quarter 2003- 2nd Quarter 2004 – Privatisation of refineries and other downstream assets.


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Oil and Gas Sector Reforms -Oil and Gas Sector Reforms -TimetableTimetable The current timetable for downstream oil and

gas sector reform is: Start Dates Downstream Oil & Gas Sector Diagnostic

Review Jun 2002 Oil and Gas Sector Policy Adviser Jun

2002 Oil & Gas Legal/Regulatory Adviser Aug 2002 Amendments to Petroleum Act Bill Feb 2003 Petroleum Regulatory Commission- Implementation

Apr 2003 Refineries/Petrochemicals Privatization Adviser May 2003 Pipelines/Gas Company/Other Downstream Sep 2003


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Privatization ProcessPrivatization Process

1. Appointment of advisers by competitive bidding2. Technical, Financial and Legal Due Diligence3. Advertising of PE for sale to strategic investors4. Pre-qualification of prospective core investors5. Issue Information Memo and Bidding

Documents6. Public opening of bids7. Clarification sessions with short-listed bidders8. Submission of final financial bids/auction9. Public offer of balance of shares to Nigerians


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Programme for licensing of New Programme for licensing of New Refineries- BenefitsRefineries- Benefits Massive injection of private capital Multiplier Effect At least 10,000 new jobs Full galvanisation of liberalisation programme Competition Increased Local production/reduction of

importation of petroleum products Generation of export opportunities in

ECOWAS sub-region. Additional refining capacity of 250,000 bpd estimated for ECOWAS


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Programme for Licensing New Programme for Licensing New RefineriesRefineries 3-Stage Sequential Process being managed by

DPR Preliminary License to Establish a Refinery

Non-refundable fee of US$50,000 Preliminary feasibility study Applications closed on 7th March 2002 Pre-qualification exercise to take 10 weeks

Approval to Construct Submission of Basic Design Package Detailed engineering, procurement and construction

License to Operate Plant License fee of US$100,000 after confirmation that plant

has been built in accordance with approved design


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Notes on Guidelines for Notes on Guidelines for Licensing of New RefineriesLicensing of New Refineries International market prices will be

maintained for Nigerian crude procured by refiners

Refiners free to source own crude Entire pipeline network, pump stations and

depots to be available for lease to refiners and marketers –tariffs to be charged

Government reserves right to participate up to 15% at commencement. Option of 25% participation also reserved


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ConclusionConclusion There is broad consensus that public enterprises in Nigeria

have failed woefully to live up to our expectations. Our leaders have recognized that privatization is inevitable –

state capitalism has failed, is outdated and unsustainable. The Privatization Programme offers a viable route of entry for

any genuine foreign investor. The openness and transparency of the process enables anyone to participate and win.

BPE is committed to living up to the expectations of our nation and our friends abroad, in the honest, timely and transparent implementation of the public enterprise reform programme.

We need genuine investors – Nigerian and foreign, and we are on hand to help anyone with information and contacts, etc.

Check our website:www.bpeng.org

Or send email to:

[email protected]@aol.com

[email protected]@bpeng.org (Team Leader Oil and Gas)

For details and updates

Thank You!

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