Sopuruchi Onwuka
13 November 2009
Lagos — Major oil companies in the country's upstream industry operations refusing to integrate downstream operations now risk withdrawal of their operated assets as government comes out with a new policy directive on internal crude oil refining.
The development comes as government recorded a total of N312 billion revenue from upstream oil industry activities in the third quarter of the year. The money is besides the major revenues from export of 60 percent equity crude oil from industry total output which has appreciated to 2.2 million barrels per day.
Director of Department of Petroleum Resources (DPR), Mr. Billy Agha, who briefed the media on the high points of the Nigerian petroleum industry activities in the third quarter of the year, said downstream investment has become key factor for renewal of licenses operated by the oil multinationals.
The new requirement which is targeted at building Nigeria's domestic refining capacity might be part of desperate efforts by the government to meet the demands of labor and industry stakeholders in the economy who insist that the controversial deregulation of the local fuel market could only be allowed if robust domestic refining is used to weed out import associated high prices of fuel.
In announcing a major modification in the operating terms in the nation's upstream petroleum industry operations, Mr. Agha made it clear that government was tackling issues thrown up by the deregulation policy, emphasizing that government could no longer sustain fuel subsidy.
He said the strategy was conceived to optimize existing internal refining capacity by encouraging major oil companies in the country to step into the areas to boost funding and technical capacity needed to develop an efficient downstream petroleum industry in the country.
Under the new requirement, he explained, the oil majors could acquire direct equities in the existing local refineries, build new ones or relinquish part of their equity reserves for monetization and investment in government sponsored refining projects.
Some of the joint venture and production sharing agreements between government and major oil multinationals in the country expired last year and the stakes on their renewal have been raised by the China National Offshore Oil Corporation (CNOOC) which is making bullish offers to snatch the oil blocks.
The western oil companies in the country who discovered and operated the concessions for decades are also fighting back to match the Chinese offer of over $50 billion for some six billion barrels of reserves in 23 blocks.
Government has been desirous to stimulate foreign direct investment in domestic oil refining, and a presidential directive on the western oil firms in the country to refine 50 percent of their production in-country was ignored as being outside the original operating terms.
Shell, ExonMobil, Total, Chevron and Eni joined under the Oil Producers Trade Section (OPTS) of the Organized Private Sector (OPS) had argued that building refineries in a particular market entailed huge capital investments only an investor could decide to undertake.
However, with deregulation now at the top of priority in the industry, Mr. Agha said, government is leveraging its upstream industry opportunities to drive investments in downstream sector.
Aside from the demand on the oil majors, he added, five applications for refinery licenses were being processed by the DPR while some gas compression licenses were also issued to indigenous players.
On revenues remitted to the federation account by the DPR in the quarter, Mr. Agha explained that N308 billion were royalties paid by oil companies in the upstream sector most whom were also fined a total of N2.4 billion for flaring natural gas at their oil production sites.
He added that N279 million revenue was collected from concession rentals while N1.1 billion came in from miscellaneous sources in the industry.
Within the three months, he said, some 67 million barrels of crude oil and condensate amounting to 950, 000 barrels of oil equivalent were shipped from the nation's export terminals.
Also battling issues associated with deregulation of the market from a different front, Nigerian National Petroleum Corporation declared yesterday that it would take 50 equity interest in the retail outlets of independent marketing companies to ensure that the market remained wet with products.
Spokesman, Dr. Levi Ajuonuma, state that the measure was in a bid to put to rest the perennial artificial fuel scarcity in the country.
According to the statement, the Group Managing Director of the corporation, Dr. Mohammed Sanusi Barkindo gave the hint during a two-day consultative meeting between the Federal Government and labour leaders on deregulation at the Labour House Abuja.
Dr. Barkindo stated that the NNPC has already taken over 133 filling stations from independent marketers who are willing to partner with the corporation, saying the arrangement would expand the mega and floating stations across the country which now stands at 37 and 12 respectively.
"In all developing countries, their national oil companies operate across the supply chain, including the strategic downstream sector and it is not only seen from commercial perspective but also from national security implications. You cannot handover that sector to a group of people, private individuals, who you cannot predict their political coloration, cannot predict the decision they may take and the implication of such decision," he opined.
The GMD maintained that the move was informed by the determination of the corporation to break the monopoly that currently exists among the marketers who play key roles in the supply chain.
He attributed the inability of the refineries to distribute petroleum products to the incessant vandalism of pipelines noting that the non functional refineries have been a drain on resources as their workers and other logistics are kept and serviced without any work and added value to the system.
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