Lagos — Nigeria's President Olusegun Obasanjo announced here Tuesday that his government will soon issue guidelines on the establishment of private refineries, new pipeline networks and oil depots in the country.
The government believes private ownership of refineries is the right way to ensure a regular supply of refined petroleum products, and reverse the chronic queues at gas stations. But there is currently no policy framework that defines private ownership and operation of private refineries in the country.
"My administration will pursue with vigour the opening up of the sector, through facilitating the setting up of private refineries, new pipelines and depots. The policy framework and guidelines for such enterprises will soon be released to the public," Obasanjo promised the ninth International Energy Forum, an annual event in Lagos hosted by a private company, Energy Services. The speech was read on his behalf by Ama Pepple, the Permanent Secretary in the Ministry of Petroleum Resources, .
Nigeria has four refineries, which have a total installed capacity to refine 445,000 barrels of oil per day. The state-run Nigerian National Petroleum Corporation (NNPC) announced recently that the refineries, between them, currently refine 330,000 barrels of crude oil per day, the highest level they have attained in a decade.But the refineries are still failing to meet Nigeria's domestic needs for refined products, forcing the country to import them. Yet even importation has not ensured a regular supply of the products, and Nigeria suffers from regular shortages.
The government plans to privatise the existing refineries, in addition to its plans to encourage new, privately-owned refineries.
"The significance of the policy measure is to boost local supply of petroleum products," Dr Rilwanu Lukman, Presidential Adviser on Petroleum, said at the Forum: "Government is not unaware of the economic cost of the man-hours being lost to queues at the filling stations."
NNPC is currently the sole supplier of refined products in Nigeria. The government says the process of deregulation will permit entry by other players into the downstream sector but to attract them, a deregulated market environment is necessary to enable investors to charge competitive prices.
The current prices of refined petroleum products were fixed last year after negotiations between the government and the organised labour movement. But government says the prices (a litre of petrol currently sells for 22 naira, which is about $0. 19), are artificially low, and are supported by subsidy of $1.9 billion per annum.
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Meanwhile, President Obasanjo also announced that his government would continue with the policy of awarding oil blocs for exploration and development to oil company partnerships. This was the method government applied last year, when it awarded eight offshore oil blocs to 16 companies.
"We shall continue with this policy and practice in future exercises based on principles of openness and transparency," he said.
The government in March last year offered 22 offshore oil blocs for sale, but in December when the result of the bids were announced, only eight of them were successfully awarded to the 16 companies.
Among the reasons given by industry operators for the joint awards, was the huge financial and technological burden involved in prospecting and developing offshore fields, while others believed the joint awards were made to ensure a fair distribution of offshore fields among prospecting companies.
But Obasanjo explained Tuesday that the joint awards are a strategy by his government to foster cooperation among the oil companies, who otherwise would be in competition with each other.
"One of the fundamental policies of this administration is not only to create a favourable investment climate in the country, but also to encourage and foster collaborative efforts on the part of all players in the energy and mineral sector, and indeed the national economy."
Obasanjo observed that this policy agreed with the global trend, which has forced companies to seek co-habitation and partnership, instead of competition.
Lukman announced that more blocs would be auctioned before the end of this year. He did not give a definite date.
