Nigeria: Sylva - Why Modular Refineries Will Not Solve Nigeria's Fuel Supply Challenges

14 July 2020
interview

The Minister of State for Petroleum Resources, Chief Timipre Sylva, in this interview on Arise TV, speaks on why modular refineries are not the magic wand for solving the supply challenges in the petroleum industry.  Excerpts:

A lot of progress seems to have been made in the gas sector. Can you tell us about that?

This has been a good year for gas, especially with the overwhelming support of President Muhammadu Buhari. We have achieved quite a bit. We have achieved the FID (Final Investment Decision) of train 7 and the flag-off off of the AKK pipelines. Two major projects valued at about N50 billion or so and that's quite a lot at this time of covid-19 and we are proud of that. This is just the beginning. Talking about opportunities in the gas sector, we envisage that with the passage of the PIB (Petroleum Industry Bill), we will open up the space. With that people can have investments in pipelines for instance. Right now, that doesn't exist in Nigeria. Private sector is a not able to invest in that sector.

So, if you have to do a refinery, you also need to build pipelines. Therefore, the cost becomes prohibitive. But if I can come in and just invest in pipelines, which will make it easier so that I can charge anybody who puts their gas in my pipelines. That will open up the sector. We are hoping that with the introduction of auto gas which we are also pushing for this year, we intend to roll that out in a few weeks, so that gas can serve as fuel for cars. Because we believe that with deregulation, we need to introduce auto gas and a lot of opportunities for conversion of cars.

It means you can go to an estate and build a gas tank, a mini grid within an estate. Then put your gas and pipe it to every house within that estate. Once that's done, you are clocking, you just sleep and start earning money. It will happen as a result of the expansion of the sector. Apart from the opportunities that will come with AKK, which is now a backbone from the south to the north, it will create a development corridor because anybody can tap into that gas line and get gas and set up their industry.

The PIB appears to have been watered down which may not achieve its original goal. Are you tweaking the bill to encourage people who want to invest?

It has not been watered down. I don't know who has seen the bill. It's still in draft. It has gone through several modifications. It's the whole idea. You can't change the laws very easily. It tells you that when we are able to pass the bill, it won't change for a long time because it has taken us about 20 years to get to where we are. It's now ready to go to the National Assembly. But it has not been watered down.

Everything has been done in the national interest and in the interest of Nigeria and we are hoping that in the next two weeks we will be ready to go to the national assembly, then people can talk. Before seeing the bill, you can't say its been watered down.

What has been delaying this important bill?

It's a bill at the foundation of the main industry. There are lots of parts to it: community, government, industry, everybody's interest has to be accommodated. We have been able to take a lot of interests on board. Not everybody will be on the same page. There's no way government and private sector will be on the same page 100 per cent, but what we have tried to do is to narrow the gap as much as possible. Right now, we are ready to go to the National Assembly, so we can get this bill passed.

Nigerians heard the good news recently that petrol price went down to between N123 and N125, only for us to hear that the prices have gone up, can you shed more light on that?

Everywhere in the world, petrol retailers cannot just set their prices. To protect the consumer, even if you go to the United States, there is the recommended retail price, the UK it's the same because government has a duty to protect the consumer. So, we will not allow consumers to just wake up and set prices. Diesel was deregulated a long time ago. Before then, it always was cheaper than petrol, but today it has hit the roof. If we allow it, petrol will also get to that level. But what we are trying to do is to ensure that government plays its traditional role of regulation.

What people must understand is when you say prices came down and prices went up, that's how it's supposed to be. When we say we have deregulated, it means we are out of the business of supplying petrol products as a government. We are allowing private sector to do it. Petroleum products are refined from crude oil and it is linked directly to the cost of the feed stock. If crude oil prices go up, it will affect the product, if it goes down, it will also affect it. It's as simple as that. When crude oil prices went down, government also decided to take that benefit to the consumers. Now prices are going up, we are beginning to see it as a problem. We never said at any time that we will reduce price permanently. That is what is happening which is the whole idea of deregulation.

But there are those who think that if our moribund refineries were working, we won't be in this precarious situation?

We would still be refining the crude, but that's another topic. Today, we have been able to deregulate and we are preparing to go to the national assembly, two things that will catalyse the growth of refining.

Before now, there was subsidy regime, where you refine and sell at a loss. Nobody could have invested in that sector. Government was also put in a dilemma with limited funds. The people say subsidise our fuel and you put the money in subsidy and you don't have enough money to fix your refineries or manage them. The other thing would have been to fix the refineries and take away subsidy, so they will work. But the people say, no, don't take away subsidy at all. Government kept subsidies and the refineries suffered and that's how we got to where we are. With deregulation, we expect that the refineries will come on very quickly. If the NNPC continues to be in the refining business as a commercial entity, with the PIB passed, they will make profit from the refineries. But before now, the refineries were a centre of loss, because you refine at a cost and sell lower. In addition, we should have started work on one of those refineries by first quarter of 2020, but civid-19 has slowed us down a little bit.

Now, Nigeria has found itself in an embarrassing situation where we are importing products from Europe with high sulphur levels?

My problem with Nigeria is that we like getting into global discussions without first getting to those levels. We must learn to walk before learning to run. We cannot join the race to renewables. It's a cleaner form of energy, but are we ready for that race? The research is not going on here. The investment in research is not going on. We know where we are. If the first world has got there and people are beginning to insist that we too should begin to discuss like the first world, it's unrealistic. We must first and foremost ensure that we must first get electricity to everybody even if with the dirtiest fuel, then we can start talking about cleaner fuel.

Are you saying you are not concerned?

I am not SON (Standards Organisation of Nigeria), it's not for me to regulate. It's the SON that should. It's their role. But first, let's get fuel to the people, then we can start talking about cleaner fuel. If we begin to join those conversations, first world conversations, we are not there yet. I am not aware that dirty fuel is coming in, but its the job of the SON to do that.

What's the government policy on modular refineries that was thought could close the gap, where major refineries are not working?

Well, it's good to know that now, it's not going to be the case. It's a very tall order. For example, modular refineries are very small refineries: 1,000 bpd to 2,000bpd. In most cases they are so small that they don't have the catalytic cracking unit to crack the crude, so they don't produce the lighter ends like petrol. They produce mostly diesel and other heavier products. So, they cannot be a replacement, they will only be an augmentation, because if you have 100,000 barrels, you will need 2,000 barrel refineries to give you the capacity that is being produced. There are issues of economy of scale.

But Vice President, Prof. Yemi Osinbajo, did promise, when he visited the Niger Delta, that modular refineries will be in the front burner?

I mean, it is on the front burner. There are a lot of these modular refineries that are under construction. There's one that's ready for commissioning, 5,000 barrels per day. I am supposed to commission it. There are a lot going on, but they cannot replace bigger refineries because the volumes they produce cannot meet the needs of the country. If you put the volumes together, it's still small. We still require bigger refineries and we are hoping that the Dangote refinery will be part of the solution to this problem. Its about 650,000 capacity refinery in addition to the four other refineries.

As far back as I can remember, we have been talking about Turn Around Maintenance (TAM)?

Nigerians should at least be truthful to themselves. The other day, I was talking to the leadership of NUPENG and PENGASSAN. We have a situation now of a refinery that has not functioned for three years, yet it's paying salaries. Every staff is being paid. The refineries haven't worked for three years. We have carried on paying salaries. Nobody can sack anybody. People are getting promoted, but the refineries are not functioning. Unions will not let you. Those are the real issues. A few days ago, the GMD just threatened to lay off some contract staff in Kaduna refinery which has not functioned for three years and the unions wrote to me that they heard that their members were to be sacked and gave threats.

So, these are the realities. If things are done in the private sector way, things will be different. Now, we in the public sector, a public company. You can't fire.

But where would you really put the blame for those refineries not working?

The unions, their members, were the ones managing the refineries. Yes, I know government is to blame. I am not absolving government completely, but they themselves are part of the blame game. They were managing it. We share the blames, because it's a two-way traffic. All of us are guilty. If it has to function properly as a commercial venture, then you can't keep somebody who has not been working in employment.

So, would you suggest outright sale of those refineries?

I will not on this table begin to talk about that. Those are larger issues.

What is being done to improve local content, especially in the upstream sector?

I will say that if we ever needed to develop local content, there's no better time to do that. Because with covid-19, it could have been a disaster. Every country evacuated their citizens. For example, in the oil industry, expatriates mostly were evacuated by their countries. So, you were left with Nigerians who were evacuated from other countries as well. So, more than ever before, there is the need to develop local content. We are not taking it lightly, there's an agency for that purpose. In the oil industry, we have been able to move the ownership of vessels that operate in the industry from three per cent and our target is to move it to 70 per cent in 2027. Twenty per cent of the oil produced in Nigeria is done by Nigerians, and we are also moving that up. With the marginal fields' award going on, Nigerians will take more of those assets and produce a little bit more. We have become very mindful of the fact that we have to develop local content or a time will come when the expatriates for one reason or the other will move to their countries and we will be left alone.

What are those specific policies to achieve this?

We have targets. We have the local content development board saddled with the responsibility and they have a clear plan and a roadmap. This is not the opportunity to go into the roadmap to achieving 100 per cent participation.

Let's talk about the marginal assets and the issue of sharing to political cronies.

People will always say things when a process like this is ongoing because everybody is interested.

There are two categories of people: those who thought they should be on the driver's seat but are not and those who before now would just go and drop names and get their own. Now, they are not able to do that. But I must assure you that the process is sacrosanct and we are not doing for political cronies.

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