Nigeria Promises Oil Sector Reform


With the Mar. 31 target for completion of a maintenance turnaround at Kaduna Refining and Petrochemical Co. and its 110,000-metric-ton base oil plant slipping again, the Nigerian government said last week that it would no longer put a dime on the rehabilitation of the country’s four refineries. Instead, it called for major deregulation and reform of the downstream oil sector.

The refineries, owned by the Nigerian National Petroleum Corp., a government agency, are situated in Warri, Portharcourt and Kaduna. The Kaduna refinerys base oil plant produces API Group I base stocks. The base oil plant opened with the refinery in 1988 and is the only base oil plant between North Africa and South Africa.

Rising from the weekly federal executive committee meeting in Abuja, the nation’s capital, last Wednesday, Petroleum Resources Minister Rilwan Lukman said the decision was informed by the need to end the huge fiscal burden previous spending had placed on government.

He lamented that huge sums of money spent on the refineries in the past had been mismanaged by those responsible for running the facilities.

We are not ready to put any money into the refineries again. No more. Our refineries have not been well run in the past. They have been mismanaged, and the problem was compounded by the regulatory agencies, and that is why we want to address the issue. If we have the correct ambience, people will come to build new refineries, Lukman said.

Finance Minister Mansul Muhtar had earlier expressed the governments concerns about what he described as the regime of corruption and inefficiency in the sales, marketing and distribution of petroleum products in Nigeria, saying the huge fiscal burden on the government is unsustainable.

Last week’s pronouncement by the Nigerian government, with its decision to go for full deregulation, is seen in the industry as the high point of much-anticipated reforms in the countrys downstream oil sector.

A bill that would give legal bite to the reforms by repealing the existing laws in the oil and gas sector had already been submitted to Nigerian president Umaru Musa YarAduafor assent following the recommendation of a committee of thecountrys parliament.

The reforms seekto change the Nigerian National Petroleum Corp. to acommercially viable establishment that can compete locally and internationally without relying on the Nigerian government for funding. The new entity, to be known as the Nigerian National Petroleum Company, is expected to join the ranks of leading global players such as Brazils Petrobras, Malaysias Petronas and Saudi Arabias Aramco.

Also, anew downstream commercial regulator to be known as the Petroleum Products Regulatory Agency is to replace the recently scrapped Pipelines and Products MarketingCompany. The new agency will issue, renew, suspend or cancel permits orlicenses and ensure provision of quality services in the sector.

Base oil suppliers and lube blenders in the country are already watching with keen interest as the new reforms unfold, especially the decision to allow private investors to build and operate refineries.Taiye Williams, general manager (technical and commercial) for Lubcon oil,a lube blending plantin the southwest town of Ilorin, told Lube Report that one of the ways to solve the problems in the sector is to allow private investors to build and operate refineries in order to meet Nigerias increasing demand for refined products, includingbase oil.

Prior to the recent declaration, various attempts to put the countrys refineries back on stream had been futile, with Nigeria, regarded as one of the world’s 10 largest oil producers, relying entirely on importation of petroleum products for its domestic consumption.

An attempt by a local consortium, Bluestar Oil Group, in 2007 to pay U.S. $721 million for a 51 percent stake in both Warri and Kaduna refineries was dashed when Bluestar was forced to pull out of the deal following widespread criticism.

Last June, the Nigerian government finally awarded a maintenance contract for the Kaduna refinery to Hungary-based DKG East ITC Sea Oil and Gas Engineering Group, in the sum of $23 million. The comprehensive maintenance exercise, the seventh since the company started operation in 1988, was expected to commence last November and last 60 days.

But the original completion target could not be met, and a new target date of Mar. 31 was set. NNPC officials said the postponement was partly due to the fact that some of the materials needed for the completion were held up at the Lagos port as a result of port congestion. A source close to the newly appointed Group Managing Director Mohammed Sanusi Barkindo told Lube Report this week that themaintenance work may not be completed until the end of June because it has not been easy clearing the materials at the port.

Before the commencement of the maintenance turnaround, the Kaduna Refinery was producing between 60 and 70 percent of its installed capacity, with overall refining production of the country standing at just 30 percent of capacity.

Meanwhile, lubricants blending plants are already upgrading their facilities in anticipation of new opportunities expected to be opened by the oil sector reforms, though labor unions are warming up to challenge the government on the removal of the remaining subsidies on petroleum products.

We are already working with our plant engineer to modify our facility in Lagos to ensure that our blending capacity exceeds the current 40,000 metric tons, and possibly upgrade it to about 60,000 metric tons, Yinka Adejumo, technical services manager for Conoil, told Lube Report.

Adejumo disclosed further, Our plant to increase the [package] sealing capacity at our Lagos installation has just arrived at the port. We’ll be clearing that any moment from now, and well be increasing our sealing speed. He said Conoil was trying to prevent a situation where it cannot reach its targeted output because of its small pack sealing capacity.

On its Portharcourt plant, the Conoil manager said, We are looking at about 20,000 metric ton blending and filling capacity. The engineering and detailed feasibility have been completed. We are about to commence construction to modify the existing facility that we already have on ground. Before the end of the first quarter of the year, we should be getting in some of our filling lines there too.

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