Global Financial Crises Stall Private Refineries

No Comments » December 27th, 2008 posted by // Categories: Energy Development Project




Global Financial Crises Stall Private Refineries

*$1b Demand By DPR Scares Investors

By Emma Chukwuanukwu, , Assistant News Editor


Nigeria’s dependence on imported petroleum products may continue for a very long time as feelers from the nation’s oil industry operators indicate that building new refineries will remain a mirage for a long time.

Sunday Independent

Added to that is the stringent conditions stipulated by the Department of Petroleum Resources (DPR) for prospective investors in the private refinery business and the constantly fluctuating policies of the Nigerian government in the oil sector.

A source at the DPR who prefers anonymity told Sunday Independent that licences granted some investors for the construction of mini-refineries in the country had been revoked due to the inability of such companies to commence construction, years after the Federal Government granted them operational licences.

“The Federal Government gave licences to 18 companies to build private refineries but none of them commenced construction until the expiration of the stipulated period in the agreement. Only two out of the 18 made attempts to begin construction but even those two did not do a thorough job,” he said.

He said that from the assessment of DPR, even the two firms did not do what was expected of them, prompting the DPR to declare that their licences had been revoked.

“The statement by the DPR that licences granted such investors had been revoked was due to non-performance and compliance with the terms of agreement. They were given sufficient time to invest in the sector and until that time frame elapsed, none of them performed. Refinery is a serious business and not something any individual should think he could just venture into without enough resources to start a tangible investment,” he said.

Although the DPR has not foreclosed investment in private refineries, it has set new conditions among which are that investors who are serious must deposit $1 billion for every 10,000 barrels of crude they intend to refine.

“The deposit we are telling the companies to pay is just a proof of seriousness to demonstrate that they are capable of doing this business because the same money would be returned back to them with the accumulated interest,” said the DPR source.

He also hinted that those who had their licences revoked due to no-compliance with the guidelines could re-apply only after meeting the conditions and the agency, after due consideration, could issue them new operational licences if satisfied with their performance.

But Sunday Independent learnt that no firm has so far indicated interest to invest in the private refinery business since the revocation of the earlier licences last year. Among the two firms DPR said made some attempts to begin construction was Orient Petroleum in Anambra State, promoted by former Secretary-General of the Commonwealth, Emeka Anyaoku. Orient Petroleum had completed the necessary Environmental Impact Assessment (EIA) which enables the company to source for funds to commence construction. But the current global financial crisis has become a stumbling block to the funding of such a long term venture which requires huge capital outlay. Another fear of both the firms and the banks is the instability of government policies on the pricing of petroleum products which may work against the investors recouping their money in record time. This places the private refinery business into the category of a high-risk business venture which most of them are not willing to undertake. Most of the banks and financial institutions which could finance the refineries have either been negatively affected by the global financial crisis or are being careful about long term investments with huge financial involvements.

Meanwhile, the three government-owned refineries in Port Harcourt, Kaduna and Warri remain comatose as they cannot refine enough petroleum products for domestic consumption. The Kaduna refinery is under-going Turn-around-maintenance (TAM) and will remain closed till January 15, 2009. The refineries in Warri and Port Harcourt have been crippled by militant activities in the Niger Delta and are operating far below installed capacity.

findings reveal that the current global financial meltdown has eroded the funding capabilities of banks and financial institutions expected to provide long-term funds for the refineries.

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