Oil majors reject offer to manage Nigerian refineries

Jan 05, 2004 01:00 AM

Oil majors have again turned down offers from the Federal Government to take up controlling stakes in the management of the nation's refineries. President Olusegun Obasanjo will, however, meet in Abuja with major marketing companies and the management of the Nigerian National Petroleum Corporation (NNPC) over hiccups in supply of petroleum products experienced in recent times.
The Federal Government had made a fresh bid to get the oil majors namely Shell, ChevronTexaco and Mobil, take up the offer of acquiring 51 % stake and partner government in managing the refineries. This followed government's concession to the leadership of the two main oil workers' unions, where it agreed not to dispose of the refineries as scraps as well as the strategic option of partnering in the privatisation of the plants.

The concession was to avert a major strike threatened by the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and the Nigerian Union of Petroleum and Natural Gas Workers(NUPENG). Government's offer according to sources, also followed President Obasanjo's unfavourable disposition to the list of 34 companies that submitted bid last November, wishing to be the core investors in the refineries. The president was said to have ruled that the list contained mostly traders and not refinery experts.
But when the oil majors met with government officials, sources said they declined the offer to manage the refineries on the key grounds:
-- that the refineries are not good enough to meet the efficiency level that will guarantee the approval of their parent companies,
-- that the Niger Delta crisis remained unresolved nearly one year after violence first broke out, and
-- the downstream oil sector was yet to be fully deregulated to guarantee recovery of investment.

The oil majors had pointed out to the government officials that the Niger Delta crisis was responsible for the closure of the Warri and Kaduna refineries for more than six months. The violence in the area hadcut crude supply to the plants after youths vandalised the Escravos crude pipeline last May.
"In real business environment no investor will allow its plant remained out of production for that long," a source close to the meeting disclosed. The oil majors had earlier been approached by the government following the decision to sell the ailing refineries. But the multinationals turned down the offer and in stead demanded that the plants be handed over to them for management.

Government was however, counselled then that the companies might ensure the scrapping of the plants to favour their continued importation of fuel to the detriment of local supplies. The Federal Government, through the Bureau of Public Enterprises (BPE) later took the decision to invite bids from interested companies to acquire 51 % shares in the refineries while the remaining 49 % shares are to be sold to the Nigerian public on the Stock Exchange.
The poor state of the four local refineries have resulted in Nigeria, Africa biggestcrude oil producer, importing large volumes of petroleum products to meet domestic demand. Latest official figures showed that for instance the refineries supply a total of 4.8 mm litres of petrol per day or just 16.6 % of the total daily demand of 29 mm litres.

The Federal Government is however, pumping $ 150 mm (N 20.6 bn) into the revamping of the Fluid Catalytic Cracking (FCC) unit in the refineries to boost production of premium motor spirit (PMS), popularly known as petrol. It was hoped that when the revamping is completed by May next year, the refineries will supply 18 mm litres a day of petrol.
The low supply of fuel and consequent scarcity of the product that marred the last Yuletide, necessitated the meeting between President Obasanjo and oil marketers.

Sources told the president had expressed his concern over the supply hiccups, which had tended to rubbish his government's deregulation policy touted as the best solution to the perennial fuel crisis.
"Obviously the President was not happy with the last fuel crisis, that is why he has invited the NNPC management and the marketers to a meeting tomorrow in Aso Rock," a source said. Apart from the threat to deregulation, government now relies on fuel supply to generate revenue through the newly introduced fuel tax, which it said would be for road maintenance.

Source: This Day
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