PRIVATIZATION OF REFINERIES IN NIGERIA: Challenges And Opportunities

1
PRIVATIZATION OF REFINERIES IN NIGERIA
Challenges And Opportunities
NOT AN OFFICIAL UNCTAD RECORD
By

• Dr. Julius Jibril Bala,
• Director General, Bureau of Public Enterprises
• At the 8th Africa Oil and Gas Trade and Finance
  Conference 26-30, April 2004
• Marrakech, Morocco.

2
Overview Of Presentation

• Introduction
• Sector status
• Oil and Gas Reform Philosophy
• Reform Objectives
• Refineries Privatisation
• Key challenges
• Other Opportunities in the Oil Gas Sector
• Conclusion

3
Introduction

• Government recognises the need to create enabling
  environment to reposition the oil and gas sector
• Enabling environment would engender private
  sector participation efficiency
• Key sectoral reform issues- major plank of
  privatisation programme.

4
Sector Status Oil and Gas

• Nigeria is a major oil and gas province
• Oil accounts for 40 GDP, 80 of Government
  revenue and 95 Foreign exchange earnings.
• Reserves as at December 2003 are conservatively
  estimated at 33billion barrels of oil and 162
  trillion cubic feet of gas.
• Production capacity currently stands at 2.6
  million barrels per day and is expected to reach
  3.3 million barrels per day by end 2004
  (excluding condensates)
• Domestic petroleum products demand is estimated
  at over 32million litres per day.

5
Sector Status Cont.

• The downstream oil and gas sector has been at the
  verge of collapse due to the following reasons -
• Inadequate margins for various stakeholders
  e.g.Refineries, Distribution (pipelines, depots,
  Marine) marketers, dealers and transporters
• Inadequate maintenance of refineries
  distribution logistics
• Inadequate reception facilities for imported
  refined products
• Controlled pricing regime.
• Community issues - Pipeline vandalisation etc

6
Downstream Sector Status -1

• Downstream consists of
• Three Refineries
• Distribution network made up of Pipelines and
  Storage depots, managed by Petroleum Products
  Marketing Company (PPMC), one of Nigeria National
  Petroleum Corporation(NNPCs) subsidiaries
• Other downstream assets like Eleme Petrochemicals
  and Nigerian Gas Company

7
Downstream Sector Status-2

• NNPC is de facto monopoly supplier of petroleum
  products to the domestic market, up to point of
  sale ex-PPMC depots to the oil marketing
  companies (The oil majors and the independent
  marketers).
• NNPC owns and operates the three Nigerian
  refineries.

8
Downstream Sector Status -3

• NNPC owns and operates a nationwide, integrated
  pipeline system, and depot network for supply of
  petroleum products to the different regions of
  the country.
• NNPC has been sole importer of Petroleum Products
  in Nigeria, with exception of brief period in
  1998/99.
• Although currently allowed, oil marketing
  companies do not have the incentive to import
  because of inadequate margins

9
Oil Gas Reform Philosophy

• Formulate policies that foster competition
• Review/update the legal/regulatory frameworks.
• Create strong independent regulatory commission
  for each segment of the sector (downstream oil
  and for Gas), with the MPR focusing on policy
  formulation.
• Regulators to publish clear, transparent
  licensing and competition rules for each sector.
• Implement phased and transparent privatisation of
  assets

10
Sector Reform Objectives - Oil

• Sector reform priorities include
• Formulation of a new National Oil and Gas Policy
  
• Liberalisation of downstream petroleum markets
• Refocus and strengthen sector regulation
• Establishment of an independent regulatory
  authority to oversee activities, Limit FGN
  involvement in the sector to policy formulation
  and fiscal matters.
• Restructuring/privatisation/commercialisation of
  NNPC downstream enterprises

11
Sector Reform Objectives - Gas

• Greater private sector investment in gas
  production, transportation and distribution
  infrastructure
• Increased direct utilisation of gas in domestic
  industrial processes and power generation
• Attainment of 2008 gas flare-out objective, and
  thereby reduced environmental degradation
• Development of a new gas pricing methodology.
• Development of a fair and transparent fiscal
  regime.
• Creation of an independent National Gas
  Transportation Company by unbundling Nigerian Gas
  Co (NGC).
• Creation of a new role for Network Operator.

12
ENTERPRISES SLATED FOR PRIVATISATION
NAME CAPACITY WORK FORCE PRIVATISATION PLAN
KADUNA REFINING PETROCHEMICAL COMPANY 110,000bbl/day 2,185 Core investor sale of 51 Initial Public Offer
WARRI REFINING PETROCHEMICAL COMPANY 125,000bbl/day 1,450 Core investor sale of 51 Initial Public Offer
PORTHARCOURT REFINERY (Complex) 210,000bbl/day 1573 Core investor sale of 51 Initial Public Offer
ELEME PETROCHEMICAL COMPANY Processing marketing of Natural Gas products and refinery by-product 1,261 Core investor sale of 51 shareholding Initial Public Offer of 49 Timeline 2003-2004

13
ENTERPRISES SLATED FOR PRIVATISATION
NAME NATURE OF BUSINESS WORK FORCE PRIVATISATION PLAN
PIPELINE PRODUCTS MARKETING COMPANY(PPMC) Transportation, supply and marketing of Products 2,840 Unbundling along line of activities Timeline 2004-2006
NIGERIA GAS COMPANY LTD. Production and marketing of Natural gas and its derivatives 601 Unbundling along line of activities Core investor sale of 51
14
Refineries Privatisation

• Port Harcourt Refining Company (PHRC), (old and
  new refineries) identified as the most sellable
  in the present circumstances therefore to be
  offered 1st.
• Priority transaction for 2004 CSFB appointed
  advisers
• PHRC to be restructured into a stand-alone
  business outside NNPC.
• Interim management Board expected to be
  appointed, responsible for implementation of
  privatisation issues.
• Steering Committee set up to ensure smooth
  communication between NNPC, BPE, and CSFB
  (advisers)
• Privatisation on course and expected to be
  concluded before the end of 2004.

15
Refineries Privatisation- Cont.

• Kaduna and Warri refineries to be privatised over
  the medium term before 2006.

16
Key Privatisation Challenges

• Environmental issues - Ecological degradation
  the need for remediation obsolete fuel bearing
  pipelines.
• Host communities issues / Restiveness in the
  Niger Delta Labour agitations
• Weak existing legal/regulatory framework and
  resultant effects on operations within the sector
• Corporate Governance issues

17
Other Opportunities in the Sector

• In addition to the investment opportunities due
  to privatisation of the refineries, a host of
  other investment opportunities exist, they
  include
• Petroleum products refining presents a very
  lucrative investment opportunity since domestic
  demand is estimated at over 32million litters per
  day. The West African sub-region is yet a bigger
  market yet to be satisfied.
• Petrochemical segment is almost a virgin area yet
  to be exploited. Current nameplate capacities can
  hardly satisfy 40 of the domestic demand.

18
Other Opportunities Cont.

• Glaring opportunities in the provision of
  bunkering services including fuels for the West
  African Coast as a bunkering hop.
• Natural gas production which now enjoys a lower
  Petroleum Profit tax of 65.75 against the former
  85 as well as pioneer status for projects aimed
  at stopping gas flaring, present other great
  investment opportunities.
• Natural gas based chemical industries including
  natural gas liquids recoverable from gas streams
  rich in heavier hydrocarbons are waiting to be
  tapped.

19
Other Opportunities Cont

• The market for natural gas fired equipment and
  accessories present excellent opportunity to
  invest in marketing and servicing of gas fired
  heaters, fryers, ovens, air conditioners, etc for
  a variety of industries.
• The use of gas for power generation is just about
  receiving attention of serious investors. The
  power gap requirement is currently wide enough to
  accommodate more than 10,000MW projects up to the
  year 2006.

20
CONCLUSION

• A reform package is being put together by the
  Government to re-position the oil sector in
  Nigeria.
• The reform encompasses changes in the legal
  regulatory framework as well as privatisation.
• There is a strong political will on the side of
  the government to ensure success for the reform
  and privatisation initiative.
• The World Bank has been supportive and BPE is
  poised to work with all stakeholders including
  investors to ensure the attainment of the vision
  for the sector.

21
THANK YOU AND WELCOME TO NIGERIA.

• END!