Okon explained that Section 6 of the Petroleum Act remained a major setback and reason why investors might not find the refineries attractive for business.
The aspiration of the country to privatise its refineries in Port Harcourt, Warri and Kaduna may have yet suffered a fresh setback as the minister’s power to fix prices of petroleum products has become an obstacle that may stall the exercise.
Special Adviser to the Minister of State for Petroleum Resources, Policy and Regulation, Mr. Tim Okon, painted the gloomy picture of the midstream sector at the All Convention Luncheon of the 36th annual international conference and exhibition of the Nigerian Association of Petroleum Explorationists (NAPE) in Lagos yesterday.
Speaking on the topic, “Oil Price Fluctuations in a Developing Economy and the Recipe for Economic Growth,” Okon explained that Section 6 of the Petroleum Act, which empowers the Minister of Petroleum Resources to fix prices for petroleum products, remained a major setback and reason why investors might not find the refineries attractive for business.
He lamented that a situation where a private investor strives to raise fund to rehabilitate the refineries and get them working and government, on the other hand, fixes petroleum products prices is not a workable model. He said banks that have provided funds for these investors would want a situation where they would have control over repayment schedule and terms and inflow, saying this would also include pricing for the products.
“But the moment banks discover that you don’t have control over pricing, there are huge chances that they would withdraw from such transaction because the possibility of recovering their funds over a certain period of time is already threatened from the outset,” he said.
He explained that government’s withdrawal from petroleum products pricing has been the recommendation of the Petroleum Industry Bill (PIB) since he got involved in the policy document that was meant to shape the direction of the industry, and that same is still being proposed under the Petroleum Industry Governance Bill (PIGB).
Okon disclosed that the structure of the 650,000 barrels per day Dangote refinery structure would only serve as an export refinery, saying after paid entities have exported the product, it would now be imported back into the country.
“The plan of the refinery is not to refine petrol and now sell at government regulated price. That will not happen under the private refinery structure,” he said.
Earlier in his conference opening remarks, the Keynote speaker and Managing Director of Seplat Petroleum Plc, Mr. Austin Avuru, who spoke on the topic, “Oil Price Volatility: Challenges, Strategies and Opportunities,” said oil, coal and gas will still account for 40 per cent of the world’s energy mix.
He maintained that technology will continue to drive the future of oil, adding that supplementary volume of oil is coming on stream as a result of technology; else oil would have been about $200 per barrel.
Avuru explained that as a nation or company, what should be done during price volatility is that a line must be drawn on spending, especially in cash reserves in the balance sheet.
On gas, he said a country’s economy is as large as the energy it consumes,saying gas should not be seen as a rental business but as an enabler for business.
He said it remained worrisome that out of about 8.9 billion cubic feet (bcf) of gas produced per day, only 9 percent is consumed locally. This, he said, says a lot about the size of Nigeria’s economy.