oil rifinery and processing plant
DESCRIPTION
The period following World War II saw the decolonization process take root and the newly independent states have sought to develop principles and rules in order to assert themselves and establish their presence on the international front as well as promote their economic development. This paper discusses a number of these principles in the Oil and Gas parlance against the backdrop of the International Laws and Institutions.TRANSCRIPT
OIL AND GAS GROUP
ASSIGNMENT
OIL REFINERY & PROCESSING PLANT
GROUP ONE
OIL REFINERIES & PROCESSING PLANT
TABLE OF CONTENT
Abstract
1. Introduction
2. What are oil refineries
3. Categorization of oil refineries
4. What are processing plants
5. Are there distinctions between processing plants and oil refineries
6. What are the licensing agencies and government agencies relating to oil refineries
7. Formality and procedure for acquisition of licenses
8. Legal issues in Oil refinery licensing
9. Ownership structures of oil refineries
10. The Nigerian model for ownership of oil refineries – Publicly owned or privately owned
11. The future prospect for oil refineries ownership
12. Nationalization of oil refineries
13. Decentralization of oil refineries
14. Distinction between decentralization and nationalization of oil refineries
15. Recommendation
ABSTRACT:
This paper intends to examine oil refineries, a type of processing plant, as well as the
categorization of oil refineries. The distinction between oil refineries and processing plants will
be discussed, while identifying the licensing agencies and government agencies relating to oil
refineries in Nigeria. The formality and procedure for acquisition of licenses will also be
explored. The ownership structure of oil refineries generally, with special regards to the position
in Nigeria will be analyzed, whether publicly owned or privately owned refineries. The future
prospects of oil refineries ownership will also be discussed. The nationalization and
decentralization of oil refineries will be discussed, with distinctions noted. Various legal issues
in licensing will be discussed finally, with recommendations proffered.
INTRODUCTION:
The Nigerian economy is largely dependent on oil and petroleum products for the generation of
revenue within its government. Though oil is available in great reserves all over the country wide
expanse, it is elementary science that this black hydro carbon substance in its natural depository
form cannot be utilized for energy by carbon utilizing machineries and cannot in turn create
wealth for the nation. Hence, the hydro carbonic substance must be extracted and processed for
them to be of colossal relevance to the nation’s financial state. The medium of processing these
naturally occurring oily, bituminous liquid composed of various organic chemicals called
petroleum or crude oil is the OIL REFINERY
WHAT IS AN OIL REFINERY?
A refinery is a production facility composed of a group of chemical engineering unit processes
and unit operation refining certain materials into production of value.
The ordinary meaning of a refinery is to remove impurities. The legal definition is offered in the
REGULATION 48 OF THE PETROLEUM REFINERY REGULATIONS made pursuant to the
PETROLEUM ACT 1969, in which “refining” is said to include the liquefying of petroleum gas
or gases by whatever method, separating of crude oil by whatsoever method into any grade of
petroleum product, treating and up-grading of any petroleum or petroleum product by
whatsoever method into other product or products.
Generally, however, an oil refinery or petroleum refinery is an industrial process plant where
crude oil is processed and refined into more useful petroleum products such as gasoline, diesel,
fuel, asphalt base, heating oil, kerosene, and liquefied petroleum gas. Petroleum refining and
processing involves a series of steps by which the original crude oil is converted into products
with desired qualities in the amount dictated by the market. In fact, refining is essentially a group
of manufacturing plants that vary in number with the variety of products in the mix. Refining
processes must be selected and products manufactured to give a balanced operation that is crude
oil which must be converted into products according to their level of demand. There are however
various methods employed in refining petroleum, depending on the results intended and the level
of technology as well as raw materials available.
The main function of a petroleum refinery is to convert crude oil (feedstock) into commercial
transportable products, such as gasoline and diesel fuel by means of distillation (separating
components by boiling points) and chemical reactions resulting in the production of varies
valuable fuels and lubricants and also producing feedstock for other downstream processes. The
configuration of a refinery depends on the range of crude quality (feedstock) that it is able to
handle and on the final product mix it is designed for.
The major products of oil refineries include the following:
• Liquid petroleum gas
• Petrol
• Naphtha
• Kerosene
• Diesel fuel
• Fuel oils
• Lubricating oils
• Paraffin wax
• Asphalt and tar
• Petroleum coke
In a refining operation, Vacuum Distillation is used to separate the less volatile products, such as
lubricating oils, from petroleum without subjecting the high boiling products to cracking
conditions. Atmospheric and vacuum distillations are major parts of refining operations and no
doubt will continue to be used as the major and primary refining operations.
Another option at petroleum processing is the use of the THERMAL PROCESSING which is
one of the earliest conversion processes used in the petroleum industry. The process is called
THERMAL CRACKING; majority of which processes use temperatures of about 445o – 540o
(850of – 1005of) and pressure of 100 – 1000Psi (690 – 6895kpa).
The use of hydrogen in thermal process is perhaps the single most significant advancement in
refining technology during the 20th century. The process uses the principle that the presence of
hydrogen during a thermal reaction of a petroleum feedstock will terminate many of the coke
forming reactions and enhance the yields of the lower-boiling components, such as gasoline,
kerosene and jet fuel. The process is called the HYDROPROCESS; with two major types-
destructive hydrogenation (hydro cracking) which is characterized by the higher molecular
weight constituents in a feedstock to lower-boiling products; and the non-destructive
hydrogenation used for improving product quality without appreciable alteration of the boiling
range.
The different types of refineries available include as follows:
OIL REFINERY: which converts crude oil into high-octane motor fuel (gasoline/petrol),
diesel oil, liquefied petroleum gases (LPG), jet aircraft fuel, kerosene, heating fuel oils,
lubricating oils, asphalt and petroleum coke.
SUGAR REFINERY: which convert sugar cane and sugar beets into crystallized sugar
and sugar syrups.
NATURAL GAS PROCESSING PLANT: which purifies and converts raw material gas
into residential, commercial and industrial fuel gas, and also recovers natural gas liquids
(NGL) such as ethane, propane, butane, and pentanes.
Other available types of refineries include salt refinery, metal refinery, and vegetable refineries.
CATEGORIZATION OF OIL REFINERIES
1. Topping Refinery
Crude is a mixture of petroleum products. The topping refinery just separates the crude into its
constituent petroleum products by distillation, known as Atmospheric Distillation. Topping
Refinery produces naphtha but no gasoline.
2. Hydroskimming Refinery
The hydroskimming refinery is defined as a refinery equipped with Atmospheric Distillation,
naphtha reforming and necessary treating processes. Hydroskimming refinery is more complex
than a topping refinery and it produces gasoline. Hydroskimming refinery produces a surplus of
fuel with unattractive price and demand.
3. Cracking Refinery
The cracking refinery is, in addition to the above, equipped with vacuum distillation and catalytic
cracking. The cracking refinery adds one more level of complexity to the hydroskimming
refinery by reducing fuel oil by conversion to light distillates and middle distillates.
4. Coking Refinery
The coking refinery refers to the one which is equipped to process the vacuum residue into high
value products using the Delayed Coking Process. The coking refinery adds further complexity
to the cracking refinery by high conversion of fuel oil into distillates and petroleum coke.
Catalytic Cracking, Coking and other such conversion units are referred to as Msecondary
processing units. The Nelson Complexity Index, captures the proportion of the secondary
conversion unit capacities relative to the primary distillation or topping capacity. The Nelson
Complexity Index typically varies from about 2 for Hydroskimming refineries, to about 5 for the
Cracking refineries and over 9 for the Coking refineries.
Refineries, with high Nelson Complexity Index have the necessary flexibility in processing a
wide variety of crudes and are capable of achieving higher value addition1.
WHAT ARE PROCESSING PLANTS
Processing plants are the machinery used to process raw materials. The raw materials are
processed to remove the impurities in them and make them usable as end products. There are:
meat processing plants, salt processing plants, milk processing plants, poultry processing plants,
natural gas processing plants and so on.
NATURAL GAS PROCESSING PLANTS
Natural gas processing is a complex industrial process designed to clean raw natural gas by
separating impurities and various non-methane hydrocarbons and fluids to produce what is
known as 'pipeline quality' dry natural gas. Associated hydro-carbons known as natural gas
liquids (NGLs) can be very viable by products of natural gas processing. The complete
processing of natural gas takes place at a processing plant in a natural gas producing region. In
the gas processing plant, the raw natural gas is dehydrated and processed through acid gas
removal, molecular sieves and drilling units to remove hydrogen sulfide. Natural Gas Liquids
(NGLs) and liquid Petroleum Gas (LPGs) are ethane, propane, butane, isobutene, pentane. They
have a higher level than the natural gas and they are sold as feedstock for petrochemical
processes.
The actual practice of processing natural gas to pipeline dry levels involves four main processes
to remove the various impurities.
• Oil and condensate removal
1 http://www.ril.com/html/business/refining.html. Types of Refinery &Nelson’s complexity.
• Water removal
• Separation of natural gas liquids
• Sulfur and carbon dioxide removal
In March 2011, Nigeria awarded a $2 billion contract to Eni SpA (ENI)’s Agip and Oando Plc
(OANDO) to build a natural gas processing facility at Obiafu in the southern Rivers state. The
plant will process wet gas from fields operated by Chevron Corp. and Royal Dutch Shell Plc
(RDSA) to supply petrochemical and fertilizer plants to be built in the Delta and Lagos. Nigeria
plans to develop its gas reserves and build pipelines to supply power plants and export. The West
African country selected 15 companies including Shell, Chevron and Oando in 2009 to
participate in its development plan.
DISTINCTION BETWEEN OIL REFINERIES AND PROCESSING PLANTS
Both processing plants and oil refineries perform the same function. They both process raw
materials to remove the impurities and make the end products usable for commercial use.
The major difference between processing plants and oil refineries is the end products that result
from the processing.
LICENSING AGENCIES AND GOVERNMENT AGENCIES RELATING TO OIL
REFINING
The government is responsible for licenses and regulating of oil refinery activities in Nigeria. By
virtue of the PETROLEUM REFINING REGULATION ACT, the act that regulates this affair,
the government agencies are Department of Petroleum Resources, the Ministry of Petroleum
resources.
However, by virtue of Regulation 2 & 3 of the PETROLEUM REFINING REGULATION ACT,
the Minister of Petroleum resources is the one responsible for granting licenses for the
acquisition and construction of licenses in Nigeria.
FORMALITY AND PROCEDURE FOR ACQUISITION OF LICENSES
This is also referred to as guidelines to establishing a petroleum refinery because to establish an
oil refinery in Nigeria, a petroleum refinery license must be obtained. Pursuant to Regulation 2 &
3, PETROLEUM REFINING REGULATION ACT, the approval process is in stages ending in a
grant of a license
The procedure of private ownership of refineries, OLISA says is “A license in a prescribed form
granted by the minister of petroleum resources must be obtained before the construction or
operation of a refinery may be undertaken by any person”
The statement has four (4) basic components. The first is that refining of crude petroleum
requires a license to refine and refining without a license is a criminal offence. Secondly, the
minister is the only one from whom the beneficiary can obtain a license. Thirdly, the license
refers to construction or operation. Fourthly, and most importantly, the beneficiary is any person.
This means that one need not be a concessionaire to obtain a license for refining. The implication
of this is that the license to construct a refinery must be distinguished from a license to refine
crude oil. There are guidelines in the regulation for the construction of refinery, petrol chemical
and gas processing plants.
Upon completion of the construction, the Department of Petroleum Resources (DPR) would have
to examine the construction of the pipeline constructed to ensure that it meets the standard
required. Where it is not satisfied, the licensee may have to make adjustments, for example,
where it lacks to meet environmental and safety standards.
The Petroleum Refining Regulations makes provisions for guidelines of construction of
petroleum refinery
The guidelines for the application for a license and for a modification of a refinery or processing
plant are available from the department of Petroleum resources. The guidelines require the
applicant to submit to the department in support of his application, detailed studies and
information concerning the refinery or plant as appropriate. They include feasibility study, basic
design, engineering and procurement, fabrication, environmental and safety protection factors
and measures as well as environmental impact assessment report (E.I.A). The details required for
each item are contained in the guidelines to which applicants are advised to refer.
The requirements necessary for a grant of a license to construct and operate a refinery or
processing plant include hazard and operability reviews at certain stages of the design and
development and physical inspection of the refinery or plant to ascertain conformity with the
approved design.
If the inspection report is satisfactory to the minister, he will grant the approval to commission
and operate the refinery or plant.
The licensee must satisfy the following conditions before approval can be granted by the
Minister:
1. The appointment of a qualified refinery or plant manager with notification thereof to the
minister
2. Making a complete equipment reports
3. Availability of adequate spare parts
4. Having approved operating manuals
5. Confirmation that all environmental protection standards set during the design stage have
been met
6. The existence of fabricational and effective fire prevention and fighting organization and
several other conditions. Such conditions apply mostly to the following ancillary facilities
and purposes
i. If the licensee have to operate a power generating plant, he needs approval under
the ELECTRICITY ACT2
ii. The same goes for the establishment of communication facilities, he needs the
approval of the Nigerian Communication Commission under the NIGERIAN
COMMUNICATION COMMISSION ACT 1992
iii. If the licensee must construct water treatment plant for industrial use, approval
must be obtained from the water corporation
2 CAP 106, LFN 2004
iv. If the licensee must construct water-port facilities e.g jetties and wharves,
approval must be obtained from the Nigeria Ports Authority under the PORTS
ACT3
v. Office, residential buildings need plans, permits and approvals from the relevant
authorities
The phases can hence be summarized thus:
1. Conceptual study and basic design is submitted to the petroleum minister. This includes
the general visibility of the product, market plan, product specification, sight selection, proposed
crude oil (or feed stock), preliminary environmental impact statement
2. Applicants will undertake detailed engineering studies in consultation with the
Department of Petroleum Resources (DPR) Engineers. If satisfied, the minister will grant a
preliminary license which attracts a none refundable fee and this will be valid for 2 years, after
which it will lapse
3. Applicants can then proceed to procurement and construction (EPC) phase. At this stage,
the validity of the license is 18 months, after which it will lapse
4. An operation license is granted on physical completion of the refinery or plant, and a site
inspection by the DPR and experts from the NNPC to ensure the physical plant construction
corresponds to the approved design. On the receipt of a satisfactory inspection report, the
minister will grant approval for the commissioning and operation of the refinery.
These are the stages one must undertake to get a license.
LEGAL ISSUES IN OIL REFINERY LICENSES
A license is a personal priviledge in the form of authority or permission granted to a person to
enter and use premises or perform some acts therein which would otherwise be wrongful or
amount to trespass. However, the concept of licenses in the area of oil refinery in the energy
sector, is relatively different as licenses in the ordinary sense means a mere priviledge with the
possibility that another can be the recipient of a grant of license in the same subject matter,
3 CAP 361, LFN 2004
however in the area of oil refining, it is impracticable to grant a license to different parties in
respect of the same refinery. In this instance, license has an upgrade in status and in actual fact
confers exclusive right on the licensee subject to the right of the grantor and this makes it similar
to a lease in the property.
Secondly, based on experience it has been proven that the construction of an oil refinery takes at
least 36 months to complete barring unforeseen circumstances , However in the Petroleum
Refining Regulation Act, the license for procuring and construction lapses after 18 months.
Hence, the time allotted for the duration of the license is shorter than the shortest possible time
for the construction of a refinery.
Where the licensee satisfies the DPR, the licensee will yet apply for another license under the
HYDROCARBON OIL REFINERIES ACT. Thus a holder of a license to construct and operate
a refinery must also obtain a refiner’s license before the commencement of his refining
operations.
An application for a refiner’s license should be made in a prescribed form and submitted to the
Board of customs and Excise of the Federal Ministry of Finance with respect to the premises
specified in the application.
The purpose of the involvement of the Board of customs and excise is to ensure that proper
records of data are available for the Board of Inland Revenue to ensure the collection of the
appropriate revenue to the government.
Under petroleum profits tax computations, the board also has powers to require he licensee to
make such entries as the board pleases.
Finally, the licensee is under an obligation to carry out his refining under good refinery practices
which include but are not limited to ensuring strict fire and safety regulations, suitable protective
clothing, equipment, employment of trained staff and training inexperienced workers, accident
prevention facilities including instant reporting of accidents and availability of functional
medical facilities and first aid services.
OWNERSHIP STRUCTURE OF OIL REFINERIES
Several possible ownership structures could arise in the oil industry. Various writers have
identified various structures existing world over among ownership of oil refineries.
In “An Analysis of Possible Oil Industry Ownership Structures in Post-War Iraq”4, Rebecca
Fortson states that the ownership structure may include a state-owned industry, a competitive
industry composed of private firms, or government-owned, but outsourced to private firms.
The Ownership categorization, she proffers is:
I. State-Owned Industry
In a state-owned industry, the government controls the production and sale of the resource.
Under this system, any profits derived from the industry would go straight to the government,
which could then be used for further investment in the industry, public works, or however the
government sees fit. Since barriers to entry in the oil market are high due to the capital
investment needed, and the permits required to extract the oil from the land, a state-owned
industry would more easily be able to conquer such barriers. For example, it might be easier for a
government to procure a loan to finance oil exploration and drilling than it would be for a small
firm to raise the necessary funds to enter the oil market. Countries that are members of cartels,
such as OPEC, must cooperate with the cartel regarding output levels. If the oil industry is state-
owned, it would be easier to coordinate with such organizations than if several private firms
comprised the industry in the country.
It must be taken into account, however, that if the government owns the industry, profits may not
be maximized; effective oversight might not take place, making inefficiencies and corrupt
practices more likely. For example, according to Griffin and Steele’s Energy Economics and
Policy, politics in areas such as personnel could result in inefficient hiring practices, with
emphasis on patronage, political favors and seniority. According to Griffin and Steele, national
oil companies are “grossly inefficient as judged by standard tests of business performance,” for
several reasons. One, for example, is that public companies are more risk averse than private
companies. The Minister of Oil will still receive his salary whether his country produces 2.5
4 December 2004, Department of Economics, Department of International Affairs, The Florida State University
million barrels a day or 4.0 million barrels a day; there is no financial incentive for the Minister
to risk the political fallout that is possible if a risky investment goes wrong, or if an investment
that has the potential to have high returns in the long-run has only a small yield in the short run.
II. Private-Industry
In privately owned industry, two types of situation could arise: One, a single, privately-owned
company could dominate the market; or two, a competitive market could arise.
i.) Single Private Firm - If a single private firm dominates the industry in the country, the
producer would first have to overcome the high barriers to entry. If the government charges a
high fee in order for the firm to obtain the rights to develop oil, and then taxes the firm’s profits,
then the government could benefit from this source of revenue (however, the government could
do this also within a competitive industry). However, if a single firm is responsible for the entire
oil industry in a country, it would have less incentive to create safe working conditions for
laborers, or to pay decent wages since there would be no other options for workers in the
industry. If the private firm is in collusion with a corrupt government, then several problems
could result. For example, there might not be sufficient oversight. Financial incentives might
cause government officials to look the other way when it comes issue such as enforcement of
taxes, or safety concerns for workers. Also, a private company would be less concerned with the
political implications of its actions. For example, if a private company concludes that it would be
too costly to produce (or not produce) a certain amount of oil, it will likely do so, regardless of
international opinion. And if, on the other hand, once a private firm has dominated the industry,
if the government and the firm do not cooperate, or are on bad terms, production could be
slowed, creating inefficiencies in the process.
ii.) Competitive Market - In a competitive market, multiple producers facing a horizontal
demand curve would compete to offer the best quality product at the lowest cost to attract
consumers, and would be forced to pass along cost savings in the form of low prices to the
consumers. Once firms overcome the barriers to entry, the government could benefit from
revenues generated by taxes and fees.
In a competitive market, inefficiencies and corruption are less likely to occur because each firm
will have the incentive to maximize profits and follow labor practices that will attract and retain
quality workers. However, it could still be difficult to ensure cooperation in the international
arena, such as OPEC membership, for example. Profits would accrue to the private company, but
the government may also profit through taxes and fees.
III.) Government-Owned Out-Sourced Industry
A third possible option is a government-owned industry that is outsourced to private producers,
i.e. the government owning the oil industry and leasing the rights to the industry to a private
company, such as ExxonMobil. Under this system, the government would benefit from
ownership rights, taxes, and industry oversight, easing political concerns. The private company
would have an incentive to maximize profits and take risks, therefore increasing potential returns
while keeping total costs as low as possible. However, too much government regulation could
result in decisions by firms not to enter the market, in which case oil fields may not be
developed, and many of these benefits may not be realized.
A possibility to consider under a system such as this would be a system in which citizens of the
country receive a dividend of the profits, such as that used in Alaska. Alaska created a Permanent
Fund to distribute dividends from oil revenues to its citizens in light of exploding oil revenues.
Such a system does allow for private ownership and investment, while ensuring that the citizens
of the developed area profit from oil revenues as well. However, the government must have an
effective mechanism to distribute such revenues and ensure that all citizens receive their share of
the profits.
OIL REFINERIES IN NIGERIA5
The ample presence of natural oil in Nigeria has led to the establishment of many oil refining
centres across the country. The Niger Delta oil refineries are extremely adept at producing
quality oil. The first private refinery in Nigeria, the Amakpe International Refineries is quite
famous, and it deals with the business of crude oil.
The downstream industry in Nigeria is well established. NNPC has four refineries, 2 in Port
Harcourt – Port Harcourt Refining Company (PHRC), one each in Kaduna – Kaduna Refining
and Petrochemical Company Limited (KRPC) and Warri – Warri Refining and Petrochemical
5 www.nnpc.com
Company Limited (WRPC). The refineries have a combined installed capacity of 445,000 barrel
per day. A comprehensive network of pipelines and depots strategically located throughout
Nigeria links these refineries.
The PHRC is made up of 2 refineries, located at Alesa Eleme near Port Harcourt with a jetty (for
product import and export). The jetty is located 7.5 km away from the refinery complex. In 1883,
the Port Harcourt refinery with 60,000 bpsd name plate CDU capacity and the tankage facilities
were acquired by NNPC from SHELL. Subsequently, a new 150,000 bpsd export refinery was
built in 1988 and commissioned in 1989. Therefore, the current combined installed capacity of
PHRC is 210,000 bpsd.
The installed capacities of KPRC and WRPC are 110,000 bpsd and 125,000 bpsd respectively.
NNPC, through its subsidiary, the pipelines and products marketing company (PPMC) supplies
only bulk customers. They, in turn, meet the need of millions of customers across the country for
products ranging from gasoline and jet fuel to diesel, fuel oil and liquefied petroleum gas.
NNPC produces linear alkyl benzene, benzene, heavy alkylate, and deparafinated kerosene at its
Kaduna Refinery complex. Linked to the Warri Refinery are 35,000 metric ton per annum (mtpa)
polypropylene plant and an 18,000 mtpa carbon black plant.
From the above, it is obvious that the general existing trend of oil refinery ownership in Nigeria
is majorly publicly owned refineries.
Nigeria’s oil is refined in two major ways. About 30 percent is refined in Nigeria, in the existing
refineries, while 70 percent is exported abroad, usually United States and Britain for refining.
The refined oil is imported back into Nigeria at a higher cost.
THE FUTURE PROSPECTS OF OIL REFINERY OWNERSHIP
Oil refineries convert crude oil into fuel products such as lubricating oils, bitumen and chemical
feedstock. There are 43 operating and 4 mothballed oil refineries in Africa which range from
small topping and reforming refineries to sophisticated complex refineries which can compete
with the best in the world and 4 synfuel plants .
Even with the available refineries it is unfortunate that the Nigerian oil industry has during the
last years produced well below capacity and this was blamed on operational problems.
According to the Oil and Gas Journal {OGJ}, Nigeria’s state held refineries have a combined
capacity of 438,750 bbl/d but problems ranging from sabotage, fire, poor management, lack of
regular maintenance and the likes have reduced the operating capacity to around 214,000 bbl/d .
To increase refining capacity and solve the problems of availability and supply of fuel for
domestic use, the Government has started involving private sector participants in the petroleum
refining aspect of the critical energy sector by granting permits to build and operate several
independently owned refineries and this is being done in three ways which are:
1. Nigeria’s state held refineries have been slated for privatization
2. Plans have been made for several small independently owned refineries
3. There are talks on constituent states establishing and owning refineries
As to the privatization of state held refineries, in 2007 under the administration of President
Olusegun Obasanjo, the Government began plans to privatize state entities by selling NNPC’s
four oil refineries, petrochemical plants and its pipelines and products marketing company
[PPMC]. 51 percent equities in both Kaduna and Port Harcourt refineries were sold to BlueStar
Consortium. However the sale was reversed by the administration of Yar’Adua after calls by the
Nigerian Labour Congress that the refineries were under sold amongst other things with the
ownership passing back to the NNPC , who have so far failed to fix the problems with the
refineries. As of now there has been no further concrete or tangible plans to privatise the 4 state
held refineries.
However, in respect of the plans being made for the establishment of independently owned
refineries, commendable efforts have been made by the Government in that aspect. On May
2002, the Federal Government granted preliminary licenses to eighteen (18) private companies to
build and operate refineries in the country and they are:
1. Akwa Ibom Refining and Petrochemicals
2. Badagry Petroleum Refinery Ltd.
3. Clean Waters Refineries
4. Niger Delta Refinery and Petrochemicals Company Ltd.
5. Ilaje Refinery and Petrochemicals
6. NSP Refineries and Oil Services Ltd.
7. Ode-Aye Refinery Ltd
8. Orient Petroleum Resources Ltd.
9. Owena Oil and Gas Ltd.
10. Rivgas Petroleum and Energy Ltd.
11. Sapele Petroleum Ltd.
12. Southland Associates Ltd
13. South West Refineries and Petrochemicals Company
14. Starex Petroleum Refinery Ltd
15. The Chasewood Consortium
16. TONWEI Refinery
17. Tolal Support Refineries
18. Union Atlantic Petroleum Ltd
Despite the issuance of private license by the Obasanjo administration to the above eighteen
companies, it is discouraging that seven years after, none of the private investors can boldly say
that anything worthy of note has been recorded as there has been no tangible progress.
Lastly, on refineries being established and owned by constituent states, this has already
manifested with Akwa Ibom State government concluding plans to build a refinery at Eket,
Akwa Ibom State. The Edo State government has also obtained approval from the federal
government to build an oil refinery in the state, with the Lagos State government considering the
possibility of establishing its own refinery.
With the above steps being taken, it can be said that the privatization of the oil refining aspect of
the energy sector, if well handled, would be a welcome step as it would result in more investors
from across the globe, achieve improved employment opportunities and demonstrate to the
outside world that Nigeria is capable of achieving greatness, the process has been slowed down
by various challenges which are listed below:
1. Concerning state owned refineries such as that intended by the Lagos, Akwa Ibom, and
Edo States government and other government which have not yet signified interest, there has
been some criticisms that these states are relatively far from the source of crude oil, therefore for
them to be fully operational, more pipelines and other mode of transportation has to be provided
with more money and time expended than who have been if such refinery was located at or
situated nearby an oil well. It has been asked that where else can anybody build a refinery
outside the Niger Delta that would be feasible and more relevant, make economic sense. It would
be very difficult or unreasonably expensive to site such facilities in areas that are very far from
where the crude oil feedstock is expected to come and if this is eventually done, what is the
guarantee that such facilities would have access to the source of the crude oil feedstock ?
It has been suggested that those constituent states with plans to establish and own refineries
should establish such in the Niger Delta, however this might lead to the problem of inter states
relationship. Also it is almost impossible that the government and people of Niger Delta will not
ask for a part of the shares of the company, perhaps even a controlling share. It can be seen that
this avenue is fraught with challenges and the likes.
2. Also, truth be told, the hostile operating environment has been the major, if not the only
obstacle faced by the licensees in the nations quest to establish privately owned and operated
refineries. Few investors are ready to put money in a dangerously volatile environment as we
have today in the Niger Delta and other related regions of the country. Also fewer financial
institutions anywhere in the world, even in Nigeria would like to sink its funds into ventures in
such areas. International Oil Companies (IOCs) view investments in refineries as providing poor
financial returns and this is one of the reasons why new refineries have not been built in the
United States or Europe in over 25 years .
3. Another challenge faced by the private investors is the amount of time necessary to build
and furnish a fully operational refinery. It has been proven that construction work may span up to
36 months or more i.e. if there is no unforeseen circumstance such as unfavourable weather,
shortage of funds and the likes. After the construction, the next step is the outfitting of the
refinery to international standards. This process involves the input of the Department of
Petroleum Resources (DPR) which is the federal government’s agency responsible for the
licensing and regulation of petroleum companies in Nigeria. Here the DPR engineers would have
to test and inspect designs, engineering metrics and where possible, physically travel to the
manufacturing facilities of the machineries in question to ensure strict adherence to the blue
print. All these take time talk less of in Nigeria where things have the habit of dragging on. The
relevance of this criticism can be seen in the reality that seven years after the granting of 18
licences, some have not finished construction.
4. The bidding process for the granting of the private licenses was based mostly on the
minister’s discretion. What instrument was put in place to ensure that there was no favouritism
involved in the process of selection? How sure are we that the owners of the licensed companies
are not cronies of certain individuals in the government sector? How sure are we that these
companies have sound financial backing? Also these licensed companies must submit their basic
design packages prior to the granting of a further “Approval to construct” and “License to
operate the plant”. Who approves these basic design packages? In what way have the
government made efforts to be accountable to the Nigerian people? From the above we can see
that there are numerous questions attached to the privatization process and this is to be expected
as the have been numerous privatization exercises in the past which have in one way or the other
turned into national disasters. It would be preferable if the government made efforts to answer
these questions now so that necessary criticism can be made with solutions proffered early.
5. It is plain common sense that projects of this magnitude and complexity deserves the
engineering prowess and expertise of experienced engineering firm. Note that this does not mean
just any experience but experience in the building of oil refineries and manufacture of the
necessary equipment and plants. This requirement has met a lot of criticism as though
commonsensical, it has reduced the chances of Nigerian engineering firms thereby taking away
employment opportunities with foreign companies getting this opportunities as can be seen in the
case of the Amakpe International Refinery(Nigeria) who hired Ventech International Engineers
based in Pasadena, Texas for equipment manufacture and fabrication . A very important question
begs to be answered and it goes thus “how many refinery construction firms would be ready to
use an all or most Nigerian workforce for their project?” Also since foreign companies are likely
going to be continuously employed, how would the Nigerian companies get the necessary
experience?
6. Also there have been cries for deregulation as private investors are complaining that
government despite granting them licenses to set up refineries have refused to sell crude oil to
them at the subsidised price and most have decided to export whatever they produce till there is
deregulation. This goes against the spirit of granting the licence and this leads to another
question which is “what structured measures have been put in place to prevent these private from
using their advantage to the disadvantage of Nigeria?”
espite the above criticism, there are certain factors working for the concept and practice of
private oil refineries which though few seem to overshadow the challenges
First, there is the advantage of being the host company which impliedly means that if done
properly, Nigeria has an advantage as the approval of the government is necessary in almost
every step of the process,(from the construction to the outfitting to the operating of the refinery.
With this advantage, demands can be made on these private investors with emphasis on
employment benefits for Nigerian citizens, training at different stages and technology transfer for
all aspects. The best part of the advantage is that the Federal government can reserve the right to
make further demands in the future.
Secondly, there is the advantage which can be seen from the interview with Akwa Ibom’s state
governor where he said “that’s the irony of it”. The federal government still has to know what is
going on because in the final analysis, it owns the oil. It owns every mineral asset in the country,
so we still have to buy oil from them and they have to tell me the whys and wherefores of selling
this thing”. This is the most important advantage because without the oil the whole concept of
the oil refinery is a bust and the private investors are very much aware of this fact. This can be
used as a great bargaining instrument.
Based on the above it can be inferred that Nigeria’s prospect in the foray of privatization of her
oil refinery aspect of the energy sector is dependent on how the government responds to the
various situations on ground. It is advised that Nigeria should study the governments that have
gotten it right and those that got it wrong so as to make informed decisions.
WHAT IS NATIONALIZATION?
According to the Black’s law dictionary6, nationalization is the act of bringing an industry under
governmental control or ownership. It is a process of taking an industry or asset into public
ownership of a national government or state. It normally refers acquisition of private assets but
may also mean assets owned by lower levels of government.
For a proper understanding of the above, it should be understand that an industry is a distinct
group of productive or profit-making enterprise7 ; it is also an organized economic activity
connected with the production, manufacture, or construction of a particular product or range of
products; it refers to widespread activity: an activity that many people are involved in, especially
one that has become commercialized or standardized8 .
Industry, in a general sense, is the production of goods and services in an economy. The term
industry also refers to a group of enterprises (private businesses or government-operated
corporations) that produce a specific type of good or service—for example, the beverage
industry, the gold industry, or the music industry. Some industries produce physical goods, such
as lumber, steel, or textiles. Other industries—such as the airline, railroad, and trucking
industries—provide services by transporting people or products from one place to another. Still
other industries, such as the banking and restaurant industries, provide services such as lending
money and serving food, respectively. The word industry comes from the Latin word industria,
which means “diligence,” reflecting the highly disciplined way human energy, natural resources,
and technology are combined.
6 17th edition7 Merriam-Webster’s dictionary and Theusaurus8 Encarta Electronic Dictionary
Hence, the act of bringing an industry under government control, as Black’s Law defined
nationalization, means governmental control over a group of enterprises that produce a specific
type of good or service.
Nationalization, in broad economic terms, is the governmental appropriation of property other
than land, transferring it from the domain of private property to national control. More
specifically, the term designates the assumption by a nation of the ownership of privately owned
industry, distributive enterprises, or other businesses or services.
When applied as part of socialist or Communist programs for abolition of private property,
nationalization is sometimes known as socialization. Following a severe change in government,
such as a revolution, nationalization may be effected by expropriation without compensation to
the owners of the property, as in Soviet Russia in 1917-18 and in Cuba in 1959.
In more gradual governmental evolution, property appropriation may be effected by some form
of payment to the owners, as in the United Kingdom after the installation of the Labour Party
government in 1945.
However, In Oil and Gas in Nigeria,9 Omoregbe referred to Nationalisation as the legal taking of
the property of an alien. He adds that in earlier times, it was more commonly referred to
expropriation.
On whether nationalization is the same as expropriation, research has revealed that expropriation,
unlike nationalization, may occur without compensation to the former owners of the property or
the asset. Encarta states that while expropriation is the forced assumption of ownership of
private property by a government, often without fair compensation. Nationalization is
expropriation by a national government.
Osborne Concise legal Dictionary has defined expropriation as “compulsorily depriving a person
of his property by the state (perhaps without compensation). In the same vein, the Chambers
dictionary defines Expropriation as being to “dispossess of property, especially for use by the
state”
9 Yinka Omorogbe, Malthouse Law Books (simplified series), 2001, p. 178
Nationalization, according to the same chambers dictionary means “to make national; to make
the property of the nation; to bring under national management”
Compensation is a key issue in nationalization. The traditional western stance on compensation
was expressed by the Secretary of State of the United States of America, Cordell Hull, during the
1938 Mexican nationalization of the petroleum industry that compensation should be “prompt,
effective and adequate”. These three principles guiding compensation have been commonly
referred to as the Cordell Hull Formula.
“Prompt” refers to the time of payment, which should be as soon as the property has been taken.
“Adequate” refers to the amount of compensation payable. “Effective” refers to compensation
which is in a readily convertible currency. Hence, compensation in kind will not be referred to as
effective.
The country is obliged under traditional international law to pay the deprive party the full value
of the property taken.
Opposition in this regards, has been from developing countries, who believe that this assets
should be left to the sovereign state.
The United Nations General Assembly Resolution on Permanent Sovereignty over National
Resources, however states in Resolution 1803 (XVII) of 1962 that:
“Nationalization, expropriation or repositioning shall be based on grounds or
reasons of public utility, security or the national interest which are recognized as
overriding purely individual or private interest, both domestic and foreign. In such
cases, the owner shall be paid appropriate compensation in accordance with the
rules in force in the state, taking such measures in the exercise of its sovereignty
and in accordance with international law. In any case, where the question of
compensation gives rise to a controversy, the national jurisdiction of the state
taking such measures shall be exhausted. However, upon agreement by sovereign
states and other parties concerned, settlement of the dispute should be made
through arbitration or international arbitration…”
There have been a few nationalizations concerning the oil industry, with major arbitrations
including the Texaco v. Libya10, Aminoil Case (Kuwait v. American Independent oil company)11,
BP case (U.K v. Libya)12, Liamco Case (Libyan American Oil Co v. Libya)13, Amoco Case (U.S
v. Iran)14
According to Omoregebe15, traditional international law states that expropriation is lawful if the
following conditions are met:
1. If it is not discriminatory
2. If it is for a public purpose, and
3. If prompt, adequate and effective compensation is paid.
The advantages that nationalization provides as often stated by states that practice nationalization
is that it allows for the fostering of national identity. It also guarantees indigenous control of
national resources. More so, national and local government have seen the advantages or keeping
key strategic assets or sensitive industries e.g the security & power industry, within confines of
the national government. If properly managed, it may also lead to greater standards of living for
citizens of the state. It is also an effective medium to prevent capital flight (i.e. where income
generated from a nation is carried into another nation)
WHAT IS DECENTRALISATION?
Decentralization is a process of dispersing decision making governance closer to the people
and/or citizens. It includes the dispersal of administration or governance in sectors or areas like
engineering, management science, political science, political economy, sociology and
economics. The Chambers Dictionary defined decentralization as “to withdraw from the centre,
to transform by transferring functions from a central government, organization, authority or head
to smaller local centres”
10 (1978) 17 ILM 111 (1982) 21 ILM 97612 (1974) 53 ILR 29713 (1981) 20 ILM 114 (1988) 27 ILM 131415 Yinka Omorogbe, Malthouse Law Books (simplified series), 2001, p. 178
It is the policy of delegating decision making authority down to lower levels in an organization,
relatively away from and lower in a central authority. The more decentralized a system is, the
more it relies on lateral relationships and the less it can rely on command or force.
Decentralisation has been succinctly summarized by Rondinelli as “transfer of technology for
planning, management and resource raising and allocation from the central government to (a)
field units of federal government ministries or agencies (b) subordinate units or levels of
government (c) semi-autonomous public authorities or corporations (d) area-wide regional or
functional authorities or (e) organization of the private and voluntary section”16
A decentralized organization shows fewer ties in the organizational structure, wide span of
control and a bottom to top flow of decision making and flow of ideas. If correct controls are in
place, the bottom to top flow of information, will allow officials of the organization to be well
informed of lower tie operations. For example, if an experienced technician at the lowest tier of
an organization knows how to increase the efficiency of the production, the bottom to top flow of
information will allow this knowledge to pass up to other higher officials.
Various forms of decentralization have been identified. They include:
Political decentralization: In such, citizens have more power in public
decision making than government. Here, the government simply
implement decisions agreed to by the citizens
Administrative decentralization: it involves redistributing authority,
responsibility and financial resources for providing public services
among different levels of governance. The transfer of responsibility for
the planning, financing and management of public functions from the
central government or regional government and its agencies, to local
government, semi-autonomous public authorities or corporations. It
could exist in forms like deconcentration, delegation, devolution,
deregulation, privatization and partnership with Civil Society
Organization (CSO)
16 Reform & Decentralisation of agricultural services: an institutional perspective, FAO Corporate document Repository, Technical Cooperation department
Economic decentralization
Fiscal decentralization
An advantage of decentralization includes ensuring that the most important decisions are
concentrated upon. More so, decision making is in form of empowerment. Empowerment in turn
increases motivation, which translates into an increase in staff output. It also leads to increase in
knowledge and skill. A major benefit is that it responds faster to new and emerging challenges.
At the time of their independence, many developing countries wanted to consolidate their newly
found political independence with economic influence. Substantial control over these economic
forces that could subvert it, such as foreign investors, and foreign owned trading companies, was
essential. Interventionism, an action by a government to influence and improve the country's
economic situation or some aspect of it, was prevalent. Self-reliance and socialist approach (i.e
nationalism) was incorporated in national policies. This resulted in the creation of large
unchallenged public organization, often controlled by the politically appointed managers, only
loosely accountable for their actions. Countries like Argentina, Ethiopia, India and Sri Lanka,
began to adopt policies like privatization and deregulation, all forms of decentralization.
Privatization and deregulation shifts responsibility for functions from the public to the private
sector. It ranges from the free operation market to the public private partnership. Privatization is
the conversion of businesses from government ownership to private property. This can involve
the denationalization of industry as well as allowing the private sector to provide what had been
considered government services.
According to Adams et al (1992), Privatization includes the process involving:
(1) outright or partial sale of asset by state
(2) transfer of asset to public sector under leasing arrangement
(3) introduction of management contracting arrangement
According to Omoregbe17, these methods through which privatization is achieved extends to:
17 Yinka Omorogbe, Malthouse Law Books (simplified series), 2001, p. 185
(4) the public offering of shares
(5) private sale of shares
(6) new private investment in the state enterprise in question
Deregulation, on the other hand, reduces the legal constraint on private participation in service
provision or allows competition among private suppliers for services that in the time past had
been provided by the government or by regulated monopolies. It is the dismantling of legal and
governmental restrictions on the operation of certain businesses18
An instance is the deregulation of the telecommunications industry in Nigeria in 1999 under the
President Olusegun Obasanjo administration allowing free entrance and competition by private
investors in the telecommunication industry.
The advantage of privatization and deregulation includes improved efficiency in service
provisions, as well as increased transparency in the manner of conducting affairs on the part of
the service providers. It also offers the benefit of higher accountability of the service provider to
the service users.
Research on property right and natural resources generally, in India and elsewhere, has shown
that the degree of authority transferred varies according to the internal governance structures19
ARE NATIONALIZATION AND DECENTRALIZATION THE SAME
Flowing from the above discussion, it is evident that nationalization involves the compulsory
acquisition and taking over of the industry by the National government, and placing the controls
of the industry in the hands of the government. On the other hand, in decentralization, decision
making and control is left to subordinate units of lower levels.
The Nationalization experience in Nigeria
Although the Nigerian government had maintained involvement in the industry prior to 1971
mainly through concession to the foreign firms in operation, In May 1971, the Nigerian federal
government then under the control of General Yakubu Gowon nationalized the oil industry by
18 Encarta dictionary19 Natural resources management in India: An institutional perspective
creating the Nigerian National Oil Corporation via a decree following the war with Biafra. The
government thought it more necessary to gain more control over the oil industry. The
nationalization of the oil industry in Nigeria was also precipitated by Nigeria’s desire to join
OPEC. The nationalization policy restricted infusion into the Nigerian economy and along with it
the passage of foreign capital, superior technology, and proven managerial skills20
This continued for several decades until during the years of Muritala Muhammed, when the oil
boom led to endemic patronage and corruption among the political elite, and the nationalization
policy had to be reviewed generally. This made the government to consider other workable
structures like decentralisation in order to assist her achieve her aims.
The Privatization experience in Nigerian
Over time, privatization has emerged as a means of guaranteeing the government’s desire for
rapid and irreversible progress towards surmounting the problems that have beset public utilities
over the last 2 decades in Nigeria. It became a stated policy in Nigeria in 1988, when Nigeria
embarked on the PRIVATIZATION AND COMMERCIALIZATION PROGRAMME.
The bureau of Public enterprises (B.P.E), which is the secretariat of the National council of
privatization, was responsible for the administration of the privatization programme under the
PUBLIC ENTERPRISES (PRIVATIZATION AND COMMERCIALIZATION) ACT. The
privatization venture was divided into 3 phases. Phases 1 and 2 involved the privatization of
commercial and merchant banks, quoted cement companies, and the downstream oil sector.
Phase 3 involved the state owned enterprises21. However, under the Abubakar administration, a
new law titled Public Enterprises (Privatization and Commercialization) Decree 1999 was
enacted and backdated to December 1998. Under this law, several NNPC subsidiaries are slated
for partial privatization. These include22:
1. Port Harcourt Refinery,
2. Kaduna refinery and petrochemicals,
20 Adedolapo Akinrele, Privitisation and deregulation in Nigeria – a paper delivered at the workshop organized for the occasion of the visit of the Canadian minister for international trade and his delegation, Lagos, 21st November 2002, 21 ibid22 Yinka Omorogbe, Malthouse Law Books (simplified series), 2001, p. 189
3. Warri Refinery and Petrochemicals,
4. Eleme Petrochemicals Company Ltd,
5. Pipelines product and Marketing Company Limited
6. Nigerian Petroleum Development Company Limited,
7. Nigerian Gas Company Limited.
While in the downstream sector, three major marketing companies were to be fully privatized.
These are, Unipetrol Plc., National Oil Chemical Company Limited, and African Petroleum Plc.
According to the decree, partial privatization involves the government retaining a maximum of
40% shares in the company in question and with “strategic investor participation” being a
maximum of 40% while the balance of 20% is to be held by Nigerian individuals. The
percentage of the Nigerian individual may however be more if, for instance, where the
government or the strategic investor does not take up its maximum allocated percentage.23
However, as good as the above provisions look, problems such as disrepair, neglect, and repeated
vandalisation of the state owned petroleum pipelines, corruption, theft, sabotage; large rate cross
border smuggling, amongst other still continues to trail the downstream oil sector24. Hence,
government realized that it would be necessary to boost production level of the refineries but at a
huge cost, and decided to invite local marketers to apply for licenses to build private refineries.
This approach failed as the marketers who are solely driven by profit as maximization were not
interested as government still control the pump price of oil and gas. Furthermore, as noted by
Khan25, “disruptions in the Nigerian downstream sector have deeper and more immediate
domestic political implications for the country than those that may occur in the upstream sector”
This resulted in the Nigerian government seeking to adopt the deregulation of the oil and gas
industry. According to Kupolokun26, the former group managing director of the NNPC, he noted
that the set goals of deregulations are;
23 Yinka Omorogbe, Malthouse Law Books (simplified series), 2001, p. 18924 Kombo Mason Baide (Ph.d), Modes of deregulation in the downstream sectors of the Nigerian petroleum industry25 Ifiok Ibanga, Economics of privatizing and deregulating the Nigerian downstream oil sector26 ibid
Dismantle national monopoly of state owned enterprises by privatizing and deregulating
price control
Creating competition
Reduce cost of subsidies
Boost foreign direct investment in Nigeria
Reduction in the transportation cost of product and people
Several opinions have been proffered as regards the suitability of deregulation in Nigeria. Some
argue that deregulation cannot be complete but is desirable and that it should be implemented in
phases to enable state owned monopolies regain efficiency before full privatization. Another
view which is the view held by the Nigeria Labour Congress (NLC) is that the petroleum
industry must not be liberalized or deregulated or privatized completely. Others hold the view
that Nigeria should proceed with deregulation and in line with the new world order in
international petroleum transactions27.
Some of the notable impact of deregulating the petroleum industries include: the burden of the
huge amount of money spent on subsidies would be reserved and savings generated for other
purposes. According to the world bank28, “potential savings in the downstream sector are defined
as the difference between the actual cost of supply of petroleum product to consumers (either
through import or by refining crude) and a bench mark cost corresponding to the procurement of
these products from world markets under competitive conditions and are sub-divided into three
categories which are procurement, refining and distribution”. It also reduces the strain of
financing Nigeria’s state owned petroleum businesses, reduces the rate of intra and Trans
ECOWAS smuggling of Nigerian petroleum products, helps in stabilizing the relative prices of
petroleum products, and breaking the monopoly of NNPC.
The following can be considered as essential for a successful deregulation;
27 Kombo Mason Baide (Ph.d), Modes of deregulation in the downstream sectors of the Nigerian petroleum industry28 World bank, Africa Technical department, industry and energy division, Note No. 14 of 1992, pg 3-5
There must be no unnecessary legal impediment and bureaucratic procedures that inhibit
partition of private companies in the petroleum industries. Existing ones must be
demolished and abolished by law
Open access for private investors to use state owned facilities such as jetties, storage
tanks and pipeline operations.
The tariff must not be discriminatory
The functions of policy formulation and regulation enforcement must be explicitly
separated and assigned to different and independent agencies
The number of supply sources must be maximized
Creating minimal conditions for market competition takes time depending on the country, the
size of its market and national economic and political priorities29. In order for government to
stimulate competition, the government must still be able to influence price mechanism without
actually fixing price ceilings. The non-existent of which, makes the exercise of privatization a
futility. One of the approaches of the government in this regard was to propose a bill making it
mandatory for major oil companies in the upstream sector to refine 50 percent of their oil the
country. This way there will be many suppliers, in turn encouraging competition and the
attendant lower cost30.
However, there are some possible unintended outcomes which may come about as a result of a
progressive switch to deregulation, which includes the fact that short term unemployment may
rise due to price increase. Also, an abrupt removal of subsidy may cause dislocation to the price
of gas because of high demand without requisite high supply. This according to the Nigerian
Labour Congress (NLC) will impoverish Nigerians and would then lead to inflation. However,
the NNPC argued that there will be 50% capture of consumer market, and the corporation will
enter into partnership with willing independent marketers to create more mega stations which
will eventually allow for adequate supply of petroleum product even in shortages31
29 Kombo Mason Baide (Ph.d), Modes of deregulation in the downstream sectors of the Nigerian petroleum industry30 Ifiok Ibanga, Economics of privatizing and deregulating the Nigerian downstream oil sector31 Nigeria: deregulation – Federal Government, NLC meeting deadlocked, Thisday Newspaper, 11th November, 2009.
More so, the prevalence of corruption in Nigeria limits the application of deregulation in Nigeria,
where the level of accountability of government and good policies has been minimal32.
Other Benefits of deregulation include the fact that in the long run, there will be an increase in
employment opportunities and availability of petroleum products. It also helps government shift
its attention away from a mono economy to multi economy since the business of petroleum is not
just for the federal government alone, or the federal government is not even involved at all. Also,
other aspects of the nation’s economy would be positively affected since petroleum products and
other allied products like fertilizer and gas, are readily available and highly competitive prices. It
also aids security and societal involvement of the multinationals since they will be dealing
directly with the communities.
Hence, it can be safely concluded, as Agbakoba S.A.N has stated, that though deregulation
would have initial cost effects, it however in the long run will yield enormous benefits for the
Nigerian economy provided proper structures and policies are in place
RECOMMENDATION
Since the building of new refineries requires a huge amount of financing, one of the ways the
government can go about financing the building of new refineries in the county is through Build-
Lease-Transfer Contracts. This type of financing arrangement typically involves a developer who
designs and builds a complete facility, sells it to the government or a joint venture partner, while
simultaneously leasing it back, usually the government or the partner. This allows the
government to pay for the facility over a long period of time, while allowing the developer to not
only recoup its building cost but earn additional income by running the facility over a period of
time.
Better still; money can be pumped into the existing state owned refineries already in existence as
the money that is spent to import petroleum products run to about 3 billion per day, this sum of
money if put into the existing refineries coupled with experienced officials will effect great and
welcome change. In many countries around the world, onus falls on the state owned oil
companies to balance the commercial objectives with the building, operating and maintaining of
32 Obi O. Akwan, Nigeria – the price of fuel at the pumps, why deregulation is the wrong way to go, MGV Editor, Dec 12, 2009
oil refineries and there is absolutely no reason why Nigeria should be the exception. Privatization
is not always the answer.
CONCLUSION
In a bid to liberalize the downstream environment which had been plagued by inefficiency and
corruption, the government considered an ownership structure consisting of a single company
with multiple equity owners post attractive. This structure will allow for the participation of the
NNPC and other Nigerian and foreign interests thus removing the burden of funding from the
Government33.
Former OPEC President and Nigeria’s Minister of Petroleum argued that one of the advantages
in changing the structure is the change from spending so much money on oil subsidy and refining
abroad because of our inability to refine in Nigeria due to low refinery capacity utilization
33 nigeriafirst.org