Vanguard Conference Hall panelists and discussants in this second and concluding part ask what is difficult in setting up refineries in Nigeria
LET us get one thing clear; even if we produce locally, as long as NNPC is buying the crude at international price, there will always be subsidy. For example, if you pay $100 for crude and you have 159 litres in a barrel, if you do the arithmetic very well one litre from that crude alone will be up to N70 if not more.
Before you add refining cost, storage and other factors, you will be getting over N120. The wisdom in selling crude at subsidised rate, I don’t believe in it. Let us get our priority straight, let us sell it at a price that it is meant to be sold but let government do what they are supposed to do.
Onyeka, TUC: One thing is clear, to convey the average Nigerian that there is subsidy is one thing and the other thing is telling us about the quantum of the subsidy. I was in a conference in Uyo in March, NNPC came and other agencies like DAPPMA, MOMAN, IPMAN also came and they were telling us how difficult it is going to be to build a refinery in Nigeria.
But unfortunately for them I had consulted people at PRODA Enugu, who gave the science behind the whole thing and how much it will cost and PRODA said they can build a refinery in Nigeria. It was a matter of bringing in a few components from outside the country and building a refinery.
But the people in government want to protect this thing called subsidy so that it will continue. Now the question is: what is difficult in setting up refineries in Nigeria? There is a refinery that does AGO in Owerri. They have 1000 barrel capacity per day production and they have come on stream with their production. They came and said they were making profit.
So it is possible to build a modular refinery in the country with about $5million. The owner of the refinery said they are running the refinery and they are making profit in Nigeria whereas the government is telling us that they cannot run a refinery. There is one refinery that is also coming up in Anambra State. The point is: Will I listen to that person who said that we cannot run a refinery in Nigeria when he cannot manage my resources? We cannot trust them and what they bandy as facts.
At the end of the January strike, the government brought their facts, we brought our own facts, everything was evaluated and at the end of the day, we were able to know who was right and who was wrong. Nigerians have been able to see that the people that were actually right were the Civil Societies and the Labour Movement.
Basically, the people in government do not command our trust because they have lied to Nigerians in all cases. So they cannot now come to us to tell us that they love us so much and we should continue to bear the brunt of a distorted process, deliberately distorted process.
The only way to stop this importation process is to refine our crude here in Nigeria with our own refineries. But they have deliberately refused to refine our crude in Nigeria so that they can sustain this subsidy claim and continue milking Nigerians. But we are saying let them be honest, let everything be done in the open. Nigerians are actually tired of the lies and we cannot continue to believe the lies.
Shell said they cannot build a refinery in Nigeria because there is a glut in refining capacity throughout the world. But we asked them a question: is there a glut in refining capacity in Nigeria? People were given licences to build refineries in Nigeria but they could not build one.
Olawore, MOMAN: Nobody is against building of refineries in Nigeria. But, what I am saying is that there is nobody that is against the establishment of refineries in Nigeria. However, what we are saying is that let the conditions be right. In this country there was time when there was no subsidy until Gen.
Gowon came in 1973, to establish the Petroleum Equalisation Fund (PEF), that started functioning in 1975 because all we were doing as major marketers was to go to the federal government buy the crude and take it to the only refinery available then, which was Port Harcourt 1 and refine the product there. You would pay them your refining fees and take it to wherever you want to sell them.
Why did the whole thing change? Adebo came with “KOLA” award. What he did was to revive the middle class, unfortunately the first characteristic of the middle class is to go and do what is called conspicuous consumption. The demand actually rose.
In itself, there is nothing wrong with it but we are human beings because if you do anything and you set up a procedure and nobody is monitoring the procedure, it is bound to be abused. Again, let me quickly make one point, in our industry there is nothing like old refineries. What is a refinery? It is made up of tubes and cylinders, you remove and replace them.
The youngest refinery in South Africa is of the same age with our oldest refinery here. In other words, all you need do is just remove and replace them that is upgrade them. All our refineries can work but why don’t they work is partly traceable to what you have said like some people don’t want it to work so that they can continue to make profit and we said if the government leaves it in private hands it will work.
Your people are doing well at Eleme but when Eleme was sold out, it is the same NUPENG and PENGASSAN people that were there when things were not working. So for me, you just have to change the structure of ownership. If we make the condition right people will then establish more refineries. The advantages and disadvantages of Modular refineries are there. I know that there is a lot of glut which is a fact in all over the world but we are buying from those places.
Let us find out the problem why we cannot establish a refinery here. On the issue of licences, majority of the people that were given licences were not sincere. Some of them their intention was get the license, get the crude and sell it. Only a few were sincere but the condition was not right. If you peg the price at a certain level and I am coming to produce and I am buying crude which is higher than or equal to the selling price of the refined products then there is a problem.
Abiodun, DAPPMA: We feel that the subsidy saga is a deliberate attempt to terminate us as business men or a plan to take our businesses from us, that’s all we can conclude at this point. It is very sad to see hard working and patriotic Nigerians, who have invested as much as we have have done, being criminalised.
If we hadn’t, Nigerians would have paid dearly for it because we know that the distribution infrastructure in the country is virtually non-existent and this has given us the opportunity to invest in storage facilities, some of us have ports that are called jetties which enable the efficiency and the distribution of petroleum products across the country.
If you take a poll in the country, you will not see any small storage facility that costs less than N5billion or N20billion minimum. So you have many Nigerians who have invested that boldly without taking their money outside the country, they have employed people, they are subject to the rules of the land.
A subsidy is that portion of money that is paid back to marketers because the marketers have to sell the petroleum products at a prescribed price which is less than the cost without even any margin. For example, if I am importing petrol today, it will probably cost me about N120 per litre plus my cost of freight, plus NPA charges which is the highest in the world, plus my finance charges. I need to make profit to my margin to pay my debt and to pay my staff.
That is to say, from the point when the ship arrives at the jetty and it is discharged into the tanks and it has been confirmed that it has been done, 45 days from then you will be paid. And there is also some parameters that stipulates that when you pay these interests on foreign exchange because you buy in foreign currency and sell in naira. So when you collect the naira, you have to look for ways to change your money so that you will be able to pay your foreign banks.
It is a contract between us and the government, and you will look for ways to be efficient so that you don’t have demurrage to try and borrow dollar from your bank and all that. When you do it, in 45 days you are not paid, 60 days, 180 days, seven months, then there is a problem. That is why I said it is difficult to understand how to interpret this; however, we appreciate government’s moves to sanitise the industry.
The predicament we found ourselves in 2011 we did not create it. We are not government, there is no marketer be it MOMAN or IPMAN or DAPPMA that allocates one single drop of petrol to himself. Where were we in 2009 and 2010? What was the volume of PMS that was allocated and imported into this country? What happened after that? Did the marketers allocate the products to themselves? How did the number of marketers that were loading and importing petroleum products into this country, how did it rise exponentially?
Importation of petroleum products
Now we have a situation where a few marketers have done things in the unorthodox way just like you have in the banking industry, just because a few banks did what they were not meant to do, were all the banks shut down? Just because DANA air had problems, were all the airlines shut down? In every sector in this country, you will find people who are not playing the game according to the rules. And this industry is no exception particularly as people see it as an industry where they could easily go in and make money.
Let’s face it, we have been the darling of the banks, why is that the case? It is simply because it is only in our industry that the banks can advance some sum of money to you and within two to three months, the money is back, the banks have their money, you have made your profit, you have turned the transaction around and you are restarting again.
The banks like short term funding. So people began to look at the industry as where you can make quick money. Sometime last year, from giving PPPRA allocation to maybe 30 people, came to 100. Did MOMAN give those allocations to itself? Did DAPPMA give those allocations to itself? But we all know what happened.
They went about criminalizing people without giving them a fair hearing: Thank God that the Federal Ministry of Petroleum stepped in the last quarter of last year, they cleaned up the whole place. This industry has never been better; they have reduced the number of marketers to about 32 or less than 40.
The consumption of petrol today is less than 35 million litres per day based on the allocations that are given and there are no queues. This goes to say that something was happening in the past. We admit that there were issues in 2011, the House of Representatives set up a panel, we subjected ourselves to it, the Senate did the same thing, EFCC did the same thing, and they said there should be an Aig-Imokhuede panel.
We wonder why there should be that panel, is he in the industry?, why will he be chosen to head a panel when we have people like Gaius Obaseki? We have industry people that are retired who understand this industry very well. But we can’t question government. In their wisdom, they choose Aig-Imokhuede. We subjected ourselves to that.
That panel met, deliberated, recommended for people to be further investigated and they began to criminalise people without giving them a fair hearing. They submitted their report to the president and the president called for them to review it because there were complaints.
But if you find someone wanting, why not call him and tell him that there is this document that you don’t have. Many of us were asked to provide documents and we did provide them. Regardless of the fact that this documents were given, they still went ahead to level criminal allegations against them.
Sanitising the industry
Oil marketers have investments worth billions of naira hence they cannot run away as alleged. These are hardworking Nigerians, they are employers of labour. If they sack their staff today each and every one of us will feel it. We appreciate government’s initiative to sanitise the industry but those that are found guilty should pay for it and let’s move on. We sat down with the Minister of Finance and she said please allow us to investigate 2011 payment, however, we will pay you 2012 as we go on.
This is August going to September, we have not been paid. Government is going on some kind of campaign that they have paid so and so amount. I am the chairman of DAPPMA, none of my members have been paid since the last time we attempted to strike. Only one member has been paid in MOMAN. N200billion is what is outstanding but they have paid only N14billion.
Removal of subsidy: We in DAPPMA support the government on the issue of deregulation and subsidy contrary to what the masses think because they accused us that we are the beneficiaries of subsidy, we are been called the cabals, the criminals. Let them remove subsidy, let your efficiency be your profit because any time we have a regime where you buy at a price and you are being told to sell at a price, government is paying you back, there is a guarantee that it will be abused especially in a country like Nigeria.
The abuse did not happen until we had guarantee of payment because initially there was no guarantee of payment and government was not paying on time. But when we found out that they were not paying on time we asked for a guarantee of payment. Before that time, nobody wanted to participate in this business but when government gave the guarantee of payment, everybody came from nowhere.
We fully support the removal of subsidy; this subsidy payment cannot be sustained. NNPC outstanding payment as of May is $7billion, we in DAPPMA, we got almost $4billion as at the end of May. So at the end of this year we will be looking at about N4.2 trillion. So we cannot sustain that. The earlier we start accepting the fact that we cannot continue to sustain subsidy the better for us.
The building of refineries will create jobs for Nigerians. But this idea that building a refinery here in Nigeria will drastically bring down the price of petroleum products is actually not true. However, let me tell you that there will jobs creation when refineries are built here in the country, the taxes that we pay to foreign countries will be paid here.
But the only way the product will be cheaper is if whatever ever we are refining locally is outside our quota.
Olawore, MOMAN: The little deregulation that Obasanjo did encouraged these guys (DAPPMA). Before then, we were the only ones that had depots and we can see the massive investments they have done in the country. On the issue of the Aig-Imohkuede committee, I will not say much here because I was a member of that committee. But the thing is why call them to review the report.
On the moral side, the whole society must agree on the cleansing and anytime there is cleansing , we should co-operate and support it. The money they are looking for in the subsidy investigation, they should look elsewhere, with the private sector they won’t get that money back because they did not take that much.
Onyeka, TUC: Why are the marketers building so much capacity for the importation of petroleum products? Why can’t half of that investment be used to encourage the building of local refineries? So that the subsidy thing can be wiped out completely.
Abiodun, DAPPMA: Even if we don’t import all our products are from Port Harcourt and Warri. Our infrastructure is merely to facilitate distribution in the country.
So whichever way you are loading from, you still need to be take it in a coastal, put in tanks and distribute them.
Onyeka, TUC: What happens when the pipelines starts working?
Olowore, MOMAN: When the pipelines starts working you will still need the storage facilities.
Abiodun, DAPPMA: People from Ghana, Lome, Togo come and buy from us. Because the population in those countries is not up to the population we have here in Lagos. So they don’t have the capacity to buy as much volume as we buy. In this business economics of scale comes in to play. If you buy 85,000 tonnes if your freight is cheaper, they will come to Lagos and buy from us. Maybe the reason why it is cheaper is because our port system is the most expensive in the continent.
I have the Aig-Imohkuede report and I have studied it page by page. There is this $10 for trader’s margin, there is also this one per cent some banks charge. If you look at that report you have the trader’s margin, the retailer’s margin. It was PPPRA that approved the $10 and it is about N1 per litre. If you calculate the $10 that has not been paid for 24 months, it is about $100billion.
They have done all the swap arrangements, they have all the vessels floating when they bring in the products, and they will start to run demurrage. When our products are exhausted, we will shut our doors. All government needs to do is to stop banks for charging their interest until all the money owed marketers have been fully paid.
But government has not done that and the banks are happy counting their interests. If you can’t pay for that day, they will just debit your account every month. Why they do that is because they have the books to your tank farm. If there was no collateral they will not do that and by then they will have started to cry out.