Page 10 - AfrOil Week 42 2021

AfrOil POLICY AfrOil

However, it is worth noting that at least $1bn of The contracts were awarded following a
the funding of the refinery works was provided tender launched in May for operations and
as a loan from Cairo-based African Export-Im- maintenance (O&M) services for the facilities,
port Bank (Afreximbank), with a condition of covering short- and long-term production and
the agreement being that NNPC hire a “profes- operations planning, production and operations
sional operations and maintenance company execution, monitoring, and reporting and opti-
to maintain the refinery”. This stipulation was misation of operations.
made on account of the state oil firm’s poor track The scope also involves process and control
record of running refineries. The company has engineering, quality control, quality assurance
since announced it will no longer operate any of and laboratory, environmental management
its three units, which together have a throughput and planning and execution for long-awaited
capacity of 445,000 bpd. turnaround maintenance (TAM). ™

Nigerian government facing growing

budget crisis over fuel subsidies

NIGERIA NIGERIA’S government is facing a growing Timipre Sylva, Nigeria’s minister of state for
budget crisis, as a subsidy policy designed to petroleum resources, recently reiterated Abuja’s
protect the population from growing oil prices determination to eliminate the price supports.
is putting increasing pressure on the federal “The government is in the process of fully
budget. deregulating the downstream petroleum sector,
The policy affects Nigerian National Petro- which will end subsidies and free up funds for
leum Co. Ltd (NNPC Ltd), which was recently national development – including investment in
incorporated to replace its predecessor Nigerian renewables, which will be part of the energy mix
National Petroleum Corp. (NNPC). The state- that ultimately powers our economy,” he said at
owned company is responsible for importing the recent Seplat Energy conference.
gasoline, known locally as premium motor spirit In the run-up to the proposed end date, the
(PMS), and is paying an average monthly sub- 650,000 bpd Dangote refinery could serve as a
sidy of NGN120bn ($29mn) to keep retail prices buffer against the problem of the country’s fuel
affordable. security. The plant is still under construction,
The government currently sets gasoline but analysts believe that it may eventually be able
prices through a process that involves the to meet all of Nigeria’s domestic fuel demand.
exchange of crude oil cargoes for refined fuels at Over the last 15 years, successive govern-
pre-agreed price margins under 12-month con- ments have tried and failed to revamp the four
tracts. In the past, NNPC made these arrange- existing refineries owned by NNPC, which have
ments on a yearly basis with third-party refiners, a combined throughput capacity of 445,000 bpd.
mostly in Europe. At the moment, though, there is some hope that
However, after Nigeria’s production levels the 210,000 bpd Port Harcourt refinery, now
output declined because of disruptions at oil- slated for rehabilitation by the Italian contractor
fields, the amount of revenue accruing to the Tecnimont, will come on stream by the tail end
government from crude sales fell, even as its of next year. The rehabilitation programme is
debt exposure increased. This put pressure on expected to carry a price tag of $1.5bn and will
Abuja, which funds federal budget expenditures be funded through debt financing. ™
mostly from oil revenues. Moreover, the pres-
sure is even higher now that the country’s crude
oil production is now about 200,000 barrels per
day (bpd) below its OPEC quota of 1.5mn bpd,
creating a gap that constricts revenues even
further.
Under the country’s new oil and gas law –
the Petroleum Industry Act (PIA), passed ear-
lier this year – Nigeria’s downstream sector is
supposed to become market-driven and free of
subsidies. However, the government has com-
mitted to maintaining the fuel subsidy until
August 2022. This position could force the gov-
ernment to pay out NGN1.2 trillion over the
next 10 months. NNPC imports all of Nigeria’s gasoline (Image: NNPC Retail)

P10 www. NEWSBASE .com Week 42 20•October•2021