Operating model should be changed to enhance refinery performance — Fawibe

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Chairman/CEO of International Energy Services (IES) Ltd, Dr Diran Fawibe in this interview speaks on the challenges of refinery operation in Nigeria and possible solutions. Excerpts

Our refineries are not working. If our refineries were working to meet national demand, we would not be importing to the tune of the volume we are currently importing whereby a major part of our national demand is being imported.

So, the first option to end our importation of fuel or to reduce our importation of fuel is to get our refineries working and I will say that it is unfortunate that Nigeria has had a long period of fuel sufficiency in petroleum products.

When the Warri and Kaduna refineries were inaugurated, Nigeria was able to meet the national demand for petroleum products but overtime the refineries were not sufficient.

The Port Harcourt refinery was supposed to complement the production output of the existing refineries but now with the demand increasing, there was no increase in capacity.

When you have a dynamic economy, asides the population, you expect that there will be an increase in demand for fuel.

So, in other words we have an increase in population.

When you look at the population of Nigeria from 1980 when Kaduna was established and also in 1988, when the New Port Harcourt refinery was commissioned, then you can see that it has increased ever since that time.

When you look at the level of development, you will see that there is necessity for increased demand for fuel. On that basis, you have to be planning.

So, a forward looking economy will be planning for additional refinery. If we fail to do that, within a short period, we will have shortage.

So, what we are having in the country today is that people who want to buy fuel don’t get to have it to buy.

If Dangote refinery can come on stream, it will help to alleviate the challenge we are discussing.

You cannot expect Dangote refinery to work at marginal capacity from the start, it will have to build up.

If we are able to get the refineries to work at 95 per cent capacity, that will be the end of importation.

For the existing refineries, government has to revamp them.

 

How do we sustain performance?

This is why I say we have to change the operating model to enable the refineries to be operating. We need to change the existing model whereby the refineries will be independent of gov-ernment.

If the refineries were independent and are able to have enough revenue of their own, it will enable them to perform optimally.

I was making reference to the first Port Harcourt refinery whereby what they were only doing then was to charge refining fee.

What this means is that the marketers will have to bring crude oil and contact the refineries to process  and then they take the products back.

By so doing, the refineries will be able to maintain the operation at peak performance

Don’t forget that we need to have enough money. If they are going cap-in-hand to government for revenue allocation, we may not be able to sustain the refineries. This is why we should engage in a commercial model that will enable refineries to accrue revenue and then be able to sustain their operation without going to government and they will be able to adopt Turn Around Maintenance  when due.

Another advantage is that it will make the marketing companies to be responsible for the finished products they are selling.  If you process your crude, you take your products back and if you then want to go and smuggle it out, it is your own business but it will also free government from the issue of pricing.

This may be a way of deregulating petroleum products pricing seamlessly. This is because if the marketers are responsible for buying crude processing it, and then taking the products, then government should only be interested in that marketers should not put a price above the default price. This will help you to deregulate.

… on the issue of Crude Oil … What do you think is the reason…

One major factor is because the price of products are regulated. You can say what the price of diesel is but the price of petroleum and kerosene which are in high demand in the country.

It does not give any refiner to be able to optimize the cost and recover your investment. This is the major problem.

People don’t actually appreciate the fact that the refining business is not like other business. It is capital- intensive in terms of establishing and maintenance of it has a lot.

So, the margin we are talking about in the refinery business is very small. If are not able to maintain efficiency, forget it.

When you now do the economics of the refinery business especially with regulations and other problems associated with investment in the country, you then discover that many of them run away.

This is why many of them can not establish a refinery.

In my opinion, governmen, unless they want to do some charity, charity in the sense of giving them Crude Oil at a discounted price and  then giving them other reliefs.

 

Also, unless you give international fund at a reasonable interest rate, do you want to establish your refinery with 25 to 30 per cent interest rate from our local banks?

How many banks can sustain investment in refinery over a long period of time? This is because they will tell you that they have short term deposit and they cannot put it on long term investment except you have funds from abroad.

The ones that don’t have during the divestment era are now in trouble because they cannot pay back.

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