A Look at Fuel Importation with PIB

The evolving discourse about a clause in the Petroleum Industry Bill that favours a certain category of local refiners, with a certain high nameplate, appears to have a target and Dangote Refinery and Petrochemical Company, being the poster boy of Nigeria’s local private refineries, fits that category. The question is: as the institution with the largest refinery in Africa, would it want to leave such a huge Investment to pursue imported product licence in the turbulent sea of fuel importation? Chris Paul reports

In the post NNPC-Dangote Refinery deal downstream, the growing conversation sneaking into public space, about a certain clause in the recently passed PIB, seems to be another diversion from the substance in the deal that should get Nigerians excited and anxious for the earnest completion of the refinery.

To shed light on the matter, it will be nice to know if Dangote has any plans to ever consider importing petroleum products into the country when he has the capacity to refine ready and nearby crude oil in-country? Obviously, it will say ‘No.’ It would be a no-brainer, therefore, to even give such a notion a thought.

It also appears that certain category of people are trying to engage in a media campaign to demonise the Dangote Refinery Project and NNPC deal in the facility in order to stir up bad heart against the refinery.

On the other hand, as conspiracy theorists, would advance, could it be that the fuel importers whose illicit fuel importation business is threatened by the emergence of the refinery have entered a secret deal with Dangote Refinery to allow them a window to import fuel at some point; in its name?

Even this conjecture will be far from the imagined as it is not probable that the business mogul would want to risk his integrity and facility with cabal of questionable characters.

Passed in its Senate-approved version, only two entities will be permitted to import petroleum products into the country. These two are NNPC and those who own active refining licences. Curious is the fact that even modular refiners like Walter Smith to import is not entitled to import the product, because a clause in the said section provides that licences be given based on the refining record of the permit holder.

Again, why would a refiner, local or foreign, want to or pray or hope to import fuel from another refiner in his country or another, when his refinery is still clean and new; while it is working at optimal capacity?

It is obvious, therefore, that both the senators and the vested interest, on whose behalf they smuggled in this controversial clause, may not be working for the alleged local private refiners. This is because it just doesn’t make sense.

In this PIB, NNPC is allowed to continue its Direct Sale Direct Purchase (DSDP) contract. With its 20 per cent stake in Dangote Refinery, will the DSDP concept be necessary any longer?

Conceding that it becomes necessary, ‘all the time’, as it is today, will national oil company continue to execute the DSDP contract in Nigeria or their usual customers, even when private local refineries, like Dangote Refinery, are up?

Pardon the pedestrian point of view here; is the $3.9 billion NNPC is shopping for, to buy its 20 per cent equity in the Dangote Refinery a one-off purchase deal? In which case, the corporation owes Dangote Refinery nothing more. Which means, they do not have to give Dangote Refinery crude stock to feed the refinery; in practical terms, Dangote would have to source or pay international rates for the crude oil it needs to power its refining operations. Bottom line, Nigerians will be paying an average of N1,000.

Strictly speaking, such a clause is dangerous; not only to the Nigerian people but to the investments of the private refiners, because, just as they did to the nation’s four refineries, some unscrupulous elements in that camp may sabotage the private refineries to justify the need to import in future.

While in Section 205 a, the Senate version of the PIB provides for the introduction of a free market, it contradicts this position in Section 317h.

In the first subsection it states, “The Authority shall apply the backward integration policy in the downstream petroleum sector to encourage investment in local refining.” The phrase essentially refers to a decision by companies to source materials they imported prior, locally.

But the agenda behind the clause, explained in perspective of what backward integration means, is revealed in a section of the clause.

“To support this, licence to import any product shortfalls shall be assigned only to companies with active local refining licenses,” the section states.

Even at 50 per cent, when the Dangote Refinery starts, the facility can still feed the Nigerian domestic market adequately. As a businessman, it is not likely that Dangote would want to spend all that money mounting the continent’s largest refinery only to operate at less than its nameplate capacity.

So, where would the shortfall come from? How else would it happen, except someone sabotages the facility!

In another funny part of the clause it states: “Import volume to be allocated between participants based on their respective production in the preceding quarter.”

It would seem the construct and the unspoken rule of this provision are forewarning of a scenario, where private refineries are allowed to work for one year or a particular period, after which they are expected to claim the refineries are suffering from some operational sickness or declare a general but prolonged Turn Around Maintenance (TAM) time, during which they must import the petroleum products they are well able, ready and willing to refine in their facilities in-country.

Unfortunately, the provision rules out small players in the refinery game.

Walter Smith, for instance, produces 5,000 liters of diesel per day. It means, under this law, it may get little or no quota to import the product because of its production capacity.

On a broader scale, therefore, modular refinery licence holders are excluded from importing; with this clause. The issue, now, is the fact that by the time the bill becomes law, Dangote refinery would be in operation, firing on all cylinders with his 650,000-barrel per day refining capacity.

That would make him the only licence holder that would be entitled to import any substantial amount of petrol, thus placing Dangote Refinery at the heart of the target for critics of the clause.

Thus, before one jumps to judge Dangote as the man behind such a clause, it will suffice to interrogate the rationale behind it.

Does it make sense to engage in such a potentially destructive prophetic provision? Or, would it not be wiser for him to challenge the fundamentals of his Investment in the refinery to ensure the facility is secure, insured and preserved productively and profitably to work to installed capacity with all backups in place.

In what appears to be an irritating paradox, Section 317 h. of the Senate PIB version vows to end the sale of dirty fuel in Nigeria; as stated in the fifth clause of the sections, the Senate PIB states;

“To safeguard the health of Nigerians, imported petroleum products shall conform to the Afri-5 specification (50ppm – particles per million sulphur) as per the ECOWAS declaration of February 2020 on the adoption of the Afri-Fuels Roadmap.”

For over 20 years, Nigerians have been buying poisonous petrol that contains at least 3,000 sulphur ppm.

Logically, one of the objectives of enabling private refineries should be to ensure the country no longer has the need to import let alone bring in toxic fuel into domestic consumption.

Report from a research done by an international resource watchdog group Stakeholder Democracy Network (SDN) found that samples from illegal refineries in Niger delta are of a higher quality than imported petrol.

According to the report, published in the Wed, 1 Jul 2020, edition of the Guardian, a foreign publication, black market fuel made from stolen oil in rudimentary “bush” refineries hidden deep in the creeks and swamps of the Niger delta is less polluting than the highly toxic diesel and petrol that Europe exports to Nigeria, new laboratory analysis has found.

Shell, Exxon, Chevron and other major oil companies, the report stated, extract and export up to two million barrels a day of high quality, low sulphur “bonny light” crude from the Niger Delta. But very little of this oil is refined in the country because its four state-owned refineries are dysfunctional or have closed.

Instead, international dealers export to Nigeria around 900,000 tonnes a year of low-grade, “dirty” fuel, made in Dutch, Belgian and other European refineries, and hundreds of small-scale artisanal refineries produce large quantities of illegal fuel from oil stolen from the network of oil pipelines that criss-cross the Niger Delta.

The net result, says SDN in a new report, is that Nigeria has some of the worst air pollution in the world, with dense clouds of choking soot hanging over gridlocked cities leading to a rise in serious health conditions as well as damaged vehicles.

The extreme toxicity of the “official” fuel exported from Europe surprised researchers, who took samples of diesel sold in government-licensed filling stations in Port Harcourt and Lagos.

They found that on average the fuel exceeded EU pollution limits by as much as 204 times, and by 43 times the level for gasoline.

Laboratory analysis also showed that the black market fuel was highly polluting, but of a higher quality than the imported diesel and gasoline. The average “unofficial” diesel tested exceeded the level of EU sulphur standards 152 times, and 40 times the level for gasoline.

“Our research suggests that Nigeria is having dirty fuel dumped on it that cannot be sold to other countries with higher and better implemented standards. The situation is so bad that the average diesels sampled are of an even lower quality, produced by artisanal refining camps in the creeks of the Niger Delta,” said Florence Kayemba, SDN programme manager.

With more than 11million, mostly old, cars imported from Europe and Japan on the roads, and hundreds of thousands of inefficient generators used by households and businesses for electricity, Nigeria ranks fourth in the world for deaths caused by air pollution. It has been estimated that 114,000 people die prematurely from air pollution each year.

The air quality in cities like Port Harcourt, Aba, Onitsha and Kaduna has reached crisis levels of pollution in recent years, and there is mounting evidence of rising asthma, lung, heart and respiratory diseases.

More than half of developing countries, mainly in Africa and Latin America, still use high-sulphur fuels which have long been illegal to burn in western countries. In Nigeria the practice is encouraged by an opaque fuel subsidy system that keeps prices relatively low at the pumps, but is widely thought to fuel corruption. Refineries in Europe are allowed to make the fuel, if countries agree to accept it.

The SDN report, part-funded by the UK Foreign Office’s anti-corruption conflict, stability and security fund, calculates that around half the air pollution in Port Harcourt, a city of more than three million people, comes from the burning of official and unofficial fuel. The rest comes from nearby gas flaring, other industries, and the burning of rubbish.

Levels of particulate matter in Port Harcourt and Lagos, says SDN, are 20 per cent worse than Delhi in India, the most polluted capital city in the world, where emergency levels of photochemical smogs are common. In 2016, the River Niger port city of Onitsha was said by the World Health Organisation to be the world’s most polluted city, the concentration of PM10s – soot particles – was recorded at 594 micrograms per cubic metre; compared with the WHO safe limit of 66.

“The Niger Delta already suffers environmental, health and livelihood impacts from decades of oil spill pollution, gas flaring and artisanal refining. This research indicates that it not only experiences the repercussions of producing crude oil, but also in the consumption of dirty official and unofficial fuels,” said the report.

According to industry sources, which track legal and illegal oil cargo movements – who asked to remain anonymous – around 80 per cent of Nigeria’s petroleum products come from the Netherlands and Belgium. The two countries have some of Europe’s largest refineries.

“This is even more concerning at a time when Nigeria is facing an outbreak of coronavirus. High levels of pollution and pre-existing respiratory and other health conditions may increase the risk that COVID-19 poses to the health of the population,” said Matthew Halstead of Noctis, which conducted the laboratory research.

The SDN report substantiates allegations made in a 2016 Public Eye investigation and a Dutch government report in 2018, that European refineries and commodity brokers were blending crude oil with benzene and other carcinogenic chemicals to create fuels hundreds of times over European pollution limits for the weakly-regulated African market.

This was said to be causing significant particulate pollution, damage to vehicles, and adverse health impacts for local populations.

Nigeria, along with Togo, Ghana, Ivory Coast and Benin promised in 2017 to stop the imports of “Africa quality” oil products as part of a UN environment programme initiative. But while Ghana has acted, reducing sulphur from 3,000 to 50 parts per million, Nigeria has argued that it needs more time to adapt.

However, the recent collapse in oil prices because of COVID-19 means that imported fuel no longer needs to be subsidised and should no longer be a barrier to Nigeria adopting higher standards.

Illegal artisanal refineries are said by SDN to be growing fast in number and scale, now producing 5-20 per cent of all the gasoline and diesel consumed in Nigeria from the estimated 175,000 barrels of crude oil stolen each year.

From the above facts, it is obvious that Nigeria has been importing highly toxic fuel for consumption in the country. This has been at the risk to the health of the citizenry and the economy at large.

Now that more formal and standard local refineries are coming up in the country with better refining processes, why managers of the downstream sector desire that the nation return to such a dirty future?

It is unfortunate that with over 606 oil fields (360 on-shore and 345 off-shore Assets), over 3,000 kilometers of pipeline straddling the Niger Delta landscape linking 275 flow stations to various export facilities, issues that distract from the optimisation of these prosperity-powering assets is the shadow industry thinkers are given to chase.

The reported drama of certain senators sneaking in the said clause is reminiscent of disconnecting and dysfunctional manner previous governments manage the downstream sector of the industry.

In 2012, the then Trade and Investment Minister, Olusegun Aganga, raised the hopes of Nigerians, when he said the federal government will be ending fuel importation in 2018.

In his announcement, he outlined the conscious efforts the Goodluck Jonathan’s Administration was making to intensify non-oil exports to boost revenue.

Few weeks later, however, the then Petroleum Minister, Diezani Alison-Madueke, countered her colleague in the same government, saying Nigeria is among African nations that will not end fuel importation within the next 20 years.

Well, in less than seven years, she made that prediction, local private refineries like Dangote Refineries have not only nullified her prediction, they have gone further to shame allied interests, who planned to keep Nigeria in perpetual fuel importation bondage.

In conclusion, if Dangote is not the man behind this clause, the only reason why such a provision would have been sneaked in and quickly blasted in the media may be to whip up public sentiments against Dangote. Who are the likely people that would be interested in ensuring a Dangote Refinery does not work? It has to be people, in the public or private sector, who are directly connected to fuel importation.

On the public sector side, some of the people in the NNPC department or platform whose job it is make decisions on how, what, when and where the government imports the petroleum products into the country. While some of the independent marketers, as private sector players may not take a Dangote Refinery taking their source of survival lying low, some of those civil servants, who in the relevant departments may want to frustrate the private refineries from taking off or having any headway.

Could this be the faceless cabal of the Nigerian oil and gas industry? Only time will tell.

These private refineries are now the hope of Nigeria both for her economy and her citizenry. This is the time to be inspired to positive action for the local refineries bearing in mind the fact that a Dangote Refinery, for example, is already providing jobs, boosting local content capacity and developing the economy of host communities. Most importantly, getting these refineries up and running for Nigerians so they can buy fuel at the cheapest ever price per litre, may be Muhammadu Buhari’s biggest legacy over and above his predecessors.