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