Oil Licence Renewal: FG Insists on Investment in Refineries

Oil & Gas
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The Federal Government has insisted that international oil companies seeking renewal of their acreages must first demonstrate serious commitment to investing in private refineries.



The government is also planning to issue fresh guidelines on the award of new acreages after failing to use the previous bid rounds to attract the needed strategic investments in the downstream.Director of the Department of Petroleum Resources (DPR), Mr. Billy Agha, made these known yesterday when he led top management staff of the agency on a courtesy visit to THISDAY Corporate Head office Apapa, Lagos.



He said the new model in the award of new blocks would require the combination of blocks from prolific basin and less prolific basin. Agha, however, declined to reveal the number of oil blocks that would be awarded in the next bid round.



He said: “It is a difficult question to say the number that will be awarded but we want to create a model when we get the approval to award the blocks. In the last bid round, we talked about strategic investment in the downstream projects but we discovered that it failed woefully.We later gave the Right of First Refusal (RoFR) and it never worked. This time we will combine the prolific Niger Delta basin with probably the less prolific Anambra Basin or the prolific Niger Delta Basin with the less prolific Benue Trough or Borno Trough. So, that is the concept we are looking at but we can’t tell you the number. As soon as we are given the approval, we will do it.”



In May 2006 and 2007 oil licensing rounds, the blocks were awarded to local and foreign investors that made pledges to invest in power projects, refineries and railway lines but none of the companies that won the blocks has made any serious commitment to invest in these strategic infrastructure. Agha noted that government’s insistence that the international oil companies must invest in refineries as pre-condition for the renewal of their oil blocks might have accounted for the current delay in the renewal of expired licences. 



He said the measure was to boost the country’s local refining capacity, as output from the four existing refineries could not meet the increasing demand.“Government is insisting that they must invest in refineries. That is why many oil blocks are not yet renewed,” he said.  The DPR boss said previous attempts to attract investors to the establishment of private refineries failed as the investors merely wanted to use their licences to lift crude oil.



“When we advertised for licensing private refineries, many people came to apply for the licences. They paid $50,000 deposit and many even paid for two in the name of different companies but their plan was not to build the refineries; their actual plan was to use their licences to lift crude oil. They just wanted to use the opportunity to lift crude oil but we told them that they must build the refineries before lifting oil. That was why the licences were cancelled,” he said. Agha said private investors were reluctant to make investment in the refinery projects because of the regulation of the prices of petroleum products.



He insisted that the only way to encourage investors is through the deregulation of the downstream. Agha also said the agency generated N700 billion revenue into the Federal Government coffers in 2008, but lamented that the DPR was being under-funded.



“We have the capacity to carry out our functions in terms of knowledge but we have problem in terms of funding. The only constraint that hampers our operation is funding. We don’t need a large number of people to achieve our target; we only need few intelligent people, which we already have. In 2008, we generated N700 billion and our target was N450 billion. We are not properly funded. Under normal circumstance, we are supposed to have our own helicopters,” he said.He was, however, optimistic that the proposed Petroleum Industry Bill (PIB) would empower the agency financially to discharge its statutory functions.



On the 40 billion reserves target and four million barrels per day crude oil production target by 2010, Agha said the country has the capacity to attain the reserves target but that the daily production target was not achievable owing to infrastructure constraints. He said the country at present has 38.6 billion barrels of recoverable reserves, while daily production is now around 2.2million barrels per day. Agha said the current focus was on gas, adding that the country’s 30 gas plants were capable of meeting the domestic need.


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