Thursday, October 08, 2020 / 3:11 PM / By CSL Research / Header Image Credit: Twitter; @NNPCgroup
Speaking at a virtual
conference at the African Refiners & Distributors Association annual
conference, NNPC Group Managing Director, Mele Kyari noted a plan to end the
country's oil-for-fuel swap system which has saved the country c.US$1bn a year,
as soon as local refining capacity improves by 2023. The government has
been assisting the private sector to develop modular refineries and a few
private refineries are expected to come on stream soon such as a 100,000-barrel
capacity refinery located near Port Harcourt, the Niger Delta Petroleum refinery
in Delta state and six modular refineries. The country is also patiently
awaiting Dangote's 650,000 barrels per day capacity refinery. The NNPC MD also
noted that he expected NNPC's refineries to be fully revamped and running again
by 2023 through partnership with private companies.
About 90% of the refined
petroleum products consumed in Nigeria are imported. The refineries located in
Kaduna, Warri, and Port Harcourt with a combined nameplate capacity of 445,000
bpd have long operated at low levels due to many years of underinvestment and
poor maintenance. Depite continuous talk of revamping the refineries, in 2019,
combined capacity utilization of Nigerian refineries fell to 2.5%, an all-time
low annual activity level since 1998 when NNPC started providing the data.
Nigeria's oil-for-swap deals
provide virtually all Nigeria's gasoline and some of the diesel and jet fuel.
Nigeria has used a few methods in the last decade to meet its domestic fuel
needs. First is that the NNPC refines crude oil at its three refineries and
sells most of the output to privately owned fuel marketing companies. Small
amounts are sold through NNPC's network of retail filling stations. The NNPC,
through subsidiary PPMC has also imported products using fuel marketers. The
fuel marketers deliver the products to PPMC and are given cash in exchange
(called "open account" imports). The open accounts method was stopped in
2011. The third method involves private marketers importing products with permits
issued by the Petroleum Product Pricing and Regulatory Authority (PPPRA) and
sell them to a range of wholesale and retail buyers. Finally, NNPC imports and
sells products through swap deals in which crude oil is exchanged directly for
refined petroleum products.
Swaps have helped the country
maintain the flow of fuel into the country especially since the open account
system was stopped but many analysts have expressed concerns around it. There
are concerns that countries tend to enter into oil-backed barter deals like
swaps only in desperate times and in such difficult times, officials may
struggle to negotiate hard terms with the traders and refiners on the other
side of the table. Many analysts have also questioned the probity of the swap
deals as many believe the swap deals are not properly structured, monitored and
audited.
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