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Reducing Domestic Crude Allocation Will Boost Refineries Efficiency

The out-going executive secretary of Nigeria Extractive Industries Transparency Initiative (NEITI), Zainab Ahmed, has said that reducing the amount of domestic crude allocated to the Nigerian National Petroleum Corporation (NNPC) to the refining capacity of the refineries will translate to better efficiency.

Ahmed, who called on the need to conduct an analysis of the refineries actual capacity, said crude allocation should be reduced to the actual capacity plus some extra small margin, noting that the initiative would encourage the refineries to improve their capacity and also eliminate wastages in the system.

Currently, the NNPC receives 445,000 barrels per day (bpd) for domestic refining, however, with most of the four refineries currently operating at far less than installed capacity the corporation sends most of the crude to offshore refineries under the now rested Offshore Processing Agreement (OPA).

The OPA, which had just been cancelled by the NNPC entailed the corporation giving a portion of its daily allocated domestic crude to oil traders under a contractual agreement for refining in offshore refineries while the products equivalent is imported back into the country.

However, the corporation has dumped this initiative, saying that it was informed by its determination to eliminate the activities of middlemen in the crude oil exchange for product matrix, and replaced it with the Direct Sale-Direct Purchase (DSDP) alternative, which it says is more efficient.

Meanwhile, Ahmed, now a minister designate, said, “We need to address the issue of domestic crude allocation. The domestic crude we have been allocating to the NNPC is supposed to be used for local refining in our four refineries but the refineries have been operating, over time, far below their installed capacity. It is not yet up to 30 per cent and the national oil company would end up going into an oil processing agreement.

“My advice, which the NEITI has been recommending, is that we should reduce domestic crude allocation to the NNPC. We have said that over time that will serve as an incentive for refineries to actually improve their capacity. Because of the crude allocated, about 20-30 per cent are refined and about 35 per cent are exported on the NNPC’s accounts.

So we have to reduce the allocation to the NNPC refining capacity plus a small margin as it would encourage more capacity development for the refineries,” she said, explaining that in the past, revenue from the sale of domestic crude served as a major means of financing operations by the NNPC, and would force them to recover the refineries and become more efficient if the volume is reduced.”

However, the NNPC which explained that it came to the decision to cancel the OPA after the evaluation exercise of pre-qualified bidders revealed that most of the 44 companies earlier shortlisted for the next stage of the tender process only had affiliations to refineries abroad, a situation which would cause a toll on the value chain. This, it explained, would in turn constitute a significant value loss to the federation by way of accruals, if allowed to subsist.

“In this regard, only bona fide owners of refineries identified in the ongoing OPA tender evaluation process will be further engaged. The identified refineries will be subjected to due diligence and analysis by the NNPC’s appointed consultants to confirm suitability in line with international best practices,” the corporation declared.

This means that going forward, the corporation will only contract offshore refineries directly for the refining of Nigeria’s crude and by so doing, effectively eliminate the activities of middlemen and guide against revenue loss at the same time.

Source : leadership.ng
Posted On: 11/5/2015 12:00:00 AM

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