Low margins stifling investments in downstream sector — NNPCL


*Headquarters of the Nigeria National Petroleum Company Ltd, Central Business District, Garki, Abuja.

Michael Eboh

Dublin, Ireland — The Nigerian National Petroleum Company Limited, NNPCL, has blamed the slow pace of investments in the Nigerian downstream petroleum sector on low return on investments and low margins compared to its upstream counterpart.

Speaking in Lagos, at a symposium organised by the Petroleum Downstream Group of the Lagos Chamber of Commerce and Industry (LCCI), Executive Vice President, Downstream of the Nigerian National Petroleum Corporation Limited (NNPCL), Mr. Adedapo Segun, lamented that majority of the country’s downstream infrastructure are ageing and moribund, while the much-needed funds to revamp them are not available due to low returns.

Segun, who was represented by Mr. Cyprian Uchenna, Senior Business Advisor to the Executive Vice President, Downstream, of the NNPC, disclosed that securing funds for investment in downstream infrastructure was increasingly becoming challenging as financiers and lenders are reluctant to stake their funds in the sector.

He said: “Most of the downstream infrastructures are ageing. The pipelines are ageing, mainly due to the lack of effective maintenance, which is a bane of Nigerian society. We are not good at maintenance.

“A major challenge is the lack of downstream infrastructure funding, it is easier to get funding in the upstream than in the downstream, because the returns in the upstream are a little bit very quick. They won’t invest downstream, especially in most of the refineries. It’s a margin-based returns, lenders are a little bit reluctant to give financing. So, the government and other agencies are now required to see how to support.

“In addition, in the light of the global shift for a more dynamic energy mix and the climate campaign, investment and funding for traditional fossil fuels has dwindled and there is a need for a funding institution to cater for the oil and gas sector.”

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Segun also identified lack of fiscal and tax incentives as one of the challenges hindering investment in the downstream sector.

According to him, there are no adequate incentives for investment in downstream infrastructure, similar to gas infrastructure benefits, such as five years tax holiday for new build and 25 per cent allowance after utilisation of tax benefits.

Highlighting the impact of inadequate domestic refining on the Nigeria’s quest for energy security, the NNPC downstream chief noted that the country’s continued dependence on fuel import is causing a severe drain on its foreign exchange earnings, aggravating the volatility of the naira and putting the country at risk of supply disruptions due to geopolitical factors and fluctuations in the global market.

He added that fuel imports subject the country to global oil price shocks, bringing about fiscal imbalances; in addition to the enormous burden of subsidy on government finances.

According to him, the low domestic refining capacity limits job creation, technology transfer and industrial development, especially as refineries provide direct/indirect job opportunities, create demand for ancillary services and stimulate local economies.

“Moreover, underdeveloped refineries impede Nigeria’s ability to add value to its crude oil resources before export, limiting revenue generation,” he added.

Segun insisted that a collaborative investment effort is needed between the government and all other key stakeholders to ensure the development of a comprehensive strategy that will amplify Nigeria’s local capacity utilisation, propel economic transformation and guarantee energy security.



This article was originally posted at sweetcrudereports.com

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