The argument by the Federal Government through the Minister for Petroleum Resources, Mrs Diezani Alison-Madueke, that none of the 20 private refinery licensees have been able to come on stream due to a regulated environment which allows for provision of fuel subsidy was faulted as incorrect by one of the licensees recently. Fuel subsidy is the amount the Federal Government through its agency, Petroleum Product Marketing Company (PPMC), pays to brigde the gap between the landing costs, which include transportation cost, tax to exporting countries, storage and so on, and the recommended pump price of N65 per litre.

In a chat with the Tribune Business recently, one of the licensees who pleaded anonymity, disclosed that the problem was not subsidy but inability of the Federal Government to give them ‘sovereign guaranty’ which is required by their foreign investing partners.

According to him, “if you want to build 100,000 barrels refinery, you will need $3billion. Before they (foreign investors) bring this fund, they demanded for sovereign guaranty from the Federal Government. But the Federal Government is not willing to give that to us. The sovereign guarantee includes adequate crude oil supply, security of tenure; provision of level playing field and repatriation of funds.”

He explained that this became necessary in order to safeguard their investment. For instance, if after building these refineries and there is no guarantee of adequate crude supply from the Nigeria National Petroleum Corporation (NNPC), they will be compelled to import crude for these refineries from abroad which will automatically attract various charges ranging from transportation cost to tax payable to exporting countries, port charges and other logistic charges.

He said security of tenure would prevent another government from withdrawing their licences after building the refineries. Provision of level playing field will prevent the subsequent governments from disfavouring their operations in a bid to protect the Federal Government owned refineries and repatriation of funds would guarantee them of taking their profit margins to their home country.

He argued that with these in place, subsidy removal is a matter of time. “Infact, the subsidy will disappear without anybody removing it if these are done. If you ask yourself, what is it that government is subsi-dising? Why is the subsidy necessary? You see when you buy crude oil from here; you ship abroad and pay custom duty per barrel. When you bring in refined product, you pay for shipping. Most of these charges are obtainable on the PPPRA template. Most of the subsidy goes to transportation of the product to and fro. When the product is being refined here in Nigeria, the wage of average Nigerian worker is about 25 per cent of the wage of an average American worker. If you refine in Nigeria, the cost of production will go down so much that there will be no need for subsidy. Once you remove the cost of transportation to and fro, drastic reduction of cost of production will eliminate the subsidy,” he stated.

Moreover, he said so many multiplier effects would take place. The value of the naira would appreciate because billions of dollars spent abroad to import these products which reduces foreign reserves would be saved. “If you build private refineries, you are providing employment for millions of people because the by-products of crude oil refinery will produce so many jobs. When telecommunication was liberalised, they were not thinking of the man by the road side selling recharge cards and earning his living from there. If liberalisation of the telecommunication brought those effects, think of what that of refineries will bring.

“If you build more private refineries and enough products are being refined here, there will be no need for subsidy. The savings you will have from cost reduction, port charges and payment abroad will automatically bring the price down. The bulk of what they pay abroad as pump price is tax, not the value of the product they are buying. We know other countries that have crude oil and do not export single crude oil. They set numerous refineries. An example of this is Iran. They ensured that they refine the crude oil and eventually export its value added as products.”

However, he explained that the problem of sovereign guarantee started during the time of former President Olusegun Obasanjo, who directed necessary agencies (DPR, CBN) to provide them with the needed assistance to secure the sovereign guaranty. But till date, nothing had been done after writing so many letters to that effect.

“We have written several letters to the agencies but no response from them,” he said.

The Federal Government through the Minister for Petroleum Resources, Mrs Diezani Alison Madueke, has argued that private refineries operators can not operate under a regulated environment, hence the need for deregulation of the downstream sub-sector to allow private investors to come in and operate.

The removal of subsidy by the Federal Government brought the whole economic activities to a halt last week.