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 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 Portharcourt, the Niger Delta Petroleum refinery in Delta state and six modular refineries.The country is also patiently awaiting Dangote’s 650,000 barrels perday capacity refinery.
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The NNPC MD also noted that he expected NNPC’s refineries to be fully revamped and running again by 2023 through patnership 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.
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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.
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Second, 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 selling 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.
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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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