There is palpable apprehension among operators of tank farms in Nigeria following federal government’s determination to end the importation refined petroleum products in the country by 2019.
Consequently, commercial investment in tank farms and other storage facilities across the country is looking like a miscalculated business venture for owners who procured loans from commercial banks to set them up.
It was gathered that portfolio investors latched on to opportunities provided by the petroleum subsidy regime to make investments in that sub sector.
Despite being an oil-producing nation, Nigeria still relies on imported petroleum products such as petrol (PMS), diesel (AGO) and kerosene (DPK) for domestic and industrial use at an average of 60 million litres daily usage.
A recent policy of the federal government on deregulation of the downstream oil industry made it possible for oil marketers to import and warehouse petroleum products in tank farms for storage and resale.
Journalists over the weekend ,Sunday learnt that many of such tank farms, numbering about 83, may become redundant by 2019.
The reality of this is that there will be not much need for them as new refineries, like Dangote’s, with capacity of about 150,000 barrels a day, may be enough to service local demand.
The minister of state for petroleum resources, Dr. Ibe Kachikwu, has reiterated the determination of the federal government to exit petroleum importation by 2019, stating that between the remaining part of this year and 2019, the government would focus on addressing its refining challenges.
“The big picture of 2018 and early 2019, what are the key things we are going to focus on? The first is the refineries. I have talked about this over and over again – it is important that we get these refineries working,” he said in a podcast in Abuja.
“We must exit importation in 2019, and we are happy Dangote is working very hard and bringing back the timeline for the completion of his refinery,” the minister added in reference to the $12 billion, 650,000 barrels per day Dangote Refinery being built by Africa’s richest man, Aliko Dangote in Lagos.
Kachikwu noted that with the coming on stream of the Dangote refinery and Nigeria’s ending of fuel importation in 2019, the nation would be saving “over 30 per cent of forex application on importing petroleum products.”
Continuing, he said: “We were able to exit the joint venture cash call. (There are) Still a bit of things to be ironed out there, but for the first time, multinationals have begun to have belief in their need to invest in the country.
“The amount of investment requests we are seeing from joint venture cash call members is today in excess of $14 billion – $15 billion, which are for purposes of projects like Zabazaba, Bonga extension programmes and all that. Multinationals are beginning to have confidence that this system is working”.
Confirming the fears of possible redundancy, the managing director, Nigerian Petroleum Marketing Company (NPMC), a subsidiary of the Nigerian National Petroleum Corporation (NNPC), Mr. Umar Ajiya, told Journalists Sunday in Lagos that except operators of the facilities begin to think about backward integration, their investments would be wasted.
Ajiya expressed concern about the huge banks’ exposure in the sector, adding that if they (tank farms) are put out of use, the loans and the accumulated interests will be a major concern to everyone.
“I think a stakeholders’ meeting is expedient at this point to provide other opportunities and how they can be deployed for effective and efficient operations at that time,” he noted.
In his reaction, the executive secretary, Depot and Petroleum Products Marketers Association (DAPPMA), Mr. Olufemi Adewole, admitted that the exit from importation of petroleum products will certainly put some tank farms out of business.
Adewole, however, advised owners to begin to think as business operators as the reality at that time will not accommodate such facilities and therefore work out how they would continue to reap benefits from their investments.
Head of energy research at Ecobank, Dolapo Oni, however, allayed fears expressed by some tank farm operators on the possible redundancy of their facilities, saying that much as in-country petroleum products refining will improve in 2019, as envisaged by government, storage business would still be encouraged as output from upcoming refineries cannot be exhausted on daily basis.
“So, patronage of such facilities cannot be ruled out,” he stated.
Oni expressed concern that the cost of constructing tank farms was enormous as he put the building of a 600 million-litre- product capacity tank farm at $330 million while a smaller storage facility of about 200 million litres would cost an average of $100 million.
“These are really issues of concern because there are many of them and definitely not all of them will be in use by then,” hee said.
Another stakeholder who did not want to be named stated that the efficient distribution of petroleum products has always been part of the government’s petroleum policy, which is reflected in the efforts made by the government in establishing NNPC mega stations across various states in the country in order to meet increasing demand.
He said, “With a population of over 165 million people, growing at an average rate of 2.7 per cent per annum, and an economic growth rate of about 5.7 per cent in the past five years, the market for refined petroleum products in Nigeria is established, growing and sustainable.
“The nation’s demand for refined petroleum products currently stands at an estimated 60 million litres for Premium Motor Spirit (PMS), Dual Purpose Kerosene (DPK) and Automated Gas Oil (AGO) per day.
“It is estimated there are over 5,000 petrol retailing stations in Nigeria, with the figure estimated to be growing by two per cent annually due to the increasing demand for refined petroleum products as a result of the epileptic nature of power supply, which forces more businesses and residential apartments in Nigeria to rely more on generators for their power needs.”