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Crude Supply To Refineries Based On Operational Capacity, In Proposed PIB

Kaduna refinery

The Petroleum Industry Bill 2020 has provided for a regime where domestic crude supply to local refineries will be based on their present operational capacity.

The bill rules out the system where refineries will continually receive crude supply based on their installed capacity even when it isn’t operating at name plate for whatever reason.

This is with the case of Nigeria’s state-owned refineries which receive a daily allocation of 445,000 barrels meant for local refining even though they are incapable of refining up to 20percent of that allocation.

Rather, the bill currently being considered by the National Assembly, provides that crude allocation be made to local refineries based on their functioning capacities at every given time.

The section reads in part: “The Authority shall, upon request by the Commission, promptly supply to the Commission the crude oil requirements of refineries in operation.

“The Commission shall ensure that the domestic crude oil may only be sold to holders of crude oil refining licences, whose refineries are in operation.”

It added that the supply of crude oil shall be commercially negotiated between the lessee and the crude oil refining licensee, having regard to the prevailing international market price for similar grades of crude oil; while holders of crude oil refining licences shall provide payment guarantees as required by the applicable lessee with payment made in US dollars.

The bill also empowers the Commission to issue regulations or guidelines on the mechanism for the imposition of a domestic crude oil supply obligation on lessees of upstream petroleum operations, where in its opinion, the domestic market results in shortages or inadequate supplies of crude oil and condensates for holders of crude oil refining licences.

Meanwhile, it is unclear whether the clause to supply crude to refineries based on their operating capacities will apply only to privately owned refineries or if the state-owned refineries under the management of the Nigerian National Petroleum Corporation (NNPC) Limited (to be created) will also play by this rule.

At present, because the nations refineries are largely in-operational, the NNPC exports crude meant for local refining to refineries overseas and in return import refined products for local consumption, under an arrangement known as Direct-Sale-Direct-Purchase (DSDP).

According to the Corporation, 15 consortia, made up of 35 foreign and indigenous companies, won the contract of its DSDP arrangement for 2019/2020.

 

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