Saturday, 2nd December 2023

Subsidy: How repair of refineries may ease economic pains

By  Kingsley Jeremiah, Abuja
07 August 2023   |   4:15 am
The dilly-dally by the Nigerian National Petroleum Company Limited (NNPCL) and continuous shifting of the completion of the nation’s three refineries being rehabilitated with about $2.7 billion as well as the delayed coming on stream of the Dangote Refinery...

Dangote Refinery

• Freight cost gulps N29.2b monthly, spikes pump price 
• Price fluctuations would persist until importation ceases – expert
• ‘$15b monthly petrol import a toll on economy’ 


The dilly-dally by the Nigerian National Petroleum Company Limited (NNPCL) and continuous shifting of the completion of the nation’s three refineries being rehabilitated with about $2.7 billion as well as the delayed coming on stream of the Dangote Refinery, is adding to the pains of most Nigerians as the reality of the petrol subsidy removal is beginning to dawn on homes and businesses.

President Bola Ahmed Tinubu has promised agitated Labour unions that the state-owned refineries would resume in December, a similar promise by the NNPCL over the years amidst a growing culture of silence by the national oil company on the exact date the facilities would be fully rehabilitated.
While Dangote refinery was projected to start pushing out products by the end of July this year and curb total dependence on importation, a development which may be adding about N33.3 billion to consumers’ pump price from freight alone, the Port Har­court Refinery Com­pany (PHRC) being rehab­il­it­ated at the cost of $1.5 bil­lion and handled by Milan-based Maire Tecnimont S.P.A, in collaboration with its Nigerian affiliate, Tecnimont Nigeria, was supposed to have started production over a year ago but the commissioning date has remained a mirage.
The current pump in Nigeria is arrived at after adding up the actual cost of Premium Motor Spirit (PMS), fright cost, insurance, local distribution, margins by marketers, charges by the Nigerian Port Authority (NPA), Nigerian Midstream Downstream Petroleum Regulatory Authority (NMDPRA) and Nigerian Maritime Administration and Safety Agency (NIMASA). 
While the actual cost of the product as of July 14 stood at N529 per litre, freight, insurance, NPA, NMDPRA and NIMASA charges would have been avoided if the product were refined locally. 
Nigeria’s daily consumption has dropped to about 45 million litres; the freight of N21 on that is about N945,000,000, bringing the monthly estimate to about N29.2 billion.
 Similarly, the over $15.1billion being used to import PMS alone into the country may still be going into the economy of other nations, a development which mocks the Federal Government’s subsidy removal. 
Renowned energy expert, Prof. Wunmi Iledare, said the strike action by the Labour Unions should worry Nigerians more than the issue of local refineries.  

According to him, rational economic groups ought to think of long-run implications of contemporary decisions. 

“I am mindful of the high misery index in the economy with high inflation, high unemployment and high borrowing rate. Going on strike because of subsidy removal will actually complicate the path to resolving the economic crisis in the presence of a declining economic growth.  
“Dialogue is what is the most pragmatic approach rather than arm twisting by the union using the threat of strike,” he said. 
The former President of the Nigerian Association for Energy Economics said there won’t be a quick fix and raising wages, coupled with a high petroleum product prices, would bring down significantly the purchasing power of naira because of cost-push inflation. 
Energy scholar at the University of Ibadan, Adeola Adenikinju, said there was a need for domestic refineries, both existing and new ones, to come into operation to enable the country to save foreign exchange on petrol imports and transit to petrol exports. 
“This will also allow for stability in fuel prices to some extent. However, we can only achieve this if we remain on course with the liberalisation of the sector.  The government must ensure the completion of the existing refineries.  
“However, the nation must reach a consensus as to who would run the refineries to give value to the country. We must also support new refineries, including Dangote to ensure early completion.
 “The state-owned refineries are to undergo turnaround maintenance with President Tinubu promising to deliver the Port Harcourt refinery by December this year. I also understand that the maintenance of Kaduna Refinery is due for completion in 2024. We are also being told that Dangote Refinery will commence production in 2024,” Adenikinju said. 
 Former President of the Chartered Institute of Bankers of Nigeria (CIBN) and Professor of Economics at Babcock University, Segun Ajibola, said while the rehabilitation of the refineries take time, getting the facilities on track would lessen the plight of Nigerians.
“The challenge has been continued importation of refined products, which costs are annexed to the ruling foreign exchange rate. There is no short cut as solutions to the current disequilibrium in the local oil industry, which has compounded the inflationary pressure in the domestic economy,” he said.
Ajibola said there was a need by all and sundry to exercise some patience amidst the ongoing struggle to put the four local refineries in good shape, adding that stakeholders should also evaluate the possibility of extending support to modular refineries.
According to him, a return to the age of fuel subsidy, the removal of which has been acknowledged as sensible by all and sundry, is not an option.  He said the sacrifices being made by Nigerians must at the end of the day bring greater good if the greater number is assured by the new policy initiative of the government.
While Nigeria had awarded the contract for the rehabilitation of Port-Harcourt refinery for $1.5 billion and Kaduna and Warri refineries at $1.2 billion, bringing the rehabilitation to about $2.7 billion, the Chairman/CEO of the International Energy Services Limited (IESL), Dr. Diran Fawibe, said until the refineries come on stream, the price fluctuations would persist.
He noted that it is very important for the refineries to start working as well as Dangote Refinery, stressing that citizens as well as the government must sacrifice, especially by reducing the cost of governance.
Fawibe said the assurance by the government that the Port Harcourt refinery would start operating by December was commendable, noting that the Kaduna and Warri refineries may not work anytime soon.
 While urging Nigerians to be calm as they face the challenges occasioned by the removal of subsidy, Fawibe said the states and Federal Government must do everything possible through palliative measures to lessen the plight of the masses.
The Executive Director of Extractive Industries Transparency Initiative, Faith Nwadishi, who decried the high cost of living, noted that the last government had promised to get the refineries working but failed.  
 She blamed the labour unions for not taking a proactive approach since the Petroleum Industry Act (PIA), which abolished subsidy came into effect, but urged the unions to get serious with their agitations.
According to her, there must be a fresh approach otherwise the country would remain in a circle over the matter.