Spending N120b annually on idle refineries?
The relative dormancy of Nigeria’s refineries, in Kaduna, Warri and Port Harcourt represent a serious drain on the national purse. This has necessitated the importation of most of the country’s needs of refined petroleum products over the years. Accordingly, the usefulness of these refineries to the national economy has come into question, as the country seeks a way out of its economic quagmire. Instead of selling off these moribund and relatively unproductive national assets, the government is still spending scarce tax-payers’ money to sustain them. At a recent meeting of the Society of Petroleum Engineers, these facts were clearly brought to the fore when it was stated that the country spends a whopping N120 billion annually on these non-performing refineries. The meeting noted that it had served no purpose for the government to expend so much and sustain its ownership of the moribund enterprises with little or nothing to show for it. Ordinarily, these refineries should operate optimally and are best suited to add value when they ensure optimal operations, to at least recover the cost of their operations. It makes no sense to continue to maintain these idle refineries at great cost to the economy.
Doubtless, all these refineries have outlived their usefulness. A recent report by the Nigeria Natural Resource Charter (NNRC) indicates that the Nigerian National Petroleum Corporation (NNPC) spent a whopping $396.33 million between 2013 and 2017 to carry out repair works under the Turn Around Maintenance (TAM) scheme on three of these decrepit refineries in Port Harcourt, Warri and Kaduna, which largely contribute less than 10% to the country’s GDP. The report indicates that the high level of inefficiency in these refineries make them members of the league of refineries with the highest operating costs worldwide with their current capacity utilisation put at about 6%. This is a huge national waste. Is it then any wonder that these refineries are incapable of producing premium motor spirit and other refined products for the Nigerian market – for local consumption? Importation of petroleum product for local needs has not only become the order of the day but has also become the cesspool of corruption under a questionable subsidy or “cost under recovery” scheme. With the poor performance of these enterprises, all eyes have been fixed on the Dangote Refinery, under construction and even on the one being packaged by the BUA group in conjunction with some French investors, to save Nigeria from this importation embarrassment.
According to the NNRC report, in the past four years, a princely sum of $36 billion has been spent on importing petroleum products, which it has been estimated, is sufficient to build four brand new refineries of similar capacity with the 650,000 barrels per day processing as the forthcoming Dangote Refinery. Does that not indicate clearly that this country is not being properly managed? What has the Buhari administrations done differently since it came into power in 2015, apart from its characteristic lamentations and blame game on this score? The government has not really served the public interest despite its self-acclaimed posture of fighting corruption and bringing “change” which has not really changed anything. Outside of politics, the oil and gas sector has turned out to be an avenue for quick gain and wealth without work in present-day Nigeria.
In the twilight of the Obasanjo administration in 2007, these refineries were sold off to Dangote and Otedola, two prominent Nigerian investors. But the deal had hardly been sealed and signed when hell was let loose – championed by the then President of the Nigerian Labour Congress, Adams Oshiomhole. The Yar’Adua administration that took over power could not stand the heat and in no time, it reversed the sale and continued with business as usual. And here we are in a mess. With the benefit of hindsight, can we claim today that, that sale reversal was the best thing that could have happened to those unproductive refineries? Are we not perpetually spending money on unproductive TAM schemes that have not yielded the desired results? This newspaper has consistently asked that question and declared several times that the TAM project has always been a big scam. If they had sold them off as we have advocated several times, would the country be spending a whopping N120 billion annually to sustain the “dead” refineries?
It is, therefore, time for government to consider partial privatisation of these non-performing refineries to competent investors – in the same mould as the Liquefied Natural Gas (LNG) in Bonny where government still maintains some shareholding with the bulk going to a private investor. Partial privatisation appears to be the way out of this quagmire just as the Society of Petroleum Engineers has proposed with nothing less than 75% of the shareholding sold off to private investors. This could be foreign or local investors who can turn these enterprises around and add value to the national economy. Nigeria can supply petroleum products to the entire ECOWAS region if this arrangement works out. With competition expected to come from the oncoming Dangote Refinery and the one proposed by BUA, the consumer would be better off as prices would be reasonable and more convenient for the average Nigerian who is currently suffering from the current arbitrary “price modulation” scheme of the NNPC. The Nigerian nation deserves better than what it is being served. This is even more worrisome given that President Buhari himself is the de facto Minister of Petroleum Resources.
In the main, what is the justification for spending N120 billion annually on idle refineries at a time the country needs money to fund capital projects, especially for development of critical infrastructure. What to do now? Privatise or sell off the refineries!
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