Sunday, 3rd December 2023

Iledare: Corruption, tribalism jeopardising effective management of Kaduna Refinery

By Kingsley Jeremiah
18 February 2018   |   4:21 am
There are many reasons for the regular shutting down of the Kaduna Refinery, but by far, the major challenge is the lack of crude, maybe due to the fact that the pipelines that are supposed...


A Professor of Petroleum Economics and Policy Research, and President of the Nigerian Association for Energy Economics (NAEE), Omowumi Iledare, spoke on the need to prioritise efficiency and optimum value addition above personal gains at the Kaduna Refinery. He spoke to KINGSLEY JEREMIAH.

Penchant To Convert Commonwealth To Personal Wealth Keeping Kaduna Refinery Down

The persistent shutting down of the Kaduna Refinery must have dire implications. What are they?
There are many reasons for the regular shutting down of the Kaduna Refinery, but by far, the major challenge is the lack of crude, maybe due to the fact that the pipelines that are supposed to transport the crude there are vandalised. Since this is a known fact, the refinery has to be reconfigured to use our crude, which is premium while the one that we get from abroad is low grade. If the Nigeria National Petroleum Corporation (NNPC) is getting 445, 000 barrels of crude daily, then there should not be a problem. Speculatively, the problem with the Kaduna Refinery may be insecurity, or they are not telling us the truth.

Would you consider it as a wise business decision to operate a refinery that somewhat depends on heavy crude?
Like I said before, the crude we have in the country is premium. So, government should do an economic analysis with respect to all the options available to it, and see whether upgrading the refinery to totally refine our local crude can put less pressure on the foreign exchange that we use to buy these foreign crude. As far as I am concerned, it is not difficult to determine whether that would add value or destroy value. Very soon, we may not have any option than to first convert our crude to refined products before selling them because that is what really makes the most economic sense.

For 50 years, we have paid attention to generating hard currency from crude products, but have not used the hard currency well. Look at the price of crude now, it is around $70 per barrel. This is the time that the gain would have been higher in terms of building our reserves, taking pressure off foreign exchange, but we can’t even enjoy that because when the price of oil is going up, the price of petroleum products goes up as well. So, all the gains in the crude oil price would be used to subsidise the low price of petroleum products in the local market, which is not commensurate with the high price of crude. Those are things we need to analyse as a matter of economic analysis to find the options that make good economic sense.

Many describe the condition of Nigerian refineries as hopeless because there have been no significant outcomes despite the huge amount spent on Turn Around Maintenance (TAM) so far?
This is very unfortunate. It is not that we don’t have experts, who can actually make the refinery work; the biggest challenge is the mentality of the people. With the level of our professionalism, people tend to convert commonwealth to personal wealth. If we don’t have a reorientation whereby we regard commonwealth and make the process of converting it to personal wealth more difficult, not much would be achieved. Meanwhile, this is what the Petroleum Industry Governance Bill that has been passed by the Senate and the House of Representative is going to address. The NNPC, which is owner of the asset must be in a position to protect the asset and make sure that people working on the asset, or the money invested on the asset is properly channelled. That is the same problem we had with NEPA.

When the PIGB finally becomes law, the refinery becomes an asset of the NNPC, which is going to be a national oil company, established to be a commercial entity, with limited government intervention. The tendency, when the government is spending money, is for those executing the task not to be as efficient as it would have been when compared to the money being spent by the private sector. So, if the refinery is sold, then the national oil company is indirectly being made naked, when they have no asset to leverage on to get money to do what they need to do.

What we are hoping after the PIGB becomes a law is that NNPC as we have it today, with its antecedents will disappear, and the ‘new’ entity will begin to think like those in the private sector because it would now have a technical board (not a political board) that will look at things from an efficiency point of view. Without necessarily letting go of equity, efficiency will be what will be driving it. In other words, the thinking will be, ‘if I put my $1 to repair that refinery, am I going to get more than one dollar to justify the investment?’ I think the way the government spends money to maintain the refinery leaves a lot to be desired. It gives the impression that it is not really particular about getting optimum value from the investment it is making. That has been the hallmark from one government to the other, and I don’t think this current government is doing any better because it does not have the opportunity cost mentality in the way it thinks about solving some of the problems.

So, in essence, I don’t think we are incapable of solving the problems of the Kaduna Refinery, I just think we are not employing the recourses that we have for optimal value creation.  If we do, the refinery will be up and running because it is not any big deal to run a refinery.

Those refineries were making money in the 1990s, and Kaduna Refinery was making profit and adding value, but it is just the management selection process that is the issue. The bottomline is how we can reduce the extent to which people generally want to convert commonwealth to personal wealth, if we move away from that and protect the commonwealth, I think the refinery will work because I believe in the professionals that we have in the country; they made the refineries work in the 1990s; Nigerians managed them when they (refineries) first came into operation. However, if we continue to look at Nigeria from the prism of religion, tribe and politics, then all of those things that should be professionally managed would be in jeopardy.

This administration has made several promises aimed at revamping the sector. Do you think these promises are coming into fruition?
It is one thing to promise when you are not there, and it is another thing to deliver when you are there. Without blaming the past government, I think this government became overwhelmed by the problems in the sector and the president’s disposition did not help matters. I think the president abandoned the train that brought him to power and allowed himself to be captured and he fell for it. They claimed that the Goodluck Jonathan-led administration had no clue, but the current All Progressives Congress (APC)-led government has no clue about the problems confronting Nigeria, and I don’t know to what extent there are intellectual debates even in the Federal Executive Council on these issues. You can’t solve a problem if you don’t articulate or define the problem very well, and I think this is what APC is suffering from. To begin to solve problems, you have to define the problems very well, and then allow public debates on the solution alternatives before proffering the solutions, but I don’t think that is the case with the government now. If you are the president of a nation, the economic team cannot be political; the economic team must be visible to be able to address the sectoral problems in the economy, but I don’t see that happening. I look for it on a regular basis but I don’t see it. If any government wants politicians, who are the primary source of the problem to proffer solutions, it will continue to stay on the ground.

What quick fixes or immediate step can be taken to address the many challenges plaguing the nation’s refineries?
These problems did not start today, so the government needs to be strategic in policy formulation. All of the policies are supposed to be formulated by the Ministry of Petroleum Resources, but what you get is that someone, who is competent is hired and is being paid peanuts, and he can’t even survive with what he is paid, neither can he even think about intellectual solutions to the problems because his wage is not even a living wage. This is one of the things that the minister should think about in order to attract competent people to the ministry. They must be paid living wages. Apart from the crude that is not available, these are the other issues that must be addressed if we must avert the entire petroleum industry strategy failing and collapsing on us.

In closing, I would say that you can have refineries without long-term plans that are executable, but you cannot invest so much money into just one source of crude that is outside your domain; you must have diversified sources of crude and not just one.