Iledare: Importation of refined petroleum products, subsidy put economy in reverse gear
A Professor of Petroleum Economics and Policy Research, Wumi Iledare is Ghana’s National Petroleum Professorial Chair in Oil and Gas Economics, at the University Of Cape Coast’s Institute for Oil and Gas Studies. Iledare, who is equally the President of the Nigerian Association for Energy Economics (NAEE) says the Federal Government must commercialise the NNPC through the Petroleum Industry Governance Bill if it must address challenges facing the refineries. Iledare spoke to KINGSLEY JEREMIAH
What is your assessment of refinery operations in the country?
Our refineries are operating far below capacity, not above 20 per cent. Therefore, we have not been optimal, technically and commercially. These are not things to celebrate.
What are the major challenges that are facing the refineries?
Our maintenance culture leaves much to be desired, and that is why the refineries are what they are. Normally, Turn Around Maintenance (TAM) should be done every five-year or yearly, therefore, there is usually an overall assessment of what is going to be needed.
A refinery cannot be commercially viable if it is not operating at 90 per cent capacity daily. I think also that governance is a big challenge. The owners of the refineries look at them as a cost centre and that is what our refineries have been since 1995.
The management culture is also an issue whereby management is not provided key performance indicators through, with which they can be judged.
Funding is another issue. You need cash flow to be able to run any business, but at the current price level in Nigeria, refineries are not something to write home about. So, basically our challenges are technical, management and economics.
There is the argument that some people are benefiting from the poor state of the facility. Can this be true?
I won’t blame anybody who is taking advantage because some people just benefit from chaos. In the case of the refineries, the introduction of subsidy is the beginning of the challenge.
People prefer to subsidise import than export and that’s what we have. We just have stakeholders that are benefiting from importing petroleum products in Nigeria.
The country is the one that issues them foreign exchange with profitable margins. We have liquidation margins, transportation margins and those are people who prefer to convert public wealth to personal wealth. They are many.
This is the same challenge that we have in the power sector, and there are some people that are benefiting from power chaos in Nigeria.
So, their means of livelihood is threatened if things work out the way they are supposed to work out, primarily because they are dealing with government and not private investors. You can’t blame anybody who is taking advantage of the chaotic behaviour to make a living. It’s not illegal. They are just using their connections.
As an expert in this industry and an economist, what are the implications of our refineries’ poor performance on the economy, standard of living, unemployment and other issues?
Well, in a layman’s language, the bad performance of refineries affects the exchange rate. If you look at the amount of dollars that we are spending to import petroleum products, it can easily wipe out the benefits we are gaining from crude oil export, and as a result of that, demand for foreign exchange is high. You can see the supply is limited and so the price of buying dollars or pounds will go up. If we don’t have to compete to use foreign exchange to buy refined petroleum products in Nigeria, I can guarantee you that the exchange rate would be more stable. It could have been worse if the NNPC does not have access to dollar exchange.
In fact, their market is in dollars, so they don’t necessarily have to do much like having to change naira to dollar. But remember, all the collection from selling petrol in Nigeria is in naira denomination.
The product that you are selling in naira both for PMS and the rest, are brought from abroad in dollars and we are only taking N145 per litre, whereas in Ghana, a litre is more than one dollar. So, you can see the exchange rate parity being reflected in prices of petroleum products and until we do that, we are not going to be able to stabilise our exchange rate.
Secondly, the poor performance of the refineries makes economic growth to suffer because the chemical industries that would have benefited from the refineries in Nigeria are not functioning.
So, the only thing we depend on is the service sector, which is not adding much to the economic growth of the country the way functioning refineries would have done. There is so much the service sector would have added.
Even the manufacturing sector is not working and the value added from the service sector is so low and that’s why the GDP is low. If the refineries were working, the multiplier effects would be far more than what we have right now.
In fact, the oil and gas sector is only contributing less than 10 per cent to the entire economy of Nigeria, but if we refine our oil in Nigeria, things would have been different.
So, how do we move ahead from here?
There are so many ways, but it’s just that the government does not take advantage. The Petroleum Industry Governance Bill (PIGB) would have been the way to go because the NNPC would have become so commercial that it would pay attention to making the refineries and the entire sector work.
The NNPC is dominated with functions that would have been taken away from it and put in the Ministry of Petroleum Resources and then a part of the ministry would have been permanently employing technical staff in the upstream, downstream and mid-stream.
The regulatory commission would have been able to get the best out of the industry in terms of standard, efficiency and productivity. This is the essence of PIGB.
The Minister of Petroleum Resources is supposed to be in charge of policy and the only way to work hard would have been for the ministry to be professionalised just as we have in the Ministry of Justice.
This would have made things more effective, efficient, equitable and ethical, from the point of view of adding value to the petroleum industry, and in particular, the refinery and the petrochemical sector.
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