Nigeria’s refineries, battle for survival

Nigeria, a nation blessed with abundant hydrocarbon resources, has been known for its much brouhaha on issues that border on its energy sector, due to reliance on the industry for the nation’s economic survival.

From fuel pump price increase to subsidy saga, crude oil theft to pipeline vandalism, the debate has now shifted to the ailing refineries. The country has four refineries – Port Harcourt I and II, Warri and Kaduna refinery with only a combined capacity of 445,000 barrels per day (bpd) or 70.75 million litres per day.

These national assets have however not received much empathy from subsequent government as they roll-in after each political regime. Even as they become archaic in nature, they have continued to operate well below full capacity owing to decades of mismanagement and corruption.

Alas, the demand keeps growing geometrically, and the stakeholders’ appetite begun to dry off. After much furore, each political regime would only come with the same solution, ‘to sell the refineries’. This however has always become a riddle to be solved by the elites of the nation.

Towards the end of former President Obasanjo’s administration in 2007, the refineries were sold to companies owned by billionaire, Aliko Dangote and Femi Otedola, but the President Musa Yar’Adua government that took over from Obasanjo reversed the sale.

The Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, also recently hinted that the Federal Government would soon begin the privatisation of the refineries before the end of the first quarter of 2014.

Alison-Madueke, said that, “government does not want to be in the business of running major infrastructure entities and we haven’t done a very good job at it over all these years.’

She stated that a presidential audit of the facilities last year recommended the sale of the refineries due to inadequate government funding and ‘sub-optimal performance.’

Subsequently, the stakeholders in the sector have expressed mixed reactions on the idea, which was literarily defined as emergence of another ‘privatisation game’.

They believed that, the Bureau of Public Enterprises (BPE) should be ready this time to forestall the embarrassment of 2007 and Nigerians should also watch closely on the process to ensure utmost transparency.

The Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) has however advised the federal government against the planned sale of the refineries.

The Chairman of NUPENG, Lagos Zone, Tokunbo Korodo said the government should not sell the refineries, rather they should bring in those who first built the refineries for repairs and returned them to their original status.

He urged the government to open-up the market and allow private sector participation, adding that the country would then target the exportation of petroleum products.

But, the Central Bank of Nigeria (CBN) said the plan was in line with government’s drive to transform the nation’s economy rapidly in the next five years.

The Deputy Governor, Financial Systems Stability, CBN, Kingsley Moghalu, said the Nigerian economy would receive a massive boost when the transformation in power, agricultural and oil and gas sectors were completed.

Moghalu said: “The economic transformation of this country is gradually becoming a reality. I have said that I see a very different Nigeria in five years with the way we are going and with the transformations that are taking place in several aspects of the economy.

“Agriculture is one, power sector is another, and the move to get private investors take over refineries makes me believe that we are going to reposition Nigeria’s economy to be one that is actually based on real production and not wasting asset that is in oil.”

The second Deputy President, Port Harcourt Chamber of Commerce, Industry, Mines and Agriculture, Emi Membere-Otaji, described the idea as a welcome development, citing the inefficiencies in public institutions in Nigeria.

He said: “These refineries have been epileptic for years, therefore, it has not added much value to the people, government and the overall economy, so the government decision is a welcome development.”

Giving references to the success recorded in the telecoms sector, he was optimistic that when the refineries are privatized, they would be run more efficiently, while the output would be improved.

“The only prayer is that the privatization process would be done in due process to ensure that only companies that have good track record emerge the winner. If that happens, I believe the outcome would be pleasing.

Commenting on the failure of private refineries, he said the Federal Government should encourage the investors, identify the problems and solve them headlong.

“Doing business in Nigeria is not easy, especially when you don’t have government support and patronage. So they should be encouraged to also build more, but if you leave the government refineries unprivatised, and you don’t inject money into it, they would become wasted assets. And if you inject money, it would be like putting money in a pit. Some years ago former president Olusegun Obasanjo made move to privatise the refineries, but former President Yar’ Adua reversed it, and thereafter, billions of naira were injected to refurbish the refineries. What it the outcome today? Do we get value for the money? The answer is No. So why do we want government to keep such national asset, when we know they will never work.”

He however tasked the Bureau for Public Enterprises (BPE) to enforce the implementation of the rules of the privatization process to ensure that the eventual winner of the assets made good use of them for national benefits.

“Our problem in this country is implementing policies and rules. I know that there are post-privatisation rules, you can’t just buy the assets and go to sleep, there are dos and don’ts and there are sanctions applicable, so, if these are done, the nation would reap the benefits of privatization,” he said.

The National President, Odua Petrol Station Owners and Dealers Association of Nigeria (OPSODAN), Dr. Kolawole Adewoyin, said the Federal Government should build new low-capacity, cost effective refineries that would augment the existing ones in the country.

Adewoyin stressed that government could maintain certain percentage of ownership in the assets.

According to him: “If it is true that the Federal Government is planning to sell the four ailing refineries after the passage of the Petroleum Industry Bill (PIB), then the government should ensure it builds new ones which should be low-cost, cost-effective and low capacity in order for them to be in the business.

“Considering the fact that Nigeria is the only member country of Organisation of Petroleum Exporting Countries (OPEC) which relies mainly on importation of refined petroleum products to meet domestic demands, it is imperative for the government to build and perhaps sell some stakes to private investors who in-turn will be charged with the responsibility of managing the refineries.”

The Department of Petroleum Resources had licensed about six private refineries but only about two of them have been successfully completed, while others are being delayed for various reasons.

The Amakpe refinery was among the successful private refineries in the country with 12,000 barrels per day (bpd) capacity. Also, Aliko Dangote, business mogul and Africa’s richest man, had recently disclosed his intention to build a 400,000 bpd capacity refinery, which would be Africa’s largest petroleum refinery.

Nigeria is Africa’s largest oil producer and the continent’s second-biggest economy, but still relies heavily on imported refined petroleum products for the servicing of the economy, creating a lucrative market for European refiners and oil traders at the expense of the Nigerian masses.

Nigeria is also the most populous African nation with more than 160 million people; it relies on fuel imports to meet more than 70 per cent of its needs. Nigeria also exchanges 60,000 barrels a day of crude for products with Trafigura Beheer BV and a similar amount with Societe Ivoirienne de Raffinage’s refinery in Ivory Coast, according to Nigeria National Petroleum Corporation.