Buhari, just sell the refineries as they are

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UNABLE to refine for domestic consumption despite being a top crude oil producer, Nigeria is unabashedly courting China for redemption. Confirming this, Ibe Kachikwu, the Minister of State for Petroleum Resources, said that Nigeria had entered into an agreement with investors from China to fund repairs of the country’s moribund refineries next year. Last week again, the Minister added that the four government refineries may end up as scrap when Dangote refinery comes on stream. While achieving self-sufficiency in refining is a desirable goal, there is everything wrong in returning to a strategy that has failed woefully in the past.

Port Harcourt Refinery
Port Harcourt Refinery

The bitter reality is that we have travelled this road before without any tangible result to show for it. The story of the four refineries in Port Harcourt, Warri and Kaduna is one of waste, corruption and inefficiency. After each repair, they only work briefly and at low capacity before packing up again. It is surprising, therefore, that President Muhammadu Buhari – who doubles as the Minister of Petroleum Resources – and Kachikwu are bent on executing the memorandum of understanding Nigeria signed with Chinese firms last June to invest a fresh $1.1 billion loan on another turn-around maintenance. At another forum, Kachikwu raised the amount required to $1.8 billion a few days later.

Successive governments have similarly committed billions of dollars to TAM. In 2012, the Goodluck Jonathan administration said it was taking a loan of $1.6 billion to carry out TAM on them. Plagued by corruption and controversy, the TAM failed badly, but nothing fresh was heard about the money. To show that such a project is a conduit for corruption, the Nigerian National Petroleum Corporation said however in July 2012 that the refineries were barely producing at 25 per cent of their installed capacity.

Similarly, in December 2012, the NNPC, in a document it submitted to the National Assembly Joint Committee on Petroleum, requested that N152 billion be given to it to fix three of the refineries. Not much changed the following year, with Nigeria still heavily dependent on subsidised imported petroleum products. This seriously undermines the economy as it gulps scarce foreign exchange at a time global oil prices have crashed by more than half. Data from the National Bureau of Statistics show that Nigeria spent N431.6 billion on the importation of petrol between January and April this year. The figure for diesel was N118.6 billion and N20 billion for kerosene in the same period.

Yet, this did not stop the charade. In March 2015, the NNPC had reiterated that the refineries would refine their 445,000 barrels per day crude allocation by 2016 after demanding $550 million for fresh refineries repairs. It claimed its in-house engineers would execute the work on the cheap compared to foreign contractors who demanded $1.6 billion for the same job. This is late 2016, and the situation remains hopelessly the same.

The figures from the NNPC corroborate this: in July, the refineries produced at a combined 6.74 per cent, down from the 12.40 per cent a month earlier. As a result, the NNPC said it made a loss of N4.69 billion on its refining operations in June. Since assuming duty, first as NNPC Group Managing Director in 2015, and later as junior oil minister, Kachikwu has been torn between privatising the refineries and government holding on to the loss-making behemoths.

Initially, he broached the sales option, but reversed himself, promising in April to secure a loan of $700 million for their repairs to be able “to produce at optimum capacity.” His confusion was apparent again at the launch of the road map to grow the oil industry entitled, the “Seven Big Wins” when he said that Nigeria would rehabilitate the refineries first before privatising them. Is it the plan that has necessitated the idea of Chinese investors ploughing $1.1 billion into the refineries?

Buhari and Kachikwu owe it a duty to Nigerians to be cautious about the offer from China. What is to be gained by committing a loan of $1.1 billion to public refineries that would be sold eventually? When sold, can they yield the amount spent on their repairs? Indeed, the aggregated opinion of experts, including Kachikwu, is that some of the refineries are irredeemable and require total overhaul function. Really, the loan is handy to build other critical social infrastructure that will open up the depressed economy. Even at full production, the current refineries can only supply 20 million litres per day, which is half of the country’s demand, according to the NNPC. Hence, it is wasteful to commit more resources to their refurbishment. They should be sold as they are.

As obtains elsewhere, it is not compulsory for the government to operate refineries to ensure the availability of petroleum products. If the Chinese offer is, indeed, altruistic, why can’t they build a new refinery here? In the United States, the top players – Exxon Mobil, BP, ConocoPhillips, Sunoco and Chevron, among others – are all privately-owned. The Reliance Refinery is a good example of a private initiative helping the Indian economy. Built in record time and relatively cheaper, it has a capacity to refine 1.24 million barrels per day. South Korea’s Yeosu (785,000 bpd), jointly-owned by GS Caltex and Chevron, is a private refinery that has delivered a stable supply of energy to that country. This is the way to go.

According to the Australian Trade and Investment Commission, despite producing no oil or gas of its own, Singapore has grown to become a major oil and gas hub. It is the world’s third largest oil refining centre after Houston and Rotterdam and the world’s third largest oil and oil product trading hub. It is also Asia’s oil and oil product pricing centre. Singapore’s private sector-driven oil and gas sector employs more than 10,000 workers and accounts for about five per cent (valued at S$9.5 billion in 2013) of its gross domestic product. Singapore’s refining sector has been a catalyst for the chemical industry, as well as creating other sub-sectors such as oil and gas equipment and oil rig manufacturing.

Instead of being fixated on holding on to and repairing the moribund refineries, the government should rather urgently sell them and fully liberalise the downstream sector of the oil industry. This will convince major global players to commit their resources and expertise to the sector. The policy will also help the 22 firms the Buhari government has granted refining licences to build and commence operation. One of them – the 12,000 bpd Azikel Refinery, Bayelsa State – has promised to be operational by 2018, just like the integrated 650,000 bpd refinery being built by Africa’s richest man, Aliko Dangote, in Lagos that is also targeting 2018 for take-off. This is the way to go.

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