7 December 2017

Nigeria: The Refineries As Basket Case


It is time to privatise the refineries

Earlier this year, we highlighted the wrong choices being made in the oil and gas sector by this administration. First, we queried the wisdom in the oil exploration in both the Lake Chad and Sokoto Basins a few months after Boko Haram ambushed and killed some lecturers from the University of Maiduguri. We also could not understand why the federal government would insist on holding on to the three refineries operated by the Nigeria National Petroleum Corporation (NNPC) in Kaduna, Warri and Port Harcourt at huge cost to the nation.

That was against the background of the revelation by the Minister of State for Petroleum, Dr. Ibe Kachikwu that the refineries were working at 30 per cent capacity but President Muhammadu Buhari would not permit that they be sold or privatised. "Personally, I would have chosen to sell the refineries but President Buhari has instructed that they should be fixed," said Kachikwu who added, "after they are fixed, if they still operate below 60 per cent, then we will know what to do."

Given the foregoing, we agree with the House of Representatives that the reported plan by the NNPC management to expend a whopping sum of $1.8 billion for yet another Turn Around Maintenance (TAM) on the three moribund refineries is no more than a scam. While we understand where President Buhari is coming from and his ideological position on state run enterprises, this is not a time for nostalgia. In a season that demands taking practical decisions that will help the nation at a time of lean resources, spending such a colossal amount of money on dead refineries is, to put it mildly, rather foolish.

Indeed, that the three companies have an average consolidated monthly overhead of about N7 billion while producing little at a time the country continues to spend vital foreign exchange to import petroleum products, speaks volume about the economic priorities of the Buhari government. Incidentally, this same government claims it wants to cut waste in its businesses, and shore up production and distributable revenue. If we may ask, what will the federal government lose by letting go of the loss-making refineries and allow private investors revamp and run them on agreed business framework?

To the extent that the decision on another round of expensive TAM makes no sense, we believe that it is time to privatise the refineries and allow fresh resources - financial, material and human, to be injected into them. Besides, the government should realise from the 650,000 barrels per day refinery project which the Dangote Group is building, and should be ready by 2019, that refinery businesses are no longer fanciful in the hands of government, especially in a country whose government has shown deep incompetence in managing economic ventures.

When completed, Dangote's refinery in Lekki, Lagos would have toppled South Africa's Sapref Refinery, which has a production capacity of 180,000bpd and currently the largest in Africa, as well as Egypt's Cairo Mostorod Refinery with a capacity of 142,000bpd. Both Sapref and Mostorod are however operated in a joint venture arrangement.

From all available reports, the operations of the three refineries have shown that they are just loss-making cost centres the nation cannot afford to keep. According to the NNPC monthly operations and financial reports, the refineries have for a long period been operating below commercial thresholds and may continue on this trend for a long time. Indeed, due majorly to the recurrent issue of pipeline vandalism and resultant losses from its operations, the refineries have been a drain on the financial operations of the NNPC.

The question many therefore ask is: In whose interest is the latest proposal to waste another $1.8 billion in the name of TAM for the refineries?

Certainly not that of Nigerians!


What will the federal government lose by letting go of the loss-making refineries and allow private investors revamp and run them on agreed business framework?


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