Nothing betrays the chicanery of Nigeria’s political leaders more than the rigmarole over the proposed privatisation of the nation’s four petroleum refineries. More than two decades after the plan was first mooted, the refineries remain publicly owned and decrepit, guzzling billions of naira and barely operating at 20 per cent of their capacity. For how long will a major world oil producer continue to import refined petroleum products at great cost to the economy?
The Federal Government and the corrupt Nigerian National Petroleum Corporation officials should not be allowed to continue to hold the country down through the state’s choke-hold on the downstream sector of the oil and gas industry. The refineries must be privatised to save the country the estimated N3.5 trillion spent annually on subsidising and importing refined petroleum products.
Reports and probes over the years have revealed a pattern of monumental fraud, mismanagement and deceit by government officials in their desperation to frustrate the privatisation of the refineries and sustain the rape of the treasury through dubious maintenance contracts and subsidies that enrich a few at the expense of Nigerians. The deceit was on display last month when the now-ousted Group Managing Director of the NNPC, Andrew Yakubu, claimed that the refineries had started working at 60 per cent capacity after deploying “in-house expertise” to fix “critical units”. If that is so, why then is the government still incurring N971 billion as subsidy on imported petrol as provided for in the national budget? It was known since 2011 that JGC, the Japanese builder of the second Port Harcourt refinery, was reluctant to take up the offer to undertake the maintenance job and had nominated Tecnimont of Italy to do it. Yet, the NNPC has continued to deceive the public that it is expecting a deal with this group. Tecnimont has also since demurred.
More crucially, on what basis did the Petroleum Resources Minister, Diezani Alison-Madueke, ask for and obtain parliamentary approval to borrow $1.6 billion last year ostensibly for the Turnaround Maintenance of the refineries when there was no definite deal with contractors? The National Assembly owes Nigerians a responsibility to demand a proper, detailed accounting for the loan.
The refineries are mere conduits for fleecing the public. Note that in May 2011, President Goodluck Jonathan had unfolded a “four-year agenda” for the oil industry and directed NNPC to carry out a “comprehensive rehabilitation” of the refineries “within 24 months”. This turned out to be empty sloganeering. He and the National Assembly have also failed to make NNPC account for the N152 billion provided for the “repair of three refineries” in the 2013 budget where N76.77 billion, N43.12 billion and N32.10 billion respectively were earmarked for Warri, Kaduna and Port Harcourt.
We need to end this gargantuan scam that is taking a devastating toll on the economy. With a capacity to produce 2.5 million barrels of crude per day, Nigeria has no business importing crude. The absurdity is such that we import refined products from Niger Republic, Cote d’ Ivoire and United States, which, according to the US Energy Information Administration, now supplies 50 per cent of our refined fuel imports but takes 25 per cent of our crude exports. We spend almost N1 trillion each year on subsidising imported petrol alone, while the Senate recently said NNPC incurred $4.3 billion on unauthorised subsidies on kerosene imports in 2012-13. Two senators, Magnus Abe and Babajide Omoworare, put daily expenditure on kerosene subsidies at N700 million.
As the Nigerian Association for Energy Economics said in March, “The subsidy has provided a conduit for some highly placed people to swindle the country.” The impunity saw the cabal taking N2.7 trillion from the treasury for subsidy in 2011 when only N248 billion was budgeted for that purpose.
According to an expert at Ernst & Young, the global consultancy, Nigeria’s subsidies on refined petroleum products are among the world’s highest and warned, “No country that spends most of its funds on consumption will grow.”
There is no alternative to local refining. What have been lacking are the political will and the willingness of successive administrations to forgo the enormous opportunity for ill-gotten billions available through TAM, importing refined petroleum products and subsidies.
Jonathan can break this cycle of graft and ruin with a few intelligent measures. First, he should immediately sell off the state-owned refineries within six months through transparent options and targeting reputable operators. Next, liberalise the operating environment to remove the stringent hurdles set for licencees and provide incentives through tax breaks, duty waivers and exclusivity periods.
The subsidy cabal that brings together NNPC, Petroleum Ministry, subsidy managers, marketers, corrupt officials and politicians, will be effectively broken when local self-sufficiency is attained and subsidies, if required, can then be channelled to producers, not rent takers.
Going forward, the delayed Petroleum Industry Bill should be quickly passed and should contain stringent conditions compelling equity participation in local refining for any major oil producer in Nigeria extracting above a certain threshold per day. Nigeria should no longer accept dictation from international oil companies.
The US has had 142 operable refineries by January this year with a new 20,000 bpd capacity one in Texas, whose construction began in March 2013, billed for completion in December this year. While the Nigerian government allows itself to be bullied by IOCs who falsely cite global over-capacity, Malaysia is adding 300,000 bpd by 2019, Brazil’s Petrobas is building four new refineries to add 900,000 bpd, Saudi Arabia’s two new projects will add 900,000 bpd, and China, Vietnam, Thailand and Angola have large ongoing refining projects.
Delay is no longer excusable; the process of privatising the refineries within six months should begin immediately along with necessary reforms of the downstream industry to facilitate private sector control, conserve foreign exchange, stimulate local industry and create millions of jobs.
