Confronted with another crucial economic decision, President Muhammadu Buhari has again opted for retrogression. Like his predecessors, he is bent on holding on to the moribund, loss-making state-owned refineries on the outdated grounds of nationalism. Unless he is persuaded to climb down, his energy reforms will fail woefully.
While modern governments are run on sound rational analyses and for the ultimate good of the greatest number of people, successive Nigerian governments often drive the economy on the basis of sentiment and a predilection for repeating failed policies. Buhari is playing out that odious script in the downstream sector of the oil industry. Fielding questions from senior journalists in his first anniversary as President, Buhari said of the four state-owned refineries: “We want to make them work so that we don’t sell them as scrap. We can’t spend so much money to put up the refineries just to sell them as scrap… Let’s repair them and negotiate with them (investors) to sell them at good prices.” This is hogwash.
Buhari’s point man in the industry, Ibe Kachikwu, whom he tapped from the private sector as head of the state oil company and Minister of State for Petroleum Resources, was initially very forthright on his assumption of office: the refineries are old, had not been properly maintained for decades and were better sold to facilitate massive infusion of cash for refurbishment than to waste money on their repair by a cash-strapped government. Moreover, in a well-reported statement picked up by OPEC Bulletin, he confessed; “Over the last 10 to 15 years, we have not done serious, conclusive turnaround maintenance of these refineries, which average 30 to 40 years-old and the equipment is dilapidated.” Even after round-the-clock efforts by engineers, Kachikwu said, “We supply crude and they start for one day and then, they shut down again…”
Consider the cold facts: the average capacity utilisation in the four refineries in Port Harcourt, Warri and Kaduna was a dismal 1.87 per cent in February this year, according to the monthly report of the Nigerian National Petroleum Corporation, down from 18.64 per cent in January and 6.62 per cent in December. For six months in 2015, the refineries operated at zero per cent. The best performance in the 12 months to February was the 24.08 per cent achieved in August 2015. Although they are allocated 445,000 barrels of crude per day – their combined refining capacity – to refine or swap for imported products, the four dilapidated facilities processed only a combined 780,997 barrels of crude (including intermediate) in the first 30 days to February 2016. Kaduna Refinery was comatose for eight of the 12 months to February, achieving a “peak” of 18.01 per cent only in January. Yet, these are facilities for which billions of dollars of taxpayers’ funds have over the years been appropriated – and promptly stolen – for TAM that were never fully undertaken by corrupt NNPC and other public officials. For almost three decades, the refineries have not worked at anything near their installed capacity, running at huge losses, while retaining workers and the attendant wage bill and retirement costs.
Buhari needs to change as time is running out for him. Thwarted by his principal’s retrograde statism, Kachikwu once said the NNPC needed another $500m to rehabilitate the refineries. Now that oil earnings dropped to $550m in the month of April, as revealed by Vice-President Yemi Osinbajo, the folly of wasting resources on unprofitable state-owned enterprises should be obvious. Apart from the $1.6bn that the immediate past administration once borrowed for TAM for the same refineries, the state monopoly and incompetence of the refineries have driven away the crucially-needed private investment. According to civil society groups, continued public ownership of the refineries cost the country over N7trn in the corrupt subsidy programme in the four years to 2015, or an average of N2trn each year as estimated by a former CEO of NNPC, Joseph Dawha.
The refineries should be sold. Spending any additional money on them is wasteful and it will ultimately fail. The experts have been unanimous in saying that the investment needed to refurbish them is huge. There are more intelligent ways to achieve local self-sufficiency than the obdurate attachment to these moribund enterprises.
Even without the necessary liberalisation, Aliko Dangote has begun building a 650,000-barrel-per-day capacity refinery in Lekki, Lagos State. Other serious entrepreneurs should be encouraged to follow suit to complement the modular licences already given to smaller operators and to encourage healthy competition. The government should set new rules compelling oil majors to own certain minimum equity in local refineries, liberalise the environment to encourage massive foreign investment and pull the government completely out of the downstream sector. The continued overbearing presence of the state in the downstream discourages private capital and denies the economy of thousands of jobs, as the Idika Kalu panel found in 2012. The four refineries should be sold immediately: all the spade work for this has been done by the Bureau of Public Enterprises and only the cavalier reversal of the sale of two of them by the late President Umaru Yar’Adua truncated private ownership in 2007.
The key to success is in transparency and the pursuit of national interest. Past privatisation efforts have faltered because of corruption and primordial interests. The goals of privatisation include freeing government funds from (unprofitable) commercial enterprises, creating jobs and attracting local and foreign direct investment. The BPE should invite reputable refiners, preferably from the West, to take a majority stake instead of rigging the process to favour hasty consortia set up by our political and business elite who lack the resources, expertise or the global clout. Such chicanery ruined the power sector auctions to the country’s current grief.
The first hurdle to cross, however, is to overcome the out-dated command-and-control thinking that guides Buhari’s stance.
