Contrary to the Federal Government’s strongly-held belief that it can turn the fortunes of the country’s four ailing refineries around, the hard facts continue to present reasonable grounds to doubt this unfounded optimism. Based on recent developments, it is advisable for the government to quickly cut its losses by privatising the moribund, money-guzzling and almost good-for-nothing contraptions, rather than continue to dig itself into a hole.
While releasing the reports of its monthly statistics, in which Nigerians were told that it recorded an operational loss of N437.9 billion, the Nigerian National Petroleum Corporation stated that the Port Harcourt Refining Company operated at 4.2 per cent capacity, down from 29.7 per cent recorded in August. During the same period, the other two refineries in Kaduna and Warri operated at zero per cent capacity after they had both reached 10.5 and 26.6 per cent respectively in August.
This is very dispiriting for a country that is losing a sizable portion of her income to imports and subsidies on imported refined petroleum products. In 2011 alone, subsidies cost Nigeria a whopping N2.57 trillion as against the N245 billion that was budgeted for that purpose. It is an unnecessary expenditure that would not have arisen if the refineries were operating at their installed capacity.
According to the latest audit report of the Nigerian Extractive Industries Transparency Initiative presented by the immediate past Executive Secretary, Zainab Ahmed, Nigeria spent N4.5 trillion, the equivalent of the country’s annual national budget, on funding subsidies between 2006 and 2012. This excludes the amount spent on the actual imports. No economy can survive under such a profligate management model.
That a country with a combined refining capacity of 445,000 barrels per day now has only the Port Harcourt components (with a 210,000 bpd installed capacity) operating at 4.2 per cent of their capacity is not only a shame, but also a strong indication that Nigerians cannot continue to place their hopes on those refineries. As Africa’s largest producer of crude oil, the country should not only be exporting crude after more than 50 years of oil discovery in commercial quantity but should by now be exporting refined products. Indeed, this was the reason for the upgrade in the Port Harcourt Refinery from its initial 60,000 bpd capacity to 210,000 bpd capacity.
Nigeria’s inability to refine her crude oil locally has resulted in heavy dependence on importation with the concomitant occasional shortfalls in supplies and long queues of vehicles waiting at petrol stations for products. As if this absurdity of suffering in the midst of plenty is not humiliating enough, the country spends heavily on maintaining refineries that are in their death throes.
After years of neglect, resulting in an inevitable rundown, the refineries now continually gulp hundreds of millions of dollars in turnaround maintenance that have failed to bring them anywhere near installed operational capacity. Between 1999 and 2003 alone, the government reportedly spent $400 million on TAM. Yet, after the failure to make an impact, the government of Goodluck Jonathan, with Diezani Alison-Madueke as Petroleum Minister, decided against wise counsel to borrow $1.6 billion, purportedly to bring the original builders of the refineries to effect their maintenance.
There is no doubt that TAM has become a conduit for corrupt government officials to enrich themselves at the expense of the country. Unfortunately, the government is also playing into their hands by its obvious reluctance to let go of the money-guzzling contraptions. Eight years ago, former President Olusegun Obasanjo sold two of the refineries to Aliko Dangote’s Bluestar Consortium, for $750 million, only for his successor, the late President Umaru Yar’Adua, to reverse the sale, ostensibly on the grounds that the sale lacked transparency. Since then, there has been no concrete step taken to have them sold again. Rather than churn out refined petroleum products, the refineries now excel at guzzling money in the name of TAM.
When President Muhammadu Buhari appointed Ibe Kachikwu as the new NNPC helmsman, there were renewed hopes that he would at last summon up the courage to dispose of the refineries. The NNPC boss even hinted at his intentions when he declared, “I am determined to make a difference during my tenure. We are losing billions of naira monthly to refinery inefficiency.” But no sooner had he said that than the tune changed again. He was again reported as saying, “Personally, I would have chosen to sell the refineries, but President (Muhammadu) Buhari has instructed that they should be fixed.”
Not long after he was appointed, Kachikwu reportedly gave managers of the refineries a 90-day ultimatum to turn their fortunes around. But with the current state of affairs, coupled with the re-emergence of long queues at petrol stations across the country, there is no better time to revisit the issue than now. All the heart-warming stories of the refineries picking up after money was saved by deploying local engineers to carry out TAM and reduce cost have turned out to be a ruse. The latest news is that a $500 million loan is being sought to repair the refineries. This is unwise. Here is a company that once borrowed $1.6 billion for the same purpose and recently spent more money to “rehabilitate” refineries only to achieve 1.64 per cent combined capacity utilisation for the four in September by its own admission.
Currently, there are about 140 refineries in the United States, according to the US Energy Information Administration. They are all practically privately-owned and they are discharging their functions effectively. This means that government in Nigeria does not necessarily have to retain ownership of refineries for them to serve the public well.
Albert Einstein,the most influential physicist of the 20th century, once defined stupidity as doing the same thing over and over again and expecting different results. The question then follows, for how long will Nigeria continue to move around in circles by showering money on refineries that clearly cannot be managed by government officials? Rather than continue to do the same thing and expect a different result, Nigeria should by now take a dignified exit from the downstream sector of the oil industry while, in the meantime, encouraging private investors to come into the refining business. Cooler heads and measured thinking are needed.
