Nigeria’s dependence on fuel importation is a Catch-22 situation. The paradox is defined by the nausea that Africa’s largest producer of crude imports a high percentage of petroleum products to meet domestic consumption. The financial albatross this entails has moved Ibe Kachikwu, Minister of State for Petroleum Resources, to reinvent a plan to end fuel importation by 2019. After years of foolishly importing refined fuel and enriching other nations, Kachikwu’s avowal resonates with the public.
The country is in a bind, in spite of owning four public refineries in Port Harcourt, Warri and Kaduna. They have a combined capacity to refine 445,000 barrels of crude oil per day, which would normally go a long way in providing succour domestically. However, official missteps, mismanagement and corruption have combined to render them prostrate. Although there have been minor improvements under Kachikwu, the refineries are still operating far below installed capacity. Turn-around maintenance is either undertaken late or done poorly when funds are eventually released.
The result is the massive, prolonged importation of fuel, a hazy racket that feeds sleaze, shortages, and high prices, loss of jobs, public debts and excessive demands for forex. In turn, this depletes the foreign reserves and puts the naira under heavy pressure because the country spends too much forex to import petroleum products.
The corruption is awful. In 2012, a probe by the National Assembly discovered that N2.53 trillion was paid out for sham petrol importation in 2011. An independent report estimated that Nigeria spent $28 billion (N3.4 trillion) on fuel imports in 2016 and another N1.34 trillion on logistics. According to the National Bureau of Statistics, Nigeria imported 24.4 billion litres of products in 2016 at the cost of N2.59 trillion. Out of this, petrol gulped N2.01 trillion, diesel N505.8 billion and kerosene, N70.76 billion. What a wasteful country!
But putting a gloss on the debacle, Kachikwu said in June that the refineries were then producing at up to 40 per cent of installed capacity. He reiterated his promise that by 2019, if they were not doing up to 100 per cent, he would resign. But the options he puts on the table to remove the thorn are puzzling. After agreeing a deal in principle to concession the refineries in Port Harcourt, Rivers State, to Agip (a subsidiary of Italy’s ENI) and Oando, the motion from the National Assembly and the protestations of organised labour seem to have cut short the concessioning arrangement.
Among other alternatives, Kachikwu has broached the idea of repair, operate and manage for the refineries; inviting the Original Refineries Builders and convincing investors to put funds into the state-owned ventures. All these options are beset with landmines.
Inviting the ORBs entails committing initial funds of between $1.2 billion and $1.8 billion, according to documents the Nigerian National Petroleum Corporation handed out to woo investors during a road show in China. The estimates said the Kaduna Refinery would need $500 million, the Port Harcourt Refineries $400 million and the Warri Refinery $700 million for a host of infrastructure and repairs.
Also, the ORBs had been invited before. That was under the watch of Diezani Alison-Madueke as petroleum resources minister. They had demurred when faced with the extent of the task. Alison-Madueke had also sought a $1.6 billion loan for TAM, though it is not clear what eventually happened.
That is not all. The NNPC had in May put the total investment required to make the refineries “function optimally” at $6 billion. Of course, $6 billion is not peanuts, and committing this much to the rundown state-owned enterprises is fallacious economic reasoning when you could actually build some modular refineries or a new one.
So, what is the way to end Nigeria’s fuel importation debacle by 2019 going by Kachikwu’s optimistic posturing? This newspaper is strongly persuaded that the privatisation of the refineries is the only optimal way out. As long as the government is involved or dominates the downstream sector, private capital will calculate that the risk is too much. Government does not seem to run business well here. Even in the United States, the world’s largest oil producer, the government does not own refineries; its agencies only regulate. The government should opt for this model instead of the rigmarole about concessioning, repairs and futile TAMs.
The positive aspect is that Nigeria does not need to reinvent the wheel; it only needs to take a leaf out of the book of, say, Britain. A former British Prime Minister, the late Margaret Thatcher, in a model that was widely copied around the world, privatised British Petroleum in 1979. British Gas followed in 1986. In her memoirs, she said privatisation was “fundamental to improving Britain’s economic performance.” At least, 50 public utilities were unloaded.
Nigeria is running out of time. Our poor refining capacity has led to an erosion of high-paying jobs and spin-off benefits. President Muhammadu Buhari should quickly abandon his statist ideology. Privatisation engenders efficiency, investment, and job creation. Above all, it will ensure that Nigeria ends the importation of petroleum products and frees money for essential public works and social services. Buhari should lead the privatisation of the oil downstream assets and empower private capital to refine Nigeria’s crude oil and compete fairly with the Dangote Refinery, which is set to come on stream in 2019.