Like most public corporations in Nigeria, our four government-run refineries are weighed down by crass ineptitude, mired in inexcusable underperformance and shackled by high corruption, rent-seeking and patronage. The outcome is evident in the distressing figures announced by the Nigerian National Petroleum Corporation last week. The figures reveal that the refineries, located in Port Harcourt (two), Warri and Kaduna, operated at a miserable 10.46 per cent of their installed capacity in June.
In an economy gasping for breath, sound financial judgement dictates a drastic change to reverse the fortunes of these loss-makers. As we have reiterated in previous editorials, the government has no excuse holding on to them in the face of their debilitating performance. The Goodluck Jonathan government should privatise the refineries forthwith. But we caution again that this must be done with utmost transparency in line with global best practices.
The entities log a combined capacity to refine 445,000 barrels of crude oil daily. But that is as good as it gets. In reality, the refineries have been so grossly mismanaged that, for two decades, Nigeria has resorted to the shameful and graft-prone importation of refined petroleum products to augment the shortages at home. Yet, this is a country that can pump 2.4 million barrels of crude daily.
“With an opening stock of 428,000 metric tonnes, total crude oil available for processing was 672,000MT, out of which 221,000MT was processed. The respective average capacity utilisation during the month was 0.00 per cent, 17.96 per cent and 13.44 per cent for the KRPC (Kaduna), PHRC (Port Harcourt) and WRPC (Warri), respectively,” the report stated.
The Federal Government has been economical with the truth in the whole saga, though the economy continues to haemorrhage from the massive importation of petroleum products. And even then, the Olusegun Obasanjo administration had privatised two of the refineries in 2007, only for the incoming President Umaru Yar’Adua (now late) to promptly reverse the sales.
Yet, late in 2013, Diezani Alison-Madueke, the Petroleum Minister, told the international community that the refineries would be privatised by the first quarter of 2014. She had said, “We would like to see major infrastructural entities such as refineries moving out of government hands into the private sector. Government does not want to be in the business of running major infrastructure entities and we haven’t done a very good job at it over all these years.” But, she is yet to brief the nation on the $1.6 billion the NNPC once said it would borrow to rehabilitate the refineries and bring them up to full capacity.
But shortly after the statement of intent to privatise, the President, through his spokesman, Reuben Abati, overruled her. In order to meet the daily national supply of 42.1 million litres, as estimated by the Petroleum Products Pricing Regulatory Agency, Nigeria spent N832 billion in 2013 and N862 billion in 2012 to import petrol. The NNPC Group Managing Director, Joseph Dawha, raised the alarm recently that Nigeria’s annual importation bill for fuels like petrol and kerosene had jumped to N2 trillion. The NNPC put actual daily consumption at 33 million litres, thereby confirming that large subsidy payouts by PPPRA are fraudulent.
This adds to the scandalous N1.7 trillion payout in 2011 to ghost marketers when the National Assembly had approved only N245 billion for subsidies that year. However, the scandal only blew open after the protests that engulfed the nation when the government initially increased petrol price in January 2012 to N144 per litre before agreeing to cut back to N97 per litre. Since then, the Federal Government has been trying to stop subsidies on imported products, but has refused to commit to basic economics by privatising the refineries.
Why can’t the government let private capital work for Nigeria like other countries have done? As far back as 1979, former British Prime Minister, Margaret Thatcher, had reduced the government’s majority stake in British Petroleum to 31 per cent. Similarly, China sold 30 per cent of its holdings in Sinopec, Asia’s largest refiner, in March 2014. The United States, according to its Energy Information Administration, has 142 private refineries. The US government does not own any.
To boost economic growth, reduce unemployment and close the income inequality gap, Christine Lagarde, Managing Director of the International Monetary Fund, recommended last week that governments should free up resources (through privatisation, for example), and redirect such to building infrastructure, education, health and social safety nets.
The cost of importation and subsidy payment to the economy is too high. As the refineries are currently run, they are not useful to the economy, but when privatised, the government can achieve many targets. One of these is the stoppage of importation of refined petroleum products, while also generating jobs for Nigerians, and effectively blocking them as the sources of monumental graft they have become.
Casting aside the deleterious effects of the 2015 politics, which is suspected to be the main reason for Jonathan’s vacillation, the President has to set a definite timetable for the privatisation of the refineries. This is after the government must have agreed with the labour unions on their severance pay.
It is also of critical importance that the privatisation does not go the way of the Power Holding Company of Nigeria assets, which is currently causing misgivings. The government should re-examine the liberalisation model in the telecoms sector in privatising the loss-makers.
