MORE than two months after President Bola Tinubu extinguished petrol subsidies a month ahead of schedule, he has been largely silent on the fate of the four moribund state-owned refineries. At his inauguration on May 29, his “subsidy is gone!” blast triggered record-breaking petrol prices across the country. But despite the crushing impact on individuals and businesses, the President has been less decisive about the loss-making refineries. This does not add up. Tinubu must make domestic refining the capstone of reforms of the oil and gas sector by immediately and transparently privatising the facilities.
On the refineries, there is nothing golden in Tinubu’s silence. Under pressure from labour unions threatening an indefinite strike, he pledged that the Port Harcourt refinery would resume production in December after a meeting with labour leaders. Most Nigerians are pessimistic because for four decades, it has become the practice of successive Nigerian governments to set – and miss – timelines for reviving the refineries after every petrol price hike.
Over the years, the Nigerian National Petroleum Company Limited has failed spectacularly to run the refineries profitably, unlike other major crude oil-producing countries. Consequently, Nigeria is a net importer of petroleum products. This is a national disgrace. Unfortunately, Nigeria’s leaders are not embarrassed and have therefore failed to prioritise achieving self-sufficiency in domestic refining. In 2020, the country imported refined products worth $71.28 billion, but sold crude worth $27.73 billion.
Like his predecessors, Tinubu has misdiagnosed Nigeria’s energy predicament: a major crude exporter with current production OPEC quota of 1.8 million barrels per day, it irrationally imports refined petroleum products because its refineries are comatose.
Since May 29, Nigerians have suffered dire privations. Petrol price jumped from N187 per litre to N500pl in June. Prices soared to between N568pl and N617pl in July on the back of higher crude oil prices. Conceivably, as crude prices rally in the global market, petrol will cost more locally because the naira exchange rate has spiked astronomically.
Hardship is biting as the economy goes south, headlined by factory closures, more job losses and greater poverty. Reports across the country indicate many vehicle owners abandoning them at home to use public transportation, and many other commuters trekking as transport fares skyrocket. Inflation vaulted from 22.41 per cent in May to 22.79 per cent in June. Food inflation rose to 25.25 per cent.
Tinubu, a former oil sector executive, should realise that the real catastrophe is Nigeria’s dependence on refined petroleum products. Therefore, subsidy removal does not address the root of the problem or save the country the expense of costly imports and inescapably, high prices.
Without substantial domestic refining, high petrol prices are guaranteed. Putting all hopes on the Dangote Refinery instead of vigorously promoting a vibrant, competitive and private sector-led downstream oil sector is another unfolding national folly. A monopoly is dangerous.
Nigeria’s four state-owned refineries – two in Port Harcourt and one each in Warri and Kaduna – with a combined nameplate capacity of 445,000 bpd, will in competent private hands, help meet domestic needs. Inexplicably, the NNPC ran them aground, forcing the reliance on imports and worse, crowding out private investment.
Singapore produces only 20,100 bpd, but according to the US International Trade Administration, it refines 1.5 million bpd.
Olusegun Obasanjo, the pioneer two-term Fourth Republic president, waffled on the refineries until the 11th hour. In controversial circumstances, he sold two of the refining companies a month before his exit. His equally unimaginative successor, the late Umaru Yar’Adua, promptly reversed the sales.
Goodluck Jonathan, a Niger-Delta native, who succeeded, him also borrowed funds for a futile turnaround maintenance. Muhammadu Buhari, who replaced him in 2015, and was once a former petroleum commissioner, also borrowed $1.5 billion for TAM. In 2018, the NNPC posted N803 billion in losses. It claimed it reversed the losses in 2020 and 2022. This coincided with the beginning of its non-remittance of revenue to the Federation Account. In 2022, Saudi Arabia’s Aramco declared a profit of $161.1 billion, putting the NNPC to odium.
Obviously, Tinubu and the NNPC are waiting for the 650,000 bpd Dangote Refinery in Lagos to begin production. That is naïve. Not only that the $19 billion refinery might not commence full production until much later, but it is also bad economics to depend on an emerging private monopoly. This might be part of the reason government is not supplying crude feedstock to the modular refineries.
To the President’s credit, he terminated the graft-prone crude swap racket in which the NNPC exchanged crude with refiners in Europe for petroleum products.
Currently, crude exports account for 95 per cent of Nigeria’s total exports and provide 80 per cent of public revenue. Tinubu should work strongly to diversify revenue and export earnings, exporting more value-added refined products and less of crude.
The PUNCH reiterates its longstanding advocacy for immediate, honest, targeted, and transparent privatisation of the refineries to capable private operators as core investors as the only viable option for optimal downstream oil sector in Nigeria. This will free the government of the recurrent expenditure, attract foreign and domestic investment, create jobs and provide competition for the Dangote Refinery.
Tinubu, who famously referred to the NNPC as “the Federal Government’s ATM, for lavishing the country’s hard-earned resources” in 2014, when in opposition, should implement comprehensive reforms of the company without delay.
Government should stop being a regulator and at the same time, a player in the downstream. Its stakes in petrol retailing should be auctioned to private investors. The NNPC should sell its idle product depots and become strictly a lean, efficient holding and investment company.