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| Muhammadu Buhari, President, Federal Republic of Nigeria |
By stubbornly insisting on
holding on to, and throwing more public money at the plants, they have set out
on a familiar, treacherous road that headlined the failure of their
predecessors to provide locally-refined petroleum products for three decades.
Privatization however remains the one sure and tested route to efficiency in
the downstream sector of our oil and gas industry.
Dr. Kachikwu
disappointed investors when he announced last week that the Nigerian National Petroleum Corporation
(NNPC) would not sell, but “will remodel” its four refineries by creating
“new modules”, building new ones beside them and infusing new commercial
practices, effectively dashing hopes that the new government’s promise of
change would see to the transfer of refineries into private hands.
Many may
have been overly optimistic that the 30-year nightmare of massive importation
of refined products, frequent shortages and a corruption-fuelled subsidy regime
would end with the coming of the Buhari government. Indeed, the President has
never been enthusiastic about privatisation, persuaded that once corruption and
“indiscipline” are rooted out of the system, the refineries and other state
enterprises will run efficiently.
The
appointment of Dr. Emmanuel Kachikwu as Group Managing Director of the NNPC and
the pro-business credentials of Vice-President, Professor Yemi Osinbajo, who chairs the National Council on
Privatisation, were expected to temper Buhari’s statist instincts.
A noted
legal mind and long-time operator in the oil and gas sector tapped from
ExxonMobil, the world’s largest oil major, Dr. Kachikwu has gone the way of his
predecessors who, once appointed, dumped their advocacy of privatisation to
become apologists for unproductive and corruption-prone state control of the
oil downstream.
Nigeria is
paying an unbearable price for this monopoly. Massive subsidy payments, most of
them dubious, are made annually on petrol and kerosene imports despite an
average crude oil production capacity of 2.3 million barrels per day. Shortages
have become a permanent reality.
Yet, experts
unanimously agree that the refineries in their present state are drain pipes. Dr.
Kachikwu too admitted that, being 30 to 40 years old, they were hard to
maintain. On a visit to the Kaduna refinery, he declared that the plants
“cannot take Nigeria anywhere”, noting that three of Kaduna’s six units had
been down and un-serviced for long. The first of Port Harcourt’s two refineries
was built in 1965, Kaduna in 1980 and Warri in 1978 but upgraded in 1987-89.
Ben Murray-Bruce, a senator, recently likened pouring more
money into them to seeking to rehabilitate a Mercedes 450 SEL salon car which
production stopped in 1981, instead of the cost-efficient option of buying a
new model. Like the Idika Kalu Presidential Panel recommended in 2012, the
Senator said the cost of regular Turnaround Maintenance on the aging plants
“is so high that it would make better sense to build a new refinery.” Rather
than use scarce public funds to build new refineries, it is better to have a robust
liberal regime to open the floodgates to foreign and local investment in
refineries, petrochemical plants, pipelines and depots.
Nigerians
expect Buhari to translate his pledge made in Washington, United States, in
July, to break the NNPC into two – one as an investment vehicle and the other
as a truly independent regulator – into concrete action. The last Petroleum
Minister, Mrs. Diezani Alison-Madueke,
said in 2013 that getting a replacement for the decayed facilities “was not
possible as they are obsolete’’ and can hardly produce. Billions of dollars
have been allotted for Turn Around Maintenance (TAM) over the years and
promptly stolen. The last government said it borrowed $1.6 billion barely three
years ago for TAM in a shadowy deal that barely delivered 10 per cent capacity
utilisation.
The danger
in the rush to put the refineries to optimal use is that they could actually
work for a while, but, shortly after, begin to break down, requiring even more
infusions of cash. Nigerians have seen this happen in the power sector when the
Olusegun Obasanjo administration gave the Liyel
Imoke-led committee billions of naira to rehabilitate obsolete power
plants, and in the railways sector where the Chinese have for 20 years been
given billions of naira to “rehabilitate” rail tracks laid between 1898 and
1964! While the power plants began collapsing one after the other shortly after
they were restarted, a rail journey from Lagos to Ibadan (147 km) takes four
hours and Lagos to Kano (1,186 km) lasts 28 hours.
President Buhari
should hearken to the earlier, and wiser, recommendation of the NNPC and the
Kalu panel and quickly privatise the refineries. He should initiate a liberal
operating regime that, like the telecoms reform, will energise private capital
and create jobs. The private sector can get the job done while the government
invests in health care, education, training, water supply and sanitation, roads
and institution building. Buhari puts faith in his personal discipline, but
should ask himself what happens after he leaves office.
The United
States Government owns none of the 140 refineries in the country that process
over 17 million bpd. Without domestic crude oil reserves, Singapore’s three
major refineries with 1.3 million barrels per day, makes the country the
undisputed oil hub in Asia and one of the world’s top three export refining
centres. Holding on to the refineries is a bad idea and the government should
not throw more money into a sink hole.
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