CONFRONTED with a long-running crisis in the petroleum downstream sector, the Nigerian National Petroleum Corporation’s latest response with plan to build two new refineries is befuddling. Unable to run its existing four profitably despite having an absolute monopoly and with the Dangote Group’s 650,000 barrels per day capacity refinery expected to come on stream soon, the NNPC’s proposal is another red herring, the latest in the determination of successive Nigerian governments to dominate the oil industry. President Muhammadu Buhari should stop this painful trend and cede control of the wholesale and retail sector to the private sector.
The announcement by the Group Managing Director of the NNPC, Mele Kyari, though eerily familiar, was still a letdown to the business community and other Nigerians who had hoped desperately for an end to their three-decade-old nightmare. The corporation, he said, would establish two new refineries, each to refine 200,000 barrels of condensate per day into petrol. Condensate is a mixture of light liquid hydrocarbons separated out of natural gas. For a company with a global notoriety as, probably, the worst performer in running refineries, this would have been laughable and quickly dismissed. But the NNPC is not an ordinary company; it is a 100 per cent state-owned enterprise, managing the country’s interest in the oil and gas industry. As revenue from oil and gas accounts for over 80 per cent of export and 65 per cent of all government revenues, the importance of the firm is stark. Except it is acting only as facilitator, not operator, this refinery idea should be dropped. Every naira the NNPC wastes deprives Nigerians of valuable resources.
Like his predecessors, Kyari is eloquent in promoting this venture. The motive, he said, is to transform Nigeria into a net exporter of refined petroleum products, complement the Dangote refinery being built in Lekki, Lagos State, and boost local production of petrol. These are laudable objectives and desirable for a country with current maximum production capacity of 2.5 million barrels of crude per day, and this of high value low sulphur content. But it is misplaced because of the NNPC’s incompetence and corruption. It is incapable of running refineries profitably.
Any practical measure to achieve refining self-sufficiency and export is welcome. Currently, however, Nigeria is the world’s laughing stock: it imports almost all its needs for refined products and this, according to the NNPC’s website, is costing between $12 billion and $15 billion annually. Some N2.95 trillion was spent on petrol imports in 2018, the National Bureau of Statistics said, while a corruption-fuelled subsidy scheme pays billions more to marketers to defray landing costs and more still for transportation to ensure price parity across the country. In 2018, the 36 state governors protested the N800 billion that NNPC claimed as subsidy annually.
This mess is created solely by the failure of the NNPC to run its four refineries profitably and the crowding out of the private sector in domestic refining. There can be no solution to the problem outside of the NNPC exiting the downstream and the government working strongly to encourage other investors to compete with Dangote, whose facility, when completed, will be the world’s fifth biggest, according to Hydrocarbons Technology, a consultancy.
The NNPC’s record is so terrible that it has no business spending taxpayers’ funds on acquiring new refineries. It should rather sell its downstream assets. By its own admission, the four refineries suffered combined operating losses of N77.15 billion in the first six months of this year, up from N68.10 billion lost in the corresponding period of 2018: their outing in June is typical; from N6.34 billion worth of crude collected, they spent N13.1 billion on freight and operational expenses, but had an output of only N2.01 billion. This is ridiculous, no private concern would sustain this and the NNPC should no longer be allowed to bleed public funds via unprofitable ventures. And this is a monopoly; the only other domestic refinery is the 1,000 barrels per day modular facility in Ogbele, Rivers State.
The Nigeria Union of Petroleum and Gas Workers recalls how past GMDs had similarly proffered fruitless solutions to the supply mess and wasted billions of naira with no improvement. NEITI reported that capacity utilisation averaged 8.55 per cent in 2015-18, while the NNPC put combined nameplate utilisation at 5.5 per cent in June 2019. From a hollow resolve to achieve 90 per cent utilisation by 2021 to using “third party financing”, to “co-location”, inviting the original builders and a stillborn Greenfield refineries project to be sited in Bayelsa, Kogi and Rivers states, Kyari is joining his predecessors to raise false hopes.
Buhari, who retains the petroleum resources ministry portfolio, should do the inevitable and save the country further agony by immediately privatising the refineries, depots, pipelines and retail outlets. Honour demands that he fulfil his 2015 campaign promise to break up the NNPC conglomerate into only two; a holding company and an investment firm.
From conception to fruition, the Dangote project is on track to take just a few years; the NNPC has hardly moved forward in 30 years, whether in capacity utilisation, new plants or domestic self-sufficiency.
Meanwhile, McKinsey, a global consultancy, estimates a drop in global demand for petrol from 1.2 per cent to 0.5 per cent between 2018 and 2035 as the West reduces dependence on road transport and gasoline-powered vehicles. To match our competitors’ investments and the contest for markets, the private sector should be unleashed; others are not wasting time. GlobalData projects that, between 2019 and 2023, Asian countries will lead in global refining capacity and capital spending on refineries; 45 new refineries are scheduled to start operations in the region involving $267 billion investments, said McKinsey.
The rest of the world is moving, while the government toys with unrealisable plans that allow monumental waste and corruption to thrive in NNPC and impoverish Nigerians. The NNPC should leave the field for reputable global players, pursue its offers to partner with Chevron and other oil majors to promote rapid refining infrastructure. It should restrict itself to very small minority stakes in the downstream and transparently sell off the four refineries through targeted sale aimed at bringing in the most capable recognised global operators to attract foreign investment, create jobs, meet domestic demand and help the country become an international refining hub.
Buhari and Kyari need to drop all notions of the NNPC ever again running a refinery.
Source: PUNCH.