The discovery of oil in Africa’s most populous country increased Nigeria’s relevance on the global stage, but heavy is the head that wears the crown, if she cannot sustain the responsibilities that comes with wearing it. This is why crude oil has been labelled a national curse, rather than a blessing.
In a bid to take charge of its oil sector after its discovery in 1956, Nigerian government established four refineries – two in Port Harcourt, Rivers state and one each in Warri, Delta state and Kaduna, Kaduna State – with combined capacities of 445,000 barrels per day (bpd), the third largest refinery capacity in Africa after Egypt and South Africa. Unfortunately, the capacity of these refineries ebbs at 8.27% as at 2018 with Nigerians having to rely on importation of refined petroleum products to satisfy over 90% of their consumption.
Nigerians were irked following NNPC’s release of the 2018 audited report that revealed the four reﬁneries recorded 154 billion naira in losses with the Kaduna Reﬁning and Petrochemical Company (KRPC) incurring 42% of total loss, without generating any revenue during the fiscal period. Not only that, the Turn Around Maintenance (TAM) and Operational Expenditures (OPEX) for these refineries since the reversal of its privatization by Late President Yar’adua has gulped trillions of naira, in April 2020, NNPC spent 10 billion naira on maintenance and salary payment for refinery workers with zero productivity. Also, fluctuating prices of PMS, internationally and locally – with the federal government’s subsidy policy – has added more traction to calls for privatization.
The dubious nature of joint ventures, swap agreements and fuel subsidy
The country’s over two million bpd crude oil daily production contributes over seventy-five percent to its revenue and has estimated projection in the yearly budget, but all of these is hinged on cheap exportation of crude oil and high costs for importation of refined petroleum products into Nigeria. The modus operandi of its upstream and downstream sector is riddled with non-transparency and corruption, causing the country lots of revenue loss. Former Petroleum minister Diezani Allison-Madueke’s looting and the 382 billion naira Fuel Subsidy Scandal are succinct examples, the obvious solution to these national issues is deregulation and privatization of the refineries.
NNPC’s Joint Venture agreements, Swap Agreements and Oil Mining Leases (OMLs) with International Oil Companies (OICs) became more pronounced due to decline in local refining capacity, thus, opened up the oil and gas sector to deep linkages as the country pays for exploration, export and import of oil products with crude oil, an arrangement that results in huge losses in government revenue. While the NNPC’s cash call debts to OICs is at 3.5 billion as at 2019, in 2018, the petroleum regulation body generated 2.684 trillion naira revenue from sales of petroleum products but the government spent 2.582 trillion naira on fuel importation within nine months, a situation that could have been avoided if refineries are productive.
BudgIT estimates that Nigeria has spent ten trillion naira on petrol import subsidy between 2006 and November 2018, monies that could revamp health, housing, power or education and human capital development sectors. Privatization is the most obvious solution to these payments as it will drive productivity of the refineries, help bring an end to the importation of petroleum products and help the government to stop withdrawing from the Excess Crude Account to fund subsidy payment and instead, divert the funds to other development endeavors.
The ultimate grounds for privatization of these national refineries rests with Dangote refinery which will be operational by early 2021, and is projected to refine 650,000 barrels daily. It will lead to reduction in the export of crude oil but will make indigenous refineries more dormant, hence, the need for the federal government to cut its loss and privatize these refineries now.
It is more sustainable to let competent investors develop these refineries to meet international standard and to stop the dubious TAM, OPEX and subsidy payments. Efforts should be directed at policy corrections and the implementation of the Petroleum Industry Governance Bill (PIGB) to make oil sector autonomous and more transparent.