Yusuf An-Nuphawi
The Federal Government has provoked reactions on privatisation of the Nigerian National Petroleum Corporation (NNPC) with the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, hinting at first initial public offering of assets owned by the NNPC in 2018.
Kachikwu, who made the revelation at the sidelines of an energy meeting in Abu Dhabi, told newsmen “part of the cleaning up process that we’re doing is to prepare for that,” and some of the assets that will be up for privatization are in the refining and distribution business and “select” exploration and production assets to the public.
Efforts by the previous administrations of Chief Olusegun Obasanjo and Dr. Goodluck Jonathan to privatize the nation’s refineries and some wings of the corporation were rebuffed by trade unions. In 2013 when President Jonathan gave a directive for privatization of four refineries, the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and National Union of Petroleum and Natural Gas Workers (NUPENG) jointly staged a protest against the order at the headquarters of NNPC in Abuja, saying that such privatisation plan by the government would not be acceptable because, according to them, privatisation ran contrary to provisions in the yet-to-be passed Petroleum Industry Bill (PIB) still before the National Assembly for consideration and passage.
Reacting recently to the government’s privatization plan, the President of Independent Petroleum Marketers Association of Nigeria (IPMAN), Mr. Chinedu Okonkwo, called on the Federal Government to refurbish old refineries to increase production output and quality. Insisting that Buhari-led administration should allow more refineries to be built, Okonkwo said “we in IPMAN will like a situation where the refineries work to its full capacity. That is what we want. The issue of scrapping (of existing refineries) is very inappropriate. I do not think it is the best option for now, given the recent statement of the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu that anyone who wants to build refineries can leverage on what is currently on ground by building their refineries close to the existing ones. There is need for government to open the system to private entrepreneurs who may also come with their idea of how to make the refineries work better. While we are not supporting the idea of scrapping and selling the existing refineries, if they are operating as they should, we should encourage the building of new refineries.”
Unlike other Organisation of Petroleum Exporting Countries (OPEC) members, Nigeria imports petroleum products for domestic consumption after four decaying refineries could not meet supplies despite huge allocations of millions of US dollars in Turn-Around Maintenance (TAM) since 1999. Such devastating situations led to increased focus on import licenses to fuel importers to bring in petroleum products as local refining capacity could not meet local demands anymore and by extension, this opens up windows for fuel subsidy rascality.
Analysts have observed that the oil price collapse has defied all recent economic growth predictions especially in Nigeria. There were predictions in the past for symbiotic relationship between oil and non-oil producing countries because bulk of crude oil reserves is found in peripheral nations while core nations possess the technology to commercially exploit the oil and are in fact, the major consuming nations. According to observers of international oil market, world expenditures on energy totaled about US$6 trillion in 2011 or about 10% of the world Gross Domestic Product (GDP) with Europe spending about 25% of the world energy expenditures, Americans spent close to 20%, and Japan 6%, the bilateral monopoly inadvertently created would make both parties ensure crude oil price would be right for the continuous investment and benefits of both parties.
Several predictions on oil market have been proved empty as prices going down the slope. There are several theories about economic development depending on the analyst and his political leaning. While a school blamed the massive development of shale oil in USA and Canada arising from the then attractive oil price of US$105 per barrel resulting in massive investment in oil production and the attendant oil glut, some observers noted the increasing share of Non-OPEC producers in total world oil production rising to almost 60% of daily global oil production of 93 million barrels.
Analysts also cited the nuclear deal between G5 and Iran that has now permitted Iran’s oil to enter the international commodity market. Some other analysts have attributed plummeting oil price to geo-political factors arising from North Atlantic Treaty Organisation (NATO) member nations’ faceoff with Russia over Ukraine, given that oil and gas constitute the mainstay of the Russian economy.
Crash in price of oil means that Nigeria, which depends virtually on sale of crude oil for over 80 per cent of foreign exchange earnings, must come up with policies that can diversify the economy, given that global economic fundamentals are not giving industry watchers the confidence that oil price will rise to pre-June 2014 levels in the foreseeable future. Against this backdrop, government is considering several options to shore up its revenue while the citizens call for caution in order not to implement policies that will have more negative effect on the economy.
While the need for a paradigm shift in the nation’s oil industry is crystal clear, observers have advised that government should get out of the business of operating refineries to pave way for operational efficiency and efficacy. For instance, the four refineries with combined installed capacity of 445,000 barrels of crude oil per day can now boast of only the Port Harcourt Refinery as the operating refinery. Even at that, the Port Harcourt Refinery with a refining capacity of 210,000 barrels per day is currently operating at 4.2% of its installed capacity. A projected expenditure of US$500 million on TAM for these refineries in 2016 budget is frowned at by a number of people who see the move as a ruse because we have passed through this route several times with minimum impact.
Bloomberg economists warned that “Financing the revamp of the refineries will be a strain on the lean finances of NNPC, yet it may not reach optimum capacity because of the age of the refineries which were built in the 70s and 80s.” According to them, Nigeria’s lingering fuel crisis may continue till 2018 when the 650,000 barrels a day Dangote Oil Refinery and Petrochemical Company will come on stream. “It would also be the world’s largest single-train refinery,” Alhaji Aliko Dangote told some reporters at the construction site in Lagos last month. From Nigeria all the way down the coast to Senegal and all the countries in between, there’s almost no functional refinery except the one in Cote d’Ivoire.
The Dangote Refinery and Petrochemical Company has the capacity to produce 55.2 million litres of Premium Motor Spirit (PMS) daily, and will also produce other fuels as well as fertiliser and polymers, according to Devakumar Edwin, Chief Executive Officer of the group. On completion, the refinery would be the fifth biggest in the world after plants in Venezuela, South Korea and India, according to data compiled by Bloomberg.
With the NNPC burdened by debt of about $5 billion owed to its joint venture partners, analysts opined that it is unlikely to compete efficiently with private refineries and therefore, privatisation option will save the government a lot. Advisably, they said, once the privatisation is on course, the government should take its rightful position as the regulator of the business of crude oil refining in the country. The government should allow the refinery business be driven by the private sector. It is inconceivable that the people in charge of establishing and or managing privately owned refineries will raise funds from lenders or investors and practically share such money as booty to the detriment of their refinery business.
