Refineries: Between Corruption And Privatization Option

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It was Vice President Yemi Osinbajo, who a couple of days ago, said the problems associated with Nigeria’s refineries will not go away if the Federal Government continues to own and run them. He was revalidating the usual saying that, ‘government has no business in business’.

The VP noted that experience has shown that refineries were better managed by the private sector, hence the need for the government to restrict itself to providing the regulatory framework for such businesses to thrive.

But Nigeria has the third largest refinery capacity in Africa. It boasts of an installed capacity of 445,000 barrels per day (bpd) only trailing behind South Africa with 540,000 bpd and Egypt with about 774,900 bpd. Unfortunately, with our four government-owned refineries and one private one, we don’t produce anywhere near this installed capacity for many years now.

The four plants are owned by the Nigerian Government through the Nigerian National Petroleum Corporation (NNPC), while the fifth one is owned and operated by Niger Delta Petroleum Resources (NDPR). Apart from the single fully-fledged petrochemical plant, two of the refining plants, Kaduna Refinery and Petrochemical Company (KRPC) and Warri Refinery and Petrochemical Company (WRPC), have petrochemical complexes that utilize their refinery intermediates to produce petrochemical precursors.

The refineries are almost non-functional while they keep gulping millions of Naira as overhead costs and in the name of Turn Around Maintenance (TAM), which has become a ritual carried out by successive governments, yet local needs still cannot be met and the NNPC has had to rely largely on the foreign importation  of petroleum products especially premium motor spirit (PMS) to meet the daily consumption needs of Nigerians. Also, there is the existence of certain unscrupulous individuals who are benefitting from the system through their influence on the periodical award of TAM contracts each time a new government is in place.

The twin menace of corruption and inefficiency are responsible for the current state of the nation’s refineries and they have provided the grounds for the privatization option because it is generally believed that private-owned entities are well-managed and profitable than public enterprises.

Brazil, India, Singapore and South Africa have refineries that are managed by private firms and are extremely efficient. Therefore, provided the refineries are sold through a transparent process to independent private firms with the requisite capital and technical expertise, there is no reason why the same would not be possible in Nigeria’s case.

It’s unfortunate that, Nigeria, which is Africa’s leading crude oil exporter and a regional leader in installed crude oil refining capacity, sadly, remains the continent’s largest per capita importer of refined petroleum products. Nigeria still imports petroleum products from countries like Brazil and India, which were no where on the oil map of the world when Nigeria discovered oil in Oloibiri in 1956. Strangely, Nigeria has also been importing petroleum products from Niger Republic, which has a modest refining capacity of 20,000 bpd. It is instructive to note that the Soraz Refinery in Niger is 60 per cent owned by Chinese state owned oil company (CNPC) and was built with $980 while Nigeria once earmarked more than $1bn for one TAM contract on its refineries. 

The truth is that the Nigerian government must think out of the box on practical ways of ending endemic corruption in the refinery management and maintenance circle. There are state-owned refineries in Africa and beyond, and they are efficiently and profitably run by the government. If it’s possible in Sudan and Saudi Arabia, why not in Nigeria?

Therefore, this defeats the argument that government has no business owning and running the refineries. Why do things that work in other countries don’t succeed in Nigeria? When people in authority want to privatise public assets to themselves and their cronies at give-away price, they begin with such warped argument that government has no business being in business. 

They don’t interrogate the abject failure of all the privatised companies since privatisation exercise started. Even all the banks that were privatised have all collapsed. All the paper mills have collapsed before they even took off. 

What happened to the privatised NITEL and Mtel and so many other critical public assets? What stops individuals from building their own related businesses instead of waiting to buy government-owned enterprises at cheap prices on the pretext of privatisation? 

The Federal Government spent N8.94 trillion in 10 years on fuel subsidies. That amount would have built at least two 100,000-barrel capacity refinery per year, with a total of 20 refineries by now. Alas! They preferred to import because of the unproductive quick and corrupt money and the entrenched system that supports the so-called private rent-seeking prebendal businesses.

We cannot continue like this as a nation and short-cut theories and approaches will not help us overcome our challenges on the long-run, they will rather compound the problems and successive governments will continue to exploit the situation.

Senator Melaye was a three-time member of the National Assembly.

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