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Fuel Scarcity: Refineries Privatisation Solution To Current Mess

Amidst a crunching petrol scarcity, and high prices of diesel, kerosene, aviation fuel and lubricants, the Federal Government has again missed the argument and crux of the protracted petrol subsidy payments. In a rehashed and worn-out idea akin to scratching the surface of the matter, the Minister of Finance, Budget and National Planning, Zainab Ahmed, hinted on the sidelines of the 2023 World Economic Forum in Davos, Switzerland, that the government was ending the subsidy regime gradually from the second quarter. For long, the issue of subsidy has been clouded by sentiments, half-truths, corruption, and official incompetence.

On the back of hefty but opaque subsidy payments, Nigeria, back as Africa’s No.1 crude oil exporter, has been ensnared in a prolonged petrol scarcity since January 2022. Ahmed said, “We also have to exit fuel subsidy, because that is also a significant contributory factor. You can look at it in two ways – it is revenue that would have come to the government, but it doesn’t because it has been spent on fuel subsidy. But also, where there is nothing for the government to buy the refined petroleum products, we have to borrow to buy the petroleum products. So, if you take that out, that’s about N3.25 trillion; that is a significant relief.”

This is confusing. Despite subsidy payments by the government and the Nigerian National Petroleum Corporation Limited not remitting oil sales proceeds regularly into the Federation Account, petrol is selling far above the regulated N185 per litre in many parts of the country. In some cases, the product is selling for N300 to N600 per litre.

Still, the Federal Government appears confident that once the subsidy payment, currently worsened by the forex crisis, is discontinued in June, the bottlenecks in the nation’s oil sector would be over. This is a totally defective thinking because the problems facing the country’s oil sector are multilateral.

Data by Blackgold Energy Authorities, an oil and gas consulting and advisory firm, states that Nigeria imports petroleum products with $28 billion per annum. This is more than half of the N21.83 trillion 2023 budget. “Nigeria’s per capita refining is about 0.002 barrels per day, that’s very embarrassing,” Blackgold argued. Plainly, subsidy is not the problem but the woeful domestic refining capacity.

Petroleum products prices will be unsustainably high in Nigeria long as the country imports them. The President, Major General Muhammadu Buhari (retd.), and his cohorts should realise that the first major step out of the quagmire is to refine domestically.

Nigeria has four refineries; two in Port Harcourt, Rivers State; one in Warri, Delta State and one in Kaduna, with an installed capacity of 445,000 barrels per day. But monstrous inefficiency, corruption and lack of focus have combined to persistently keep their operations far below their installed capacities for decades. It is curious that successive governments have neglected this direction. The refineries keep gulping millions as running costs annually, with taxpayers’ money continually earmarked wastefully for turnaround and rehabilitation works. Over a period of 25 years, the Federal Government wasted a whopping $25 billion on them, a report stated.

In 2021, the Federal Government voted $1.5 billion to repair the Port Harcourt Refinery. This is a refinery that generated a total revenue of N10.33 billion from 2015 to 2019, according to its 2019 audited financial statements. It reported a total loss of N229.14 billion during the period.

Several stakeholders, including Vice-President Yemi Osinbajo, have canvassed the benefits of privatising the refineries. In 2020, Osinbajo said that the government had no business running refineries. He said, “If the refinery is left in the hands of the government, it will continue to experience the same problem it is experiencing now. I do not think that it is the business of the government to run the refinery. It should be the business of the private sector, which is why we are trying to focus on assisting the private sector to develop modular refineries.”

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Indeed, Nigeria has issued 65 licences for modular refineries since 2015. Only about four have taken off the ground; these ones complain about lack of access to feedstock (crude oil). This shows the leadership is just paying lip-service to domestic refining.

Political brickbats and labour unions’ strident outcry over the privatisation of the refineries chiefly reflect a nation unprepared for a diversified economy. At the tail end of his administration, ex-President Olusegun Obasanjo sold the controlling stake in two of the refineries to the Bluestar Consortium for $721 million in 2007, but his successor, the late Umaru Yar’Adua, irrationally reversed it.

Former President Goodluck Jonathan failed to achieve their privatisation. His successor, Buhari, has stuck primordially to public ownership of the moribund assets. This sets back the economy in several ways.

One of these is that the Buhari regime has been borrowing to pay for subsidies. That is bad economics. By privatising the refineries, Nigeria can free itself of spending on the refineries and allow the private sector to refine, as is the practice elsewhere. Singapore, a minor crude producer, is a major hub for refined petroleum products with a capacity for 1.5 million bpd, says the International Trade Administration.

The subsidy regime is significantly tainted by corruption, and the government’s unwillingness to eliminate oil theft, which the Senate said cost Nigeria $2 billion in eight months during 2022. This year, the Economic and Financial Crimes Commission noted it recovered about N13 billion as proceeds of illegal payments made under the subsidy regime between 2017 and 2021. In 2011, the Jonathan administration could not account for N2.57 trillion subsidy payments.

Therefore, the starting point is to privatise the country’s moribund public refineries to allow strong competition and promote self-sufficiency in petroleum products within a virile commercial framework.

Source: Punch

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