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Refineries: NNPC’s Wonky Gyrations

Expectations that the Port Harcourt Refinery Company would come on stream by December, as promised by the Federal Government, have again been dashed. The Minister of State for Petroleum Resources, Heineken Lokpobiri, had indicated the “mechanical completion” of repairs and promised that the refinery would resume operations by the end of the year, but this has not happened. That is disappointing.

Though the Nigerian National Petroleum Company Limited claimed it had achieved “mechanical completion and flare start-up” of rehabilitation work on the Area 5 Plant of the PHRC, fuel is not yet flowing from its pumps. This means Nigerians have once again been given false hope about the return of the refinery to operation. At best, under government control, the refineries will work only briefly before collapsing again.

This is the latest chapter in the long-running saga of the four state-owned refineries, which have remained dormant for decades. Despite having the capacity to refine 445,000 barrels of crude oil per day, corruption and poor leadership have continued to stymie their resuscitation.

A former Minister of Finance, Olu Falae, argued recently that the government is incapable of running the refineries. He is spot on.

Billions of dollars invested in endless Turn Around Maintenance have failed to bring them back to production. The lack of domestic refining capacity has wrecked the economy, resulting in a massive drain on foreign exchange reserves. Beyond this, it leaves consumers at the mercy of global oil price volatility. Nigeria spent N400 billion monthly on petrol subsidies before President Bola Tinubu cancelled it in May.

In March 2021, the Federal Executive Council had approved $1.5 billion for the rehabilitation of the PHRC for a period of 44 months. The then Minister of State for Petroleum Resources, Timipre Sylva, assured that the rehabilitation of the 60,000bpd PHCR would be completed by the first quarter of 2023. This turned out otherwise. In August 2021, the FEC approved another $1.48 billion for repairs at the Warri and Kaduna refineries.

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Despite all this, Nigeria is still importing nearly 100 per cent of its fuels and is probably putting all its eggs in the Dangote Refinery basket, but a monopoly is not wise.

The endless TAMs have further strengthened the case for the sale of the refineries to private investors. Unlike the government, the investors will manage them efficiently, leading to improved productivity, better maintenance of the facilities and job creation. In turn, this will significantly reduce Nigeria’s reliance on imported petroleum products.

As a corollary to this, the investors could bring in new technologies and invest in upgrades that can modernise the refineries, making them more competitive and environmentally friendly. Invariably, selling off the redundant refineries as the Federal Government did in 2007 before it was reversed would relieve the government of the financial responsibility of operating them.

Of the 18.1million bpd crude refined in the United States per official data, the US government owns none of the 132 refineries. This model is best suited to Nigeria, where public corruption, cronyism and rent distort efficiency.

Therefore, Tinubu should halt the waste of public funds on the refineries. They should be sold to reputable investors, who would not only provide value, but also give effective competition to Dangote Refinery, which is scheduled to come on stream shortly.

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Source: Punch

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