REFINERIES AND THE OPTION TO SELL
It’s time to privatise the refineries
Over the past few decades, several billions of dollars have been spent on the Turn Around Maintenance (TAM) of the nation’s four refineries. Unfortunately, what usually follows such expenditures are stories of waste. The issues with the refineries are not just that they do not produce refined products for Nigeria’s domestic economy, but also that they gulp huge funds as operational expenditures (OPEX). It therefore came as no surprise that the Nigerian National Petroleum Company Limited (NNPCL) is now mulling the idea of selling them. “We’re reviewing all our refinery strategies now. We hope before the end of the year, we’ll be able to conclude that review,” NNPCL Group Chief Executive Officer, Bayo Ojulari, said last week. “But what we’re saying is that sale is not out of the question.”
Our position on the state of the nation’s refineries is clear and has not changed. The refineries have been huge cost centres to the government and country, and we have always argued that they should be handed to credible private entities to restore their full productive capacities. Private businesses are often better managed than government’s. A quick visit to the Port Harcourt refinery and its neighbour, Indorama Eleme Petrochemical Industry, which was privatised in 2006, reinforces this position. If Eleme can be restored to efficiency with private funds and still pay out dividends to the federal government, privatising others should not be a problem.
However, there are also genuine concerns about the decision to privatise the refineries, especially at this period. The African Democratic Congress (ADC), the new opposition coalition platform for prominent politicians, has demanded a full audit of the refineries, citing recent reports that nearly $18 billion had been spent on their rehabilitation over the years. “This development, coming just months after government officials claimed the Port Harcourt and Warri refineries had resumed partial operations, raises fundamental questions about transparency and policy coherence,” said the ADC National Publicity Secretary and coalition spokesperson, Bolaji Abdullahi, who questioned the timing of declaring the refineries moribund after spending over $2.8 billion on a recent TAM. “Selling off the refineries under the prevailing circumstances is, indeed, conducive for all sorts of criminal dealings, whereby national assets could be deliberately devalued and sold to cronies.”
Other stakeholders have expressed similar concerns which the federal government must consider before taking a decision on the way forward. But we support the idea of privatisation. While the rehabilitation of moribund refineries has remained the unrelenting mantra since 1999, it is now clear that we cannot continue to subsidise failure, which the refineries clearly represent, at great national cost. But in doing this, we also strongly insist that competent consultants must be engaged to evaluate the assets of the refineries before a supervisory sale closely monitored by the National Council of Privatisation (NCP) and Bureau of Public Enterprise (BPE) could be undertaken.
For as long as our refineries remain within government’s absolute control, Nigeria will continue to lose value from their existence, scarce financial resources will be wasted on repairs, salaries will be paid to hundreds of workers for doing nothing, and the country’s downstream petroleum sector will remain untapped to move millions out of poverty. So, the choice is now clear: It’s either the refineries are sold to private operators through a privatisation exercise or put into a transparent joint venture ownership and operatorship arrangement with trusted private investors.
To ensure that the processes leading to the refineries’ divestment are not interfered with by politics, we strongly recommend that a transparent and fair bidding process independently managed by the BPE, and transaction advisors be adopted while a post-privatisation performance mechanism be set up to review and checkmate likely unwholesome activities. But it makes no sense to continue to waste resources on unproductive refineries.
The reality is that Nigeria is fiscally broke and should spend scarce money wisely. The times we live in demand of governments across the world to be economically prudent. We cannot continue to spend billions of dollars on phony repairs of refineries that are basically unproductive. We need a clear and sensible solution to what has become a cyclical waste of scarce resources.
