The private sector should be encouraged to invest in the building of modern refineries

The country’s four refineries are ill-maintained and weighed down by corruption. All the refineries, Port Harcourt, both old and new, Warri and Kaduna, have a combined installed capacity of 445,000 barrels per day. But they have never worked at optimum levels. Indeed, a report of the Nigerian National Petroleum Corporation (NNPC) last September put the combined output of all the refineries at an alarming1.96 per cent. “Every refinery is supposed to have a maintenance schedule, but those schedules were not carried out because people wanted to import,” said Mr. Alex Neyin, a former Chevron executive. “So, they let the refineries run down to the point that they cannot produce to meet local demand.” Even with a new man at the helm, the current capacity utilisation is still miserable.

This is why we have consistently maintained that the refineries be sold to private investors who are better managers of men and equipment. The private sector should also be motivated to invest in the building of new and modern refineries across the country. With the proper structure, fiscal and legal framework in place, it will not be too difficult to get them to buy in. Refineries are lucrative businesses in other parts of the world.

We note that about 16 years ago, licences for private refineries were issued by the federal government. For several reasons ranging from “inappropriate” product pricing to complex bureaucratic processes, none of the investors built any private refinery apart from the Dangote Group which is in the process of constructing one and a small firm that refines diesel. But we are convinced that some deliberate incentives from the government can change the narrative, given the huge and ready market for the products not only in Nigeria but across the West African sub-region. But the issue of pricing which is tied to the subsidy regime would also have to be resolved, taking into account a period when the price of crude may rise in the international market.

While it makes no sense that Nigeria continues to import finished petroleum products at huge cost to the economy, experience has also shown that the government is not adept in the efficient management of businesses. If anything, the tales of corruption, ineptitude, sabotage and other sharp practices in the oil and gas industry have continued to confirm this widely held opinion. That is why we believe that with the right framework and incentives for the private sector, local refining of petroleum products can become a major income earner for the country as well as a more effective and cheaper way to guarantee supply of refined petroleum products. But something would have to give with regard to the policy instruments in the sector.

More specifically, there is need for a clear direction from the government on the way forward, especially in the downstream sector. Incidentally, just a few days before the presidential budget presentation, the Shehu Musa Yar’Adua Foundation’s Oil Revenue Tracking Initiative (ORTI) convened a roundtable to provide a forum for government, sector experts and civil society groups to discuss policy options and recommendations. With stakeholders drawn from the federal government (representatives of the Minister of Budget and National Planning), the Nigerian Extractive Industries Transparency Initiative (NEITI), the media and civil society, the participants all agreed that Nigeria’s downstream sector of the petroleum industry has presented a reform challenge for every administration since its introduction in 1973.

The main take away from the sessions was the need for government to fully deregulate the sector. That remains perhaps the best way not only to derive maximum benefits from the oil resource but also put an end to the perennial and embarrassing fuel shortages in our country.