Keeping the refineries no longer makes sense. They are draining the economy
The operations of the three refineries operated by the Nigerian National Petroleum Corporation (NNPC) in Kaduna, Warri and Port Harcourt have shown that they are loss-making cost centres the nation cannot afford to keep at this period of economic recession. According to the NNPC monthly operations and financial reports, the refineries have in the last 12 months largely operated below commercial thresholds and may continue on this trend for a long time.
Indeed, due majorly to the recurrent issue of pipeline vandalism and resultant losses from its operations, the refineries have been a drainpipe on the financial operations of the NNPC. Save for the months of January, February, April and May 2016, when their consolidated account reported some ridiculous profits of N5,670, N839, N1,300, and N7,357 respectively, the refineries have largely gone on a record losing streak, despite all the reform measures put in place by the Minister of State for Petroleum, Dr. Ibe Kachikwu.
For instance, the June 2016 financial report of NNPC indicated that “the combined value of output by the three refineries (at import parity price) for the month of June 2016 amounted to N24.68 billion while the associated crude plus freight cost was N22.25 billion, giving a deficit of N4.69 billion after considering overhead of N7.12 billion.”
That the three companies have an average consolidated monthly overhead of about N7 billion while producing little at a time the country continues to spend vital foreign exchange to import petroleum products, speaks volume about the economic priorities of the President Muhammadu Buhari government. Incidentally, this same government claims it wants to cut wastages in its businesses, and shore up production and distributable revenue. Yet, it has so far failed to act decisively on Nigeria’s refineries which, from all available records, are largely unprofitable.
If we may ask: what will the federal government lose by letting go of the loss-making refineries and allow private investors revamp, and run them on agreed business framework? It is recalled that 10 months ago, Kachikwu stated that the refineries were working at a 30 per cent capacity but added that the president would not permit that they be sold or privatised. “Personally, I would have chosen to sell the refineries, but President Buhari has instructed that they should be fixed,” said Kachikwu. “After they are fixed, if they still operate below 60 per cent, then we will know what to do.”
The implication of that statement is that the federal government will continue to pump scarce resources into what has become a drain pipe. To the extent that such a decision makes no sense we believe that it is time to privatise the refineries and allow fresh resources – financial, material and human, to be injected into them. The government should realise from the 650,000 barrels per day refinery project which the Dangote Group is building, and should be ready by 2019, that refinery businesses are no longer fanciful in the hands of government, especially in a country whose government has shown deep incompetence in managing economic ventures.
When completed, Dangote’s refinery in Lekki, Lagos, would have toppled South Africa’s Sapref Refinery, which has a production capacity of 180,000bpd and currently the largest in Africa, as well as Egypt’s Mostorod Refinery with a capacity of 142,000bpd. Both Sapref and Mostorod are however operated in a joint venture arrangement.
We understand where President Buhari is coming from and his ideological position on state-run enterprises. But this is not a time for nostalgia. It is a season for taking practical decisions that will help the nation at a time of economic recession. Keeping the refineries by government no longer makes sense. There is no better time than now to sell them off.