It is sad and a pathetic situation that a country like Nigeria, despite being blessed and endowed with so many mineral resources, in this case, crude oil and natural gas, that has the propensity to catapult and transform the country into a world class economy to reckon with, is still struggling to attain the judicious use of these abundant resources for the benefit of its citizenry. Despite Nigeria’s over 50 years of crude oil and natural gas discovery, the country’s technological and scientific stance and advancement have not been able to holistically capture the ‘refining capacity’ that is required to properly make it benefit from these mineral resources on the global market.
We consider it as an abnormality that Nigeria, with a population of over 160 million, and is blessed with abundant oil and gas resources, is still facing the woes of “refined petroleum product availability.” Reasons for this have been traced mainly by stakeholders in the oil and gas industry to the continued comatose nature of the nation’s four refineries.
In its bid to turn things around, the Nigerian National Petroleum Corporation (NNPC) was reported to have recently strategized for temporary solutions to revive the country’s ailing refineries, even as it continued negotiations with Original Equipment Manufacturers (OEM), who had refused to come into the country, due to security challenges. According to the report, the former Group Managing Director (GMD) of NNPC, Mr. Andrew Yakubu, who addressed the town hall meeting after a facility tour of the corporation’s Research & Development Centre, the Integrated Data Services Limited (IDSL), and the Port Harcourt Refinery in July 2014, said the management has gone ahead to procure some of the components that needed to be changed in the refinery and has started fixing some of the critical units that need urgent intervention.
It was also revealed that all the four refineries in the country are scheduled for Turn Around Maintenance (TAM), but the refusal of the OEMs to come to Nigeria has been a major impediment. Yakubu explained that, though the plan to bring in the original builders of Port Harcourt refinery, JGC of Japan, for the TAM has not sailed through, NNPC was still in negotiation with the companies nominated by JGC to see what value they can add to the project, even as the corporation has, in the meantime, been pursuing some other measures to keep the plant running. The former NNPC boss also stated that the perennial power challenge faced by PHRC would soon be a thing of the past as a dedicated independent power plant was on the verge of  completion, to provide uninterrupted power supply to the refinery, stressing that the plant, which will be ready for commissioning in a few weeks’ time, would go a long way to boost the efficiency of the refinery.
The now former NNPC GMD also disclosed that more subsidiaries of NNPC are beginning to make profits in their respective operations as a result of some initiatives his management introduced upon his assumption of office two years ago. Yakubu disclosed that as opposed to the past when the Nigerian Petroleum Development Company (NPDC), the Nigerian Gas Company (NGC), and NNPC Retail Ltd were the only SBUs running at a profit, more subsidiaries, including the three refineries, have joined the train of profit making centres as a result of the introduction of a scheme to supply crude oil to them by marine vessels. He explained that the scheme was developed as a result of the constant attacks on the crude supply pipelines which created crude supply challenges for the refineries over several years. On the long term solution to the problem of pipeline vandalism which was responsible for the crude supply challenges of the refineries, the former GMD had explained that plans were underway to deploy the horizontal directional drilling technology in all the corporation’s pipelines to reduce the incessant attacks on the pipelines which have become a huge drag on the operations of the Corporation as well as a drain on the national economy. With the recent appointment of a new GMD of the NNPC, in the person of Dr. Joseph Dawha, who said the transformations being carried out by the NNPC under the immediate past GMD, Andrew Yakubu, would be sustained by him, it therefore means that the above stated strategies of the NNPC will remain.
Let us reiterate here that the importance of doing everything possible in ensuring that Nigeria is able to refine all of its crude oil and natural gas produce to satisfy both domestic demand and for exports, cannot be overemphasized. Aside the fact this will earn more revenue for Nigeria, it will also address all the ‘headaches’ created by ‘subsidy’ on petroleum products and will also make Nigeria less dependent on imported petroleum products. But to actualize this, it is imperative for the NNPC to realize that maintaining the four refineries in the country will not be enough to guarantee that Nigerians enjoy steady supply of petroleum products. In fact, even with the four refineries working at full capacity (which is most unlikely), satisfying domestic demands will still be a struggle, not to mention having petroleum products for exports. It is worthy to note that this is not the first time we have witnessed the NNPC and its GMD coming forth to reassure Nigerians that it is making plans to revive the nation’s ailing refineries to improve availability of petroleum products. One time, a former NNPC GMD, Alhaji Mohammed Barkindo, expressed his regret to the House of Representatives Committee on Petroleum (downstream) during his tenure, that the nation’s refineries were still not optimallyworking in spite of the huge sum of money sunk into them through Turn Around Maintenance (TAM). The then GMD also said he was concerned over the high cost associated with importation of Petroleum Products.
This unprofitable situation has not changed even with the present NNPC strategies. Aside some changes mentioned in ensuring that the NNPC and its subsidiaries become profitable, which gladly support and have seen with the NPDC, however it appears the NNPC current GMD is on the ‘normal path’ like his predecessors did by focusing on TAM as a strategy to revive the nation’s ailing refineries within the nation’s unutilized oil and gas industry. The reliance on TAM every now and then to resuscitate the ever ailing four refineries in the country has proven not to be the best solution in addressing the availability of petroleum products once and for all in Nigeria. The use of TAM on the nation’s four refineries, is not only costly, but has become a channel through which public resources are misappropriated and mismanaged. It is also appalling that former NNPC bosses like Alh. Abubakar Lawal Yar’Adua, Dr. Funsho Kupolunkun, and others, solely depend on TAM of the nation’s refineries to ensure availability of petroleum products. The TAM strategy has obviously not been helping us as a nation. Despite previous TAMs that had been initiated by the NNPC, Nigerians have remained dependent on imported Petroleum products to service domestic requirements, not to mention export demands as well.
It is really unfortunate that Nigeria, said to be Africa’s leading crude oil exporter and a regional leader in installed crude oil refining capacity, sadly, remains the continent’s largest per capita importer of refined petroleum products. The country’s four crude oil refineries, with a combined refining capacity of over 445,000 barrels of oil per day, according to the US Energy Information Administration (EIA), should easily be able to meet the current domestic demand in refined products (excluding export). EIA estimates this is about 270,000 barrels of oil per day. However, in spite of promises by successive governments to improve the performance of the refineries and commit significant resources to their rehabilitation, the four refineries continue to operate at an average of 22.9% of installed refining capacity in 2012 (NNPC Annual Statistical Bulletin).  The simple fact is that Nigeria has to import nearly 80% of its requirement of refined petroleum products. In 2011 and 2012, Nigeria spent between 12 and 15 billion dollars annually to meet the deficit – something that, frankly, deserves sober reflection. It is also instructive that the cost effectiveness of the crude for oil SWAP deals (that is swapping crude oil for refined petroleum products), has raised more questions in recent times. The process, designed to mitigate the depletion of Nigeria’s Foreign exchange reserves, diverts potential foreign exchange reserves that can potentially be used to bolster local infrastructure.
A former lawmaker of the House of Representatives, but now a Senator, Sen. Clever Ikisipo, some few years ago spoke on the state of the nation’s refineries. In his words, then: “There is a worrisome situation in this country; our problem is the state of our four refineries; it is as if the NNPC has been deceiving Nigerians”. He also observed that there were rumours that some powerful cartels were responsible for the failure of the refineries and had urged NNPC to dislodge the cartels in the interest of Nigerians. And the truth is that there are indeed, powerful cartels that are responsible for the failure of the nation’s refineries. And so long as these cartels, which are benefiting heavily from the continued deplorable state of our refineries, are left to continue with their clandestine activities, the nation’s refineries will never function to optimum installed capacities. Back then, Sen. Ikisipo also urged relevant authorities of the NNPC to simplify the process of issuance of operational licenses to Private refiners in the country to solve the problem of non-workability of NNPC-owned refineries and engender healthy competition. Also reiterated is the need to ensure supply of petroleum products across the nation at the recommended retail market price and decried the situation whereby such petroleum products were bought at a higher pump rate in some parts of the country. The issue of pipeline vandalism was also noted, as well as that of the unending Turn Around Maintenance (TAM) of refineries that had turned out to be one of the avenues used to siphon the nation’s resources/funds.
The failure of these government-owned and operated refineries costs Nigerian citizens colossal sums of money in foreign exchange and government revenue, to the detriment of education, healthcare and other badly needed public services. N122 billion was essentially wasted in 2011 on maintaining refineries that never produce to their installed capacity. Refinery output fell between 2011 and 2012 from 24% to 22% (NNPC Annual Statistical Bulletin). Were these funds invested in the healthcare sector, for instance, they could have more than doubled the federal allocation to all 15 teaching hospitals and enhanced indelible services and training to millions around the country. Furthermore, poor refinery operation and maintenance, and fuel importation allegedly engendered massive corruption and fraud, which in turn, are adversely impacting the country’s image.
For the obvious fact that Nigeria, despite being ranked 7th in the world in terms of oil and gas reserve, is still dependent on the importation of refined Petroleum Products, is enough reason for The Federal Government, The Ministry of Petroleum Resources and The NNPC to change their strategy of only relying on TAM on the nation’s four refineries to address inadequate supply of petroleum products.
Honestly, we do not see the reason why the nation’s four (4) refineries should be left for experimentations. The same problems plaguing the refineries today have been there for over the past thirty-five years, and yet nothing seems to have changed even with the not so clear Privatization exercise done by the last administration of Olusegun Obasanjo, where it was revealed that in the last few weeks of his tenure, Obasanjo privatized the NNPC-controlled refineries, selling controlling stakes, 51 percent in Port-Harcourt and Kaduna refineries, to Bluestar Consortium, for a whopping five hundred and seventy one million dollars ($571,000,000), which has not been properly accounted for to Nigerians up till date. Though, there were other reports that former President Olusegun Obasanjo approved the sale of the refineries during his administration but the late President Umaru Yar’Adua in 2007 reversed the sale of the refineries for lack of transparency in the transaction. However, President Goodluck Jonathan in November 2012 recommended that the refineries should be sold due to inadequate finance and under-performance. That process has not been concluded till now. As the Petroleum Minister once noted in this line; the government would continue to rehabilitate the refineries while it explored the possibility of privatizing them.
The bottom line is that, allowing the NNPC to continue with their ‘experimentation’ with our refineries will not permanently address pressing issues, especially now that it is proving difficult to bring in the necessary expertise for the scheduled TAM exercise. We are not trying to be pessimistic here, but we try to face the reality before our nation. The Organized Private Sector, Corporate bodies and giant International Oil Companies (IOCs) should be given more room in taking over completely the operations of the nation’s refineries and in turn build new ones. They should be in the better position to source for funds and use local raw materials to make the refineries work to their optimum capacity.
Though, there are fears, fuelled by the politicized nature of past and present dialogues in the privatization initiative in this sector; that the privatization of the refineries will lead to the consolidation of wealth in a small subset of the country (further aggravating an already apparent income gap in the population), and that it will also lead to loss of jobs, however, all that can be addressed with the right attitude and transparency in the entire process. Also, the nature of competition is such that private entities are bound by responsibilities to maximize shareholder value. The need to develop core competencies and achieve efficiency savings is the driving force behind the ethos of private sector institutions. A privatized refinery does not draw maintenance funds from a seemingly bottomless pit of funds sourced outside its operation. By its very nature, a privatized refinery must justify such expenditure in line with its operating profits.
With the world’s current overcapacity for refining petroleum, local refineries face strong competition in an increasingly open market. A private sector run refinery can operate uninhibited by the lethargic and inefficient nature of public sector institutions both in cost, efficiency and transparency. The facts are that transparent and robust privatisation of these refineries will raise government revenue, conserve foreign exchange, decrease vulnerability to imported petroleum products, reduce fuel cost, increase employment and reduce corruption in the petroleum sector. There are overwhelming evidence which indicates that the private sector has served the Nigerian public and stakeholders better than government-owned and operated utilities and parastatals.
To this end, we urge the Federal Government and the Ministry of Petroleum Resources to intensify current efforts in making the existing refineries to function to their optimum built-in capacity by involving the organized private sector, and encourage the building of more refineries in the country. This arrangement should be a Public-Private Sector Partnership arrangement that is transparently carried out, to serve as a permanent solution.
Like we have always reiterated before now, in the same line, the Federal Government should, more importantly, compel the existing (exploration and production)  IOCs, as well as indigenous oil and gas companies like the Nigerian Petroleum Development Company (NPDC) in the industry to refine at least, half of whatever crude oil or natural gas  they produce. These IOCs and indigenous oil and gas companies should have refineries (plants) beside their production facilities, to refine natural gas and crude oil for domestic use in the country and for export purposes. Besides, they will also benefit immensely from the huge profit that will be abound.
Though, in 2007, attempts by the previous administration to facilitate the sale of the refineries were reversed due to pressure by the unions and NNPC management renewed commitment to revamp the refineries, but there is need for us to start doing things differently to see the needed changes we seek.  In 2011 alone, Nigeria reportedly spent $760 million on refinery maintenance, and the operational capacity of the refineries hardly changed. In the five years since the reversal, we have spent over US$30 billion in oil subsidies. These sums spent on Turn Around Maintenance (TAM) could have collectively funded our health and education budget for three years! This cannot continue.
Under the Greenfield Refinery initiative, the Nigerian National Petroleum Corporation (NNPC) planned to undertake a public-private partnership project to expand local refining capacity, eventually settling on establishing a 350 000 BPD refinery in Lagos. This, along with calls for liberalising the sector by awarding licences for only new refineries, saying it worked for the telecommunications industry and GSM licenses, make up a myriad of policy suggestions on solutions to the refinery problem. The fact is that these are not mutually exclusive policies, as excess capacity can be exported. It is instructive to note that, although several refinery licences have been awarded in the past, not a single refinery has been successfully refurbished. As liberalisation has so far failed to work in the refining sub-sector as a viable policy option, selling the refineries is a faster and more efficacious means of building refining capacity. Moreover, even when new refineries eventually come on board, it will not negate the need to sell the existing ones – just as the GSM licences did not negate the need to sell NITEL.
While Nigeria continues to squander a fortune on importing petroleum products, we know that attempts by governments to offload the existing refineries to competent private investors remain hampered by misguided policies, corruption and the lack of political will to confront entrenched, short term interests and fears, such as the unions like the National Union of Petroleum and Natural Gas Workers (NUPENG) and the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), whose fears are proven to be largely unwarranted. Savings from the reduced cost of import in the form of tariffs and demurrage on landed vessels can ease the need for budgetary allocations to oil subsidy funds. But it is in the public’s best interest for these refineries to be sold. And there is no better time to do so than now, which will raise much needed revenue, conserve foreign exchange, reduce corruption and augment national security by reducing our vulnerability to imported oil and gas products. It will be for our mutual  and collective benefit as a nation.
Though, it has been reported that the Federal Government through the Ministry of Petroleum Resources would continue to discuss with the labour unions on the option of privatizing the country’s refineries, as it has maintained that the government should not be in the business of running refineries, however, it is also imperative for the Government to take steps in the direction suggested above. That is, to compel the IOCs like Royal Dutch Shell in Nigeria, the NPDC of the NNPC to build refineries and Plants alongside its current assets/facilities to refine at least 50 per cent of its crude oil and natural gas produced in the country. Private indigenous oil and gas companies in the country should be compelled to do same.
This will not only ensure the “transfer of technology” on the part of IOCs, it will also make IOCs to be more involved in refining petroleum products for domestic and export purposes, other than being only in the  extractive industry. All of this will bring about more industrialization and increased employment opportunities for the countless idle youths on our streets. We believe the IOCs need to be more involved in the growth process of Nigeria’s economy other than focus solely on exploration and production of crude oil and natural gas for export. It might interest us to know that Royal Dutch Shell, for instance, currently has the largest Gas-To-Liquids Plant in the world in Ras Laffan industrial city, which is about 80km North of Doha, Qatar. Apart from producing diesel, petrol, and kerosene the said Plant is also producing base oils for top-tier lubricants; a chemical feedstock called naphtha used to make plastics and normal paraffin, which is used to make detergents as well. Why can’t Shell and other IOCs equally establish such Plants in Nigeria? What stops them from doing so? Why can’t the Nigerian Government think and act towards these lines of action?
For instance, there is need for the expansion of the current gas facilities in Utorogu (OML 34), in Iwhrekan Community, Ughelli South LGA, Delta State, to include Gas-To-Liquids Plants just like Shell has done in Doha, Qatar. This is hinged on the fact that there are enormous gas reserves in Utorogu. In fact, the largest natural gas reserve and condensate reserve in West Africa is in Utorogu. Utorogu Gas Plant for instance is described by Shell (SPDC) as the “gas hub of West Africa”. Utorogu can best be described as the “life wire of Nigerian Power Stations and domestic industries”, and is also where gas is supplied to neighbouring West African countries through the West Africa Gas Pipeline Project (WAGPP). All these important Utorogu oil and gas assets are currently being operated by NPDC with excellent results to show forth.
Though, the local content law had made provisions to compel IOCs operating in the country to establish refineries that will refine petroleum products, however, we believe the prescribed 1000 barrel stream per day is too small and is one-sided on petroleum products expansion, hence the suggestion above. When half of the crude products they produce are refined in the country, and other chemical Plants built, the finished products will be more than enough for export purposes and to service domestic demands. And ultimately, Nigeria will become less – dependant on imported refined petroleum products and petro-chemical products in due time. Besides, it is about time we stop exporting crude oil and natural gas at a cheaper price and import the refined products at a higher cost. This is counter – productive to the nations’ economy.
Conclusively, the truth is that successive and present Nigerian Government has not harnessed the enormous potentials of crude oil and natural gas reserves in the country to develop other sectors of the Nigerian economy. All the Nigerian Government and its parastatals/Ministries are known for all these years is to depend more on crude oil and natural gas revenues to run their administration. They cannot continue to sit and wait  for crude oil/natural gas revenues without taking practical steps to harness the “refining potentials” of these natural resources for the good of all. The Nigerian Government should stop all the dilly-dallying and take the bold initiative/steps to re-organize the oil and gas industry and the nation’s refineries, as suggested here. It is a shame that Nigeria with her abundant oil and gas reserve, is still heavily dependent on the importation of refined petroleum products, when rather, it is the country that is supposed to be doing the exporting of refined products.
The government should create the enabling environment to encourage private investors to go into the oil and gas sector, to build refineries and pay taxes to government, rather than allowing ex-public officials to do same in other countries in Africa and across the globe. This is the best way forward.