Oil & Gas - Viewpoint - April 9, 2021

Refineries rehabilitation: What do the critics really want?

By Ata Udo
More often than not it appears nobody knows exactly what Nigerians really want. In times of national need, the cacophony of opinions and of shreds views, particularly from the privileged vocal few, would drown out the more discerning voices of the majority, leaving the leadership in a wilderness of confusion on the direction to proceed.
In 2007, then President Olusegun Obasanjo’s administration was at the verge of exiting office. One of the exit-point decisions of that administration was the sale of the Port Harcourt Refinery to private investors to turn it around into a functional source of fuel supply for the country.
The privatization process saw Blue Star consortium. consisting Aliko Dangote and Femi Otedola, at the verge of emerging as the preferred bidder for the asset. But what ensued was national outrage, protests and criticisms against the exercise.
When the then Musa Yar’adua administration took over from the Obasanjo administration, one of its first decisions on assumption of office was to reverse the sale of the refinery based on the popular public sentiment that Obasanjo was arranging the sale as a parting gift to his friends.
Since then, a lot of water has passed under the bridge. Yet, the refinery and others have remained largely moribund and dysfunctional as ever.
The nation has continued to reel under the yoke of trillions of hard-earned resources spent on the importation of petroleum products to meet growing national fuel consumption need, amid suffocating corruption-prune subsidy regime.
Dangote has since moved on with his business. He is currently building an export-oriented 650,000 barrels per day capacity private refinery billed to come on stream by 2022.
Sadly, the issues have remained. Two of these are currently occupying the front burner of public discourse, with the vociferous critics up again in their game in recent weeks.
Between 2010 and 2012, the downstream sector of the petroleum industry was a bazaar of sorts. Fraudulent petroleum products marketers made a kill in profiteering through various devious schemes to earn billions in subsidy payments.
As usual, Nigerians complained and kicked. They demanded successive administrations to halt the pillage of the national patrimony through fuel subsidy regime they said was a monumental scam.
Successive governments appeared to lack the political will to bite the bullet and end the scam. Each time an attempt was made, it appeared too tepid to withstand the stoic opposition by the organized Labour and Nigerians.
For the Nigeria Labour Congress (NLC) and its affiliates, including the Trade Union Congress (TUC), Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and National Union of Petroleum and Natural Gas Workers (NUPENG), removing fuel subsidy meant retail fuel price increase.
The concern of Labour has always been that if fuel subsidy must go, the government must find an alternative to the importation of petroleum products, which is subject to the vagaries of the international crude oil market.
But the argument by Labour has always been incongruous. They cannot profess hatred for the continued payment of fuel subsidy by the government, and at the same time not expect higher prices at the pump.
That alternative has always been an arrangement towards improved domestic crude oil refining capacity to take care of the supply of the petroleum products requirement by Nigerian consumers.
Improving the nation’s refining capacity meant a decision to either carry out the rehabilitation of the four existing, but dilapidated refineries in Port Harcourt, Warri and Kaduna, with a combined refining capacity of 445,000 barrels of crude oil per day, or the construction of new refineries.
Clearly, the economic implications of the moment appear to tip the balance of priority in favour of the former, as the nation can ill-afford the high cost of the latter now put at approximately $12billion.
The other major concern after fixing the refining capacity has always been the petroleum products market, particularly the structures for a fair pricing mechanism to guarantee decent returns for investors and avoid the undue exploitation of consumers.
The reforms agenda captured under the Petroleum Industry Bill (PIB) was to capture all those concerns. Unfortunately, the passage of the PIB has lingered for nearly 20 years, while the challenges keep mounting.
On assumption of office, one of the promises by the Minister of State for Petroleum Resources, Timipre Sylva was ensure an accelerated process by the National Assembly to finally get the Bill passed into law. So far, the process appears to progress according to plan, amid assurances that it might become a reality this year.
However, while the wait for the PIB to materialize continues, there was the urgency to salvage the government from the burden of involvement in fixing the retail price of petroleum products and fuel subsidy payment.
Stopping the government from continuing to pay about N120 billion per month as fuel subsidy and not getting involved in fixing the price of petroleum products would mean allowing the interplay of market forces of demand and supply to be the determinant factors in the fuel pricing template in the country.
In April 2020, the present administration took advantage of the unprecedented crash in oil prices at the international market in the wake of the outbreak of the coronavirus pandemic to introduce the deregulation of the downstream sector of the petroleum industry.
Imperfect as the arrangement has been, the critics have not given the policy the slightest chance to stabilize and flourish.
As expected, the policy has precipitated increases in fuel prices from N140 per litre, when it was announced, to about N165 per litre today, with threats of imminent further increases in the near future.
But considering that no one can eat an omelet without breaking an egg, it stands to reason that it is impossible for Nigerians to achieve the objective of ending the corruption-ridden fuel subsidy regime without paying the high price at the pump, which the government has been soaking up through the NNPC.
Interestingly, at inception of their tenures, both Sylva and Kyari made the rehabilitation of the nation’s four refineries and improvement of the nation’s domestic refining capacity their cardinal part of their agenda.
Sylva said in his ten-point agenda in 2019 that he would “collaborate with the private sector to aggressively increase domestic refining capacity.”
He said this would be realized through the continuation of the programme of rehabilitation of the nation’s four refineries, based on a technical audit of the plants that was already pending before his assumption of office.
For Kyari, his promise was to ensure all refineries at Port Harcourt, Warri and Kaduna were fully rehabilitated by 2022, to transform Nigeria from a net importer of refined petroleum products into a net exporter of the commodity.
He said since a technical audit involving the plant equipment inspection and integrity study rehabilitation of Phase 1 of the Port Harcourt Refinery was completed in December 2019, his plan was to undertake the rehabilitation of the plant, to complement the supply of petroleum products from the strategic reserve.
When all these plans were announced, the critics of the rehabilitation of the Port Harcourt did not raise a voice against it, or offered any alternative solution to the exercise.
However, with the recent announcement by Sylva about the plan by the government to commence the exercise, what has really changed between the plan was announced and now, to warrant the recent spate of criticisms?
Pat Utomi, a professor of Political Economics, described the decision by the government to spend $1.5 billion to refurbish the Port Harcourt Refinery as ‘illogical and unintelligent.”
He said he would have preferred the government disposing the refineries for N1 to interested investors willing to invest billions to revamp the refineries and save the country from continuing to waste money on them. His suggestion is that the refineries are beyond salvaged.
“In a country that is grappling with poverty, spending $1.5billion in rehabilitating a refinery, rather than investing in productive areas that can create jobs for the young people, does not make any sense in economic logic,” said.
Utomi argues that it is a wrong investment decision to spend so much to revamp a refinery at a time the world is moving away from fossil fuel to alternative energy.
Also, he says the country is running a race against time, as the use of petrol as fuel for cars is fast becoming old fashioned. “In about 20 years from today, most cars would not be running on petrol. Rehabilitating the refineries before selling them will be a complete waste of money,” he said.
Former Vice President and the People’s Democratic Party (PDP) presidential aspirant, Atiku Abubakar, and Stanbic IBTC Bank founder, Atedo Peterside, also faulted the exercise.
In the run-up to the 2019 presidential elections, Atiku made his position on the matter very clear. He had declared that if elected President, he would sell the NNPC, and perhaps the refineries, to his friends, even if they want to kill him.
For Peterside, a one-time Chairman of the Technical Committee of the National Council on Privatization (NCP), the decision is “brazen and expensive misadventure”.
He said many “experts” prefer the refineries to be sold ‘as is’ by the Bureau for Public Enterprises (BPE) to core-investors with proven capacity to repair them with their own funds.
But let’s concede for the sake of argument that it is true that spending $1.5billion on the rehabilitation of the Port Harcourt refinery is a waste, as the world is moving away from fossil fuels to alternative energy as Utomi said, why is Aliko Dangote, a shred investor and Africa’s richest businessman, spending so much of his Group’s resources to invest in building a brand new 650,000 barrels per day capacity refinery expected to come on stream in 2022?
Could it be that those now criticizing the rehabilitation of the refineries and advocating for the disposal of the assets for N1 nursed a hidden agenda to emerge as one of those core investors, only for the current decision by the government to appear to have taken the sail from their winds?
What do they really want? Is it for the country to continue spending billions of dollars on the importation of petroleum products, despite being one of the world’s largest producers of crude oil? What’s really wrong with Nigeria having a functional refinery to end the current importation of petroleum products?
Was it not the same argument they sold to the previous government to dispose of the power sector assets to core investors with proven capacity to turnaround the sector?
Has the sector experienced the much-vaunted Eldorado since 2003 when the Power Holding Company of Nigeria (PHCN) was balkanized into 11 successor electricity distribution, four generation companies, with one transmission company?
Did the so-called core investors not turn out today to be fronts for the incompetent and inept politicians who took advantage of their connections with their allies in the corridors of power, to cherry-pick the assets they later stripped, without adding any value to the system in terms of improved electricity generation and distribution?
Curiously, the clan of virulent critics attacking the government’s decision to revamp the refineries are not different from the most vocal tribe of unrelenting opposition to the removal of fuel subsidy and introduction of the deregulation of the downstream sector of the petroleum industry.
If we agree that the continued payment of fuel subsidy was hurting the economy and denying the government the desired resources to cater for the basic infrastructure needs of Nigerians, why are the critics expending so much energy debating whether its removal from the fuel pricing template is the right decision to take?
No doubt, the removal of fuel subsidy portends higher retail prices at the pump. But what are the available alternatives if people are against the government’s decision to remove it?
We cannot approbate and reprobate. We cannot eat our cake and still have it. We cannot say we do not want the government to continue to pay for fuel subsidy and not expect retail fuel price to increase.
Would there ever be a time when the price of petrol would return to pre-historic days, in view of the fact that even the economies neighbouring us rely on the fuel imports from Nigeria to survive?
If nothing is done now to stop the government from continuing to pay fuel subsidy, we would, wittingly or unwittingly, be supporting the continuous growth of other economies to the detriment of ours.
If the government continues to use our lean resources to import petroleum products and pay for fuel subsidy, and not repair the refineries, we would be encouraging those economies we import fuel from to continue to grow and create jobs for their population, while our people remain impoverished.
As PricewaterhouseCooper’s Associate Director Public Sector, Energy Utilities & Resources, Habeeb Jaiyeola, said; “The earlier the country accepted the reality of the pricing mechanisms of the downstream petroleum sector, the better. The much time and resources being dedicated to petroleum subsidy continue to be a stumbling block in freeing up some significant portion of the government revenues to fund budget shortfalls and aid national development.”
Again, in an environment where the fuel price in Nigeria remains the lowest in the entire sub-Saharan region, it pretty obvious that we would be using our resources to import fuel and supply to all the countries in the region.
If the fear of the critics is transparency and accountability by the government with the use of the funds, their concern should be close monitoring of the processes, to ensure the government established a transparent fuel pricing template that would allow Nigerians to pay the appropriate price for refined petroleum products that accurately reflect the market realities.
Sylva appears to have allayed the fears of the critics already. He has assured that the rehabilitation of the Port Harcourt refinery would not significantly add to the country’s debt burden.
Out of the entire $1.5billion estimated as the cost for the rehabilitation exercise, he said only about $800 million would be provided through appropriation in the annual budget, with about $200 million expected to be generated from the internal operations of the NNPC, including the Nigerian Petroleum Development Company (NPDC), and other subsidiaries, with the balance to be provided by the African Export-Import Bank (AFREXIMBANK).

Udo, the National Coordinator of the Media Initiative for Transparency in Extractive Industries (MITEI), wrote in from Abuja

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