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The Punch


Tuesday, August 16, 2011

Sourcing fuel from Niger Republic

Editorial Board

AFTER bilateral discussions between Nigeria's President Goodluck Jonathan and Nigerien President, Mahamadou Issoufou, on August 9, it was reported that as from December 2011, Zinder Refinery in Niger Republic will become a supplier of petroleum products to Nigeria. In announcing the deal, Issoufou emphasised that the planned export of products from his country would bring succour to residents of Northern Nigeria. It is estimated that Nigeria imports 85 per cent of its fuel needs at a cost of approximately $10 billion a year because of the hopeless condition of its four state-owned refineries.


Minister of Petroleum, Mrs. Alison Diezani-Madueke

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The deal, coming after a similar arrangement with Cote d'Ivoire and yet-to-be-concluded negotiations with Senegal, put paid to expectations that the Federal Government could creatively and expeditiously tackle the challenges of Nigeria's downstream petroleum sector. In November 2009, the then Minister of State for Petroleum, Mr. Odein Ajumogobia, had revealed Nigeria's move to import petroleum products from Senegal. Even as key stakeholders pondered what the implications could be, another deal involving the exchange of Nigerian crude for refined products from Cote d'Ivoire's refiner, SIR, was sealed in December 2010.

Meanwhile, Nigeria's four refineries - Port Harcourt Refining Company 1 and II, Warri Refining and Petrochemical Company, and Kaduna Refining and Petrochemical Company - with a combined installed capacity of 445,000 barrels per day have been either non-functional or operating at less than 50 per cent capacity for about 10 years now. The Federal Government has been regrettably ambivalent, repeatedly allocating funds for Turn Around Maintenance, while claiming that it is committed to divestment, as dictated by the Public Enterprises (Privatisation and Commercialisation) Act, 1999.

That Niger Republic and Cote d'Ivoire could establish and efficiently manage petroleum refineries, despite recurring political crises and limited hydrocarbon resources, should compel self-examination on the part of Nigeria's political leadership. What explanations does the Federal Government have for its inaction on the privatisation of the four refineries? And why is the Petroleum Resources Minister, Diezani Alison-Madueke, continually promoting plans by the government to build new refineries?

After the distressing experience with the four moribund refineries that have been draining the public treasury of hundreds of billions of naira yearly for TAM and other costs and producing little, why is the government still building new ones? And why has the National Assembly remained so aloof, unbothered by the lack of initiative on the part of The Presidency and Ministry of Petroleum Resources? Obviously, state-owned and government-run refineries are veritable avenues for graft, cronyism and waste. It is alleged that some powerful Nigerians make a lucrative living importing fuel and pocketing the subsidy.

Indeed, Nigeria's story of contradictions has been taken too far. The country is the world's sixth largest crude oil exporter. Crude oil refining will be a key transformation step in the downstream sector of the oil and gas value chain because it adds commercial value to the oil by transforming it into many different marketable products. The privatisation of NNPC's four refineries and associated assets should be undertaken as a matter of urgency, one of utmost national importance. It is a major policy issue whose resolution is critical to Federal Government's campaign for private sector investment. Prospective investors in the petroleum downstream want unambiguous signals that government means to divest from the sub-sector and that a level playing-field is assured to new entrants.

Privatisation of state-owned refineries will transform the petroleum products market in the country by transferring the burden of staff salaries and other emoluments to private sector operators who know how best to utilise human resources. It will free the sector from political manipulation and fraud. Even China, a centrally-planned economy, boasts over 60 private refineries with an annual refining capacity of over 80 million tons, accounting for one quarter of the country's total. A single refinery with the capacity of 150,000 barrels can produce gasoline, kerosene, gas oil, furnace oil, liquefied gas, asphalt and sulphur among others, and generate about 3,000 direct and 10,000 indirect jobs.

The billions of naira paid to redundant personnel of the four refineries yearly constitute a significant fraction of what the NNPC and the Petroleum Products Pricing and Regulatory Agency tout as "fuel subsidy." Privatisation is the only way to ensure that the pump prices of petroleum products in Nigeria are truly reflective of the cost of inputs and related operational factors.

Petroleum products, just like everything else in a country's energy mix, are of strategic interest. Since strategic thinking is the hallmark of visionary leadership, it is expected that the Federal Government would be conscientious to do the right thing by packaging incentives attractive enough for private refiners. That is the way to reverse the dependency on other nations and make Nigeria self-reliant. Capital flight, as evidenced by the billions of dollars expended on fuel importation, would be significantly reduced, just as job opportunities would be created.

Until the sector is deregulated, private investors may have little incentive to build refineries. The Jonathan government should renew efforts to privatise the four refineries and end the national shame of fuel imports.