The Nigerian National Petroleum Corporation (NNPC) efficiently took the country’s petroleum refining capacity to its peak performance three decades ago but has since lost the ability to either fund or efficiently run these four refineries creating a deep need for private sector involvement.
Despite evidence that Nigeria needs massive injection of private capital to attain local refining sufficiency, the country’s economy managers still show disrespect and lack of confidence in private sector actors. This shows in the data on foreign direct investment (FDI).
Foreign direct investment in Nigeria, Africa’s top oil producer, plunged by 43 percent to $2bn in 2018, according to a United Nations report. Reuters reported that investors were put off by a dispute between the government and South African telecom giant MTN over repatriated profits.
Lack of investment inflows has stalled development in the oil and gas sector, particularly the refining sector.
“The Federal Government and NNPC do not have the funds to turn around Nigeria’s falling refining fortunes and there are other issues that are legal and legislative in nature”
Maikanti Baru, NNPC’s group managing director said at his induction as Fellow of the Nigerian Academy of Engineering on June 20, at the University of Lagos.
In a 2017 report on Nigeria’s petroleum refining, PricewaterhouseCoopers (PwC) had projected that by 2019, Nigeria would become Africa’s 3rd largest refiner of petroleum products (behind
Egypt and Algeria) and a net exporter of refined petroleum products.
The report titled “Nigeria’s Refining Revolution” stated that thecountry’s exports are estimated to exceed 37,000 barrels per day (approximately 6 million litres daily). The modular refineries were expected to bridge a supply gap of 53,000 bpd (approximately 8.5 million litres daily)
in Nigeria.
This was based on the assumptions that Dangote refinery (650,000 bpd) opens its gates mid-2019, operating at 50 percent utilisation, existing refineries (445,000 bpd) are operating at 20 percent utilisation and modular refineries (combined capacity of 200,000 bpd) also come on stream early 2019, operating at 90 percent utilisation. These ramp up to 90 percent, 30 percent and 90 percent respectively by 2030.
Anyone who has observed closely would see that Nigeria has missed these marks. Dangote refinery comes on stream second quarter of 2020. Existing refineries have consolidated
utilisation of less than 30 percent. Of 39 licences issued for modular refineries since 2015, seventeen licenses to establish (LTE) have expired in the last four years, which represents 44
percent of the total. Fifteen licenses are active and another seven out of the 39 can still break ground.
Only the Niger Delta Exploration & Production Plc (NDEP) Ogbele modular refinery seems to be function at over 90 percent capacity but currently does 1, 000 barrels per day as it awaits upgrade to 11, 000 bpd. This modular refinery has gulped $150 million of private capital already.
To cut a long story short, Nigeria is still a massive net importer of refined petroleum products and still subsidises these products at the retail point. Landing cost of premium motor spirit (PMS) is put at N185 but the current pump price is N145.
The Federal Government carries the burden of the difference by subsidising consumption. The subsidy or under recovery programme has gulped N1.8 trillion since 2015.
The continued regulation of the downstream sector by Government through price control of PMS which accounts for more than 70 percent of fuel consumption in Nigeria makes the economics of refining unprofitable. It scares investors, creates an inefficient marketplace and an incentive for rent seeking.
“Being in the financial business over the last twenty years of my career, I know that this country gets broker by the day. The system as we see it today is not sustainable at some point it will
crash” said Afolabi Oladele, partner at the Africa Capital Alliance, Fellow of bthe Nigerian Academy of Engineering and general manager downstream at Nigerian National Petroleum Corporation in 1995″.
To reverse its dwindling refining fortunes, Africa’s largest crude oil producer needs to deliberately woo private capital. There was a time when Nigeria’s problem was not necessarily
how to earn money but rather how to spend it but this is no longer the case.
“We are just barely out of a recession and if nothing is done to fix the petroleum sector, we might be headed then way of Venezuela” said Oyindamola Adedokun, outcome lead, revenue stream at FOSTER, an Oxford PolicyManagement programme.
