There’s perhaps no bigger indictment on Nigeria’s oil refining failure than South Korea’s success. 56 years after a major policy rethink that revolutionised South Korea’s refining business, Nigeria’s refineries are still struggling with a long list of excuses and billion-dollar losses to show for it.
South Korea boasts of little oil reserves and the maximum it has ever managed to produce is mere 1,000bpd condensates, however, it maintains three of the world’s biggest refineries.
Nigeria on the other hand has nothing to show despite having the 10th largest oil reserves in the world with 37 billion barrels.
Despite the country’s near-complete lack of natural resources, South Korea’s understanding of the private-led refinery model has transformed the country from a poor exploited Japanese colony to an industrialised $2 trillion economy.
While Nigeria refineries struggle to refine for domestic consumption, South Korea’s refineries are feeding its giant and ever-expanding companies such as Hyundai, LG, Daewoo, GoldStar, KIA, and Samsung, while also supplying refined petroleum products to other Asia countries.
Unlike South Korea, Nigeria’s refineries have over the years failed to meet the yearnings of many ordinary Nigerians in terms of engendering the pivotal economic transformation and development of the country.
What South Korea did right
Many studies attribute South Korea’s refining success to structural transformation and policy reforms aimed at opening the country to foreign markets.
Within 1962-1966, South Korea implemented its first national five-year plan that remains an important factor in the country’s period of rapid economic growth, popularly called, ‘Miracle on the Han River.’
The plan was aimed at developing the nation’s economy through expansion of energy industries such as chemical fertilizer, cement, oil refinery, iron and steel, with clear intentions to boost exports and improve the country’s balance of payment.
While this first Five-Year Plan did not bring about an immediately self-reliant economy, most economists agreed it brought a period of growth and modernisation in preparation for long-term economic success and policy reform.
Unlike Nigeria’s refineries, which are 100 percent owned by the government, South Korea’s refining business is inspired by private sector-led policies that are willing to employ creativity and innovations to expand on capacities.
For instance, South Korea’s five biggest refineries are all privately owned and operated, with each refinery operating at an optimal capacity of 80 percent to 90 percent.
Although South Korea’s Ulsan Refinery (which was established a year before Nigeria’s Port Harcourt refinery) started operations with a 35,000bpd capacity, however, it has grown to be the third-largest refinery in the world, with a new capacity of 840,000bpd.
In order to make up for the shortfall of not being an oil-producing country, South Korea’s refineries such as SK Energy (the nation’s largest international oil company-IOC and marketer of petroleum products), GS Caltex, S-Oil and Hyundai Oilbank acquired stakes in multinational and national oil companies from all the continents in the world.
To ensure the country’s reliance on crude oil is well structured, South Korea also pursued institutional policies through institutional companies such as the Korea Gas Corporation (KOGAS), Korea Electric Power Company (KEPCO), and Korea National Oil Corporation (KNOC).
KNOC acquired and operates many foreign investments in the oil sector of international and national oil companies, and was responsible for the production of about 137,000bpd of oil and close to 190 billion cubic feet of natural gas in 2015 in its overseas setups.
Aside the KNOC, the government of South Korea has also supported all the major oil companies ranging from refiners, distributors, as well as exporters with supports in terms of technology training and financial support to win highly competitive bids overseas on E&P projects through the Special Accounts for Energy and Resources (SAER).
Nigeria’s failed attempts to privatise
While South Korea’s forward-thinking policies seem to be yielding more fruits, Nigeria’s policy formation and economic choices leave less to be desired.
Given the failure of Nigeria’s refineries, the first attempt to sell them off was made by former President Olusegun Obasanjo.
When Umaru Yar’Adua became president he reversed it, citing that the process lacked transparency. The fear of the unions in the oil and gas sector was also palpable as they saw the sale of the refineries as a ploy by the government to award the deal to its cronies.
In November 2012, former President Goodluck Jonathan also recommended that the refineries be sold as a result of inadequate finance and under-performance, but they still remained. It didn’t take long before more issues emerged.
The Nigeria Natural Resource Charter (NNRC) described the operational cost of the refineries as one of the world’s highest. With less than 10 percent contribution to GDP, the combined effect of the poor state of the refineries is massive losses, depleted reserves, and low growth.
The situation in Nigeria has become even more worrisome after the first-ever audited report of Nigerian National Petroleum Corporation (NNPC) showed that Nigeria’s four refineries gulped a combined loss of N154.54 billion in 2018 compared with N252 billion in 2017.
How to move Nigeria’s refining forward
Rather than pump more cash into repairs and maintenance, most stakeholders have suggested that changes be made to the ownership structure and business model of Nigeria’s refineries, to turn them around.
“The news of the planned expenditure of a whopping $1.5 billion for Port Harcourt refinery repairs is worrisome to well-meaning Nigerians. In light of our precarious economic situation, it is a huge waste,” Peter Obi, former governor of Anambra State, tweeted on Friday.
According to Obi, approving such an amount for refinery repairs in light of Nigeria’s economic situation is a huge waste.
According to a report by National Refineries Special Task Force Report set up in 2012 by former President Jonathan, the current ownership structure and business model have failed to adequately provide for the safe and efficient performance of the refineries.
Other stakeholders have recommended that the Federal Government should relinquish control of the operation and management of the four Nigerian refineries by divesting a majority of its 100 percent equity to competent, resourceful and experienced refining private partner(s) in accordance with the Public (Privatisation and Commercialisation) Enterprises Act of 1991.
Other stakeholders have noted that fixing the refineries can best be described as the goose in the Nigerian economy. If it is well nurtured and fruitful, the spin-offs can lead to a transformation of the economy.
