The Nigerian oil and gas sector, the lifeblood of Africa’s biggest economy, is still on its knees, seven years after President Muhammadu Buhari came into power.
Buhari, who doubles as petroleum minister, had in 2015 pledged to “revive and reactivate Nigeria’s minimally performing refineries to optimal capacity” and boost foreign reserves by ending the importation of refined fuel.
He reminded Nigerians that two of the four refineries in the country were built under his watch as petroleum minister in the 1970s.
“In my time as NNPC chairman and petroleum minister in the late 70s, two of our four refineries were built, and domestic consumption catered for,” Buhari said in a 2015 broadcast.
But seven years after, all the refineries are shut down, with some of them undergoing rehabilitation, and the country relies wholly on imports for petroleum products.
Experts have wondered why the government decided to spend billions of dollars on refinery rehabilitation in a world where global private refiners with stronger and more efficient systems are struggling to break even.
“Refineries are one of the most complex facilities to run, they are capital-, technology- and management-intensive operations, yet low margin,” Olagoke Balogun, former processor operator at Chevron with 13 years’ experience in the refining business, said.
“Aside from corruption, the Nigerian state is grossly incompetent to run such complex operations even if they wanted to,” he added.
The four refineries recorded a combined loss of N154.54 billion in 2018, compared to N252 billion in 2017, according to the Nigerian National Petroleum Company (NNPC).
Crude oil exploration and production have declined to record lows as a result of worsening oil theft and low investments caused largely by delays in regulatory reforms.
“Positive and negative indexes in Nigeria’s energy sector were activated within the last seven years, yet the sector’s perennial problems are still left unaddressed,” Joe Nwakwue, a former chair of the Society of Petroleum Engineers, said.
Under Buhari’s administration, there have been notable achievements such as the first marginal bid round since 2003, the passage of the Petroleum Industry Bill into law, the final investment decision on Train 7 of Nigeria LNG, the publication of the first audited financial statements of the NNPC.
“Deep-rooted challenges such as addressing petrol subsidy would have been a masterstroke,” said Kelvin Atafiri, who runs Cavazanni Human Capital Limited, an investment firm exposed to the oil and gas sector.
In Africa’s biggest oil-producing country, nearly all past governments have made efforts to do away with fuel subsidies.
Finding by BusinessDay shows Nigeria is digging itself into a deeper financial crisis every day that passes with a ballooning petrol subsidy that the country can ill afford.
Nigeria will spend as much as N4 trillion on petrol subsidy in 2022, about the same amount spent on subsidy between 2017 and 2021, according to the Federation Account Allocation Committee, and more than the N3.4 trillion reported as the total federal government revenue in 2021.
The petrol subsidy bill for 2022 which is a part of recurrent expenditure is just N1.91 trillion less than the total amount budgeted for capital expenditure.
The upward review of the petrol subsidy bill was done amid a cut in other critical spending areas. For
instance, the Basic Health Care Fund was slashed to N44.56 billion from N56.14 billion.
The subsidy bill increased the nation’s budget deficit of N6.38 trillion by N965.42 billion to N7.35 trillion,
representing 4 percent of Gross Domestic Product.
For the first time in Nigeria’s history, a $100 oil price won’t be enough to save the country’s ailing economy, where millions of micro, small and medium-sized business owners are feeling the pinch from the weak growth in Africa’s biggest economy.
“With the current system in place, Nigeria needs more than a miracle to have an oil boom at N150,” Nwakwue said.
The price of Brent, the benchmark for Nigeria’s crude oil, has remained at $100 in the past few weeks amid supply concerns triggered by a tighter supply outlook after sanctions against Russia – the world’s second-largest oil exporter and a key European supplier – over its invasion of Ukraine.
“Nigeria’s oil assets are facing rising existential risks which are compounded by wasteful expenditure,” Nwakwue said.
This year, countries in Europe, Asia as well as major oil-producing nations took bolder steps about renewable energy, either as a tool to meet ambitious decarbonisation goals or an opportunity aimed at export, but Nigeria is not moving fast enough to create policies that will drive investments into a low-carbon energy future.
“Nigeria needs to take more urgent steps to develop a productive and diversified economy, in 2030, without which
we could be looking at the ruins of a failed state,” said Niyi Awodeyi, who runs Subterra Energy Resources Limited, an investment firm keen on the energy sector.
Also, some of the world’s major funds are also divesting from fossil fuels. The most recent is the Zürich,
Switzerland-headquartered investment bank UBS, which decreased fossil fuel financing by 73 percent, from $7.7 billion in 2016 to $2.1 billion in 2020.