In 2017, Ibe Kachikwu, Minister of State for Petroleum Resources, announced in Vienna, Austria, while attending the 172nd meeting of the Organisation of Petroleum Exporting Countries (OPEC), that Nigeria will concession its four ailing refineries whereby the concessionaires will repair the refineries, with no public funds expended. Repair works would last between 12 and 18 months to ensure their optimal operation.
The Nigerian Agip Oil Company, a subsidiary of the Italian oil giant, Eni, was said to have committed to repairing the Port Harcourt refinery, as part of a $15 billion investment that includes building a 150,000 barrel per day refinery and a power plant. Oando was also involved as partners in the project.
But the Senate weighed in and queried the process of the transactions, which they alleged was without recourse to due process.
“The best practice is to select partners through open and competitive bidding, i.e. prepare the business for sale, market the business, buyers selection and close transaction,” Mohammed Sabo, a senator from Jigawa State, said at that time.
The process was suspended. Two years on, there has been no progress. Chidi Izuwa, director general, Infrastructure Concession Regulatory Commission (ICRC), made a case for the refineries’ concessioning for efficient performance saying that the call has become urgent on the heels of poor performance of the refineries, which available records showed it is performing below 30 percent.
“Government has to play a role and break the back of government dominance in the downstream sector and bring in the private sector. This is the only way to go. When you bring in the private sector, you must change the incentive structure. The NNPC refineries, we should concession them to the private sector,” said Izuwa, while speaking as a pannelist at the recent Nigeria International Petroleum Summit (NIPS) in Abuja.
“There is a huge opportunity in refining. Petroleum is the only thing that increases in volume when you process it. If you take 42 gallons of crude oil, it gives you 45 gallons. It actually breaks the laws of Chemistry and physics. It increases in volumes because of the cracks. It is a profitable business and we need to bring in the private sector”, Izuwa said adding that “the depot system is a profitable business. You should also at the same time concession it to the private sector, they would make the investment and then, those assets would start to earn revenue for government.”
Babajide Soyode, Technical Adviser, Dangote Refinery, on the same panel discussion said that NNPC refineries are goldmine, and are sitting in the best markets in the country; Port Harcourt, Warri and Kaduna. Dangote is going to occupy the fourth market, Lagos.
“Why can’t NNPC reactivate or upgrade its refineries. They are not old. Upgrading, as any engineer would tell you is standard in our industry. Follow the industry standard, upgrade what you have. We are talking of NNPC being efficient, those refineries were built at an average of $1 million – Warri for N357 million, when you compare it with 1978, Kaduna was N377 million,” Soyode said.
“If you have been subsidising, you don’t accrue enough to maintain the refineries, not to talk of to upgrade or expand, then it is shameful that NNPC would be looking for $1 million to pay consultants for study. It’s a shame for Nigeria.
Subsidy was introduced in 1986, and the aim was to alleviate poverty, now, it’s 32, 33 years of subsidy, can anybody tell me one poor person whose lives have been made better? It’s the elites that have been enjoying the subsidy.
Unfortunately, we have one of the worst petrol imported into the country, he said. The solution is one: remove subsidy, two: let the private sector or the NNPC take over, it would solve the problem. Dangote refinery would commence 2021 and when others like the NNPC refineries come on stream, we would have about 1.25 million barrels refining capacity a day; then we can export and do whatever we want to do with the excess.”
Between 2003 and 2007, the federal government had attempted to privatise the refineries using the BPE and a consortium of advisers led by Credit Suisse First Boston, now Credit Suisse Securities. But that attempt failed.
FRANK UZUEGBUNAM
