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Deconstructing NNPC’s proposed investment in private refineries

The Nigerian National Petroleum Corporation (NNPC) is the only known state oil corporation in the country. Established April 1, 1977, it was given powers and operational interests in refining, petrochemicals, and products transportation and marketing, in addition to carrying out exploration activities.

Since 1977, the corporation has emerged as a behemoth of some sort. To date, the corporation owns and operates (efficiently?) four refineries scattered across the country; two in Port Harcourt and one apiece in Kaduna and Warri.

As a state oil corporation in charge of four refineries, not a few were naturally jolted by its recent pronouncement to stake up to 20 percent equity in some private refineries, given its crass mismanagement of the state-owned ones. It had already zeroed in on six of such refineries for investment!

It anchored its decision as keeping in line with a federal government’s policy which designated the mandatory participation of the corporation in any privately owned refinery that exceeded 50,000 barrels per day capacity. It further posited that being a national oil company of Nigeria, it has the dual role of providing stewardship for the nation’s hydrocarbon resources and adding value to the country’s resources for the benefit of citizens and other stakeholders.

The icing on the cake, as it were, as propounded by the corporation is that the move will “grow domestic refining capacity, improve petroleum products supply from our local refineries, and become a net exporter of petroleum products”.

Ordinarily, one will not raise an eyebrow regarding a corporation eager to earn returns from anticipated viable investments, in this case, some oil refineries. However, a lot of issues need to be interrogated and cleared before informed decisions can be taken.

Though the corporation has made it clear that investing in the private refineries will not dissuade it from pursuing its rehabilitation of the Port Harcourt refinery, the cost of which has been put at a staggering figure of US $1.5 billion, a pertinent question remains: how many times in the last two decades did the NNPC post profit arising from managing the refineries under its custody? Using the obnoxious and I dare add antiquated government policy of investing in a refinery that exceeds 50,000 barrels per day capacity as a smokescreen, the main objective of investing in the private refineries is unarguably to share in the expected profits that would accrue from better management of the refineries. Though it makes business sense to seize opportunities when they occur, on what moral platform does the corporation stand in investing in refineries that will be expectedly better managed?

As a state corporation charged with providing energy security for the country, what guaranteed protection will the NNPC give to Nigerian citizens if it is at once an investor and a regulator downstream of the petroleum industry? In other words, how is it to manage the conflict of interest that may arise from the pursuit of profit and enforcement of game rules?

With the corporation running its refineries (premised on the fact that the government has not decided on privatizing them) and investing in others, will there actually be a fair competition between the corporation’s refineries and those it is investing in? Is oligopoly a distant possibility?

What is the guarantee that the corporation may just be contented with an equity stake of 20 percent in any of the refineries? When the game becomes juicy, won’t the government through the corporation assume majority shareholding? What’s the guarantee that the government may in the future resist the temptation to take over the control of any of the refineries on grounds of “political insubordination”?

How reasonable in this era and age should the policy mandating the corporation to invest in any privately owned refinery with refining capacity exceeding 50,000 barrels per day be sustained? That policy, needless to say, is anachronistic and should be thrown into the trash bin alongside other impediments stalling investments in oil refineries in the country. Hopefully, the much-awaited Petroleum Industry Bill (PIB) will come to the rescue!

Before taking steps to invest in any private refineries, it is the submission of this writer that the NNPC, nay the government, should ponder on the above posers and concerns and take a decent approach. However, it is often recognized that in the world of business as typified by market enterprise, decency often takes the back seat but it shouldn’t be so always and this one should actually fall within the category of such exceptions.

Dr. Okolo is a Chartered Stockbroker and Management Consultant based in Lagos.

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