The recent bold decision of the Federal Government (FG) to invest $1.5 billion to carry out Turn-Around Maintenance (TAM) of the country’s biggest refinery in Port Harcourt has, in a typical Nigerians’ kneejerk manner, generated heated debate, albeit unnecessarily, as the logic of the decision was simple.
Rehabilitating the Port Harcourt refinery will save our hard earned foreign exchange (FX), protect Nigerians from monopolistic tendencies of private refineries about to start operations in the country and,potentially, stabilise the price and make the product more available.
Now, let’s examine what the entire hullabaloo is all about. Some argue it is a waste of resources to try and revive a moribund refinery; that we better build a new one and that $1.5b will get us a brand new refinery. This is gibberish. The Dangote Refinery in Lekki, Lagos State, for example,will gulp an estimated cost of $18bn when to complete. At least the initial funding costs, which was public knowledge, is almost 10 times what FG is proposing to spend on the Port Harcourt refinery’s TAM. The Dangote oil refinery is being funded with $3bn equity and $6bn loan capital. A consortium of local and international banks led by the Standard Chartered Bank provided a $3.3bn loan facility.An additional $997m is coming from The United States Trade and Development Agency (USTDA) as a training grant to develop human resources for operating the refinery.
The fact that the Dangote refinery (on commissioning possibly this year) will be the world’s biggest single-train facility producing Euro-V quality gasoline and diesel as well as jet fuel and polypropylene is neither the beauty of the project nor its estimated ability to generate 4,000 direct nor 145,000 indirect jobs. To me, the catch is in its ability to double Nigeria’s refining capacity and help in meeting the increasing demand for fuels, while providing cost savings.
In the ability to save cost—our hard-earned FX spent importing refined oil—and meet the increasing domestic demand of refined oil lies the exquisiteness of rehabilitating the Port Harcourt refinery. Related to this, a fact which not many of the critics of the TAM have paid attention to, is the good intention of the Government to protect Nigerians against monopoly of a private sector’s control of our sources of refined oil. To ensure this, least, there will be a public-owned refining facility to check-mate the monopolistic tendencies of the private entities. Even if it is for this single reason—protection of the citizenry against exploitation—the rehabilitation of the Port Harcourt refinery should go ahead, unhindered. Therefore, the Federal government deserve commendation for looking after and safeguarding the public interest.
To further drive home the public interest card FG is playing here, one needs to look at the similar approach the Nigerian National Petroleum Corporation (NNPC) retail is doing in the downstream sector. It may not have as many outlets as the major and independent marketers put together. But its presence in the sector helps moderate their excesses. If there were no NNPC Retail outlets, one can imagine what the major and independent marketers would do with the price of petrol at times like this! Without a functional local alternative refinery, we may just be putting Nigeria and Nigerians at the mercy of private capital, as with the Dangote Refinery!
Just to be trendy and perhaps follow the crowd of our savoir-faire techie generation, some critics deliberately brought the argument of the world is rapidly transiting from fossil fuel to greener alternative energy sources. If so; the critics seem to ask, why then spend $1.5 billion on a vanishing source of energy? Leading in this category of critics is Prof. Pat Utomi. Unfortunately, the critics using this line of argument fail to answer three critical questions: what do we do with our refineries? What do we do with our underground reserves and where are we in the race for the greener energy alternative?
Nigeria is estimated to hold approximately 37 billion barrels of proven oil reserves, the second-largest reserves in Africa. Despite the race for greener source of energy in the developed countries, the realities in Africa are different. These realities were captured by the International Energy Agency (IEA) Outlook 2019 which predicted that demand for fossil fuels will grow in Africa by 45%. The report also showed that fossil fuels would make up 60% of the African continent’s energy mix in the next 40 years. With such a projected huge market for fossil fuels on the continent, it cannot be a pragmatic step for Nigeria to abandon its refineries as is suggested by the critics. Rather, the pragmatic step would be to position the country to take advantage of that situation by revamping its refineries in order to play a major role in that market.
The other argument being floated against the refinery rehabilitation is that borrowing money at a time of dire economic constraints like this to fix the refineries would only dig the nation deeper into the debt trap. This happens to be one of the many areas in which the current rehabilitation project is different from all previous attempts. Borrowing money comes with a responsibility, especially when the lending body is a bank. You must be able to prove that the project for which you need the loan can generate enough money to pay back the loan. Besides this, the other advantage of external financing like the Afreximbank loan is that it will remove opacity and force efficiency that could make the refinery perform well enough to repay the loan. This tends to obviate the chance of the loan becoming a burden that could get the nation stuck in a debt trap as canvassed by critics.
Counting on the failures of the NNPC in the past when it comes to TAM, other critics hinge their criticism on trust deficit on the NNPC to deliver this time around. The answer to this is not farfetched. But we need to bring some historical context to fully understand the new dynamics at NNPC.
Anyone who has been following developments in the refining sector would readily remember the loud protests that greeted the sale of the Port Harcourt Refinery by President Olusegun Obasanjo towards the end of his administration in 2007. The argument then, anchored on sentiments and propelled by sensationalism, was that our common patrimony was being sold to an individual. Ironically, most of those who kicked against the sale of the Port Harcourt Refinery then are the ones insisting now that it should be sold and not rehabilitated.
What could have been responsible for the change in position? It is possible to argue that the inability of NNPC to revamp the refinery since 2008 when the sale was reversed created disenchantment and loss of confidence in their ability to maintain and operate it profitably. But that is only one side of the story, which presents a short-sighted view of the whole issue. Prior to the sale of the Port Harcourt Refinery and its eventual reversal, the maintenance of the refinery had been largely badly managed due to some political interference. Reversing its sales without a significant change in terms of government interference could not bring about much change in the fortunes of the refinery. This is the foundation of the trust deficit that is driving the sentiments around the recently announced plan to rehabilitate the refinery.
But the situation today is not exactly the same as it was years ago, in terms of government interference, transparency and accountability. Today, a lot has changed with respect to accountability and government interference in the NNPC system. The GMD, MallamMeleKyari, attested to this recently at an interactive session with journalists. At the forum, he disclosed that he had never been put under pressure by the President to do anything unethical since he got appointed.
This is easily believable considering the way he has championed the transparency and accountability drive at the NNPC. It is only someone who has no skeleton in their cupboard and therefore under no pressure to do wrong things that can go about opening up their books for public scrutiny the way the MallamKyari-led management is currently doing at the NNPC. It is, therefore, safe to say that the NNPC of today is different from the NNPC of the past, under which the refineries got to their current state. It would, therefore, neither be right nor fair to insist that the rehabilitation will be mishandled and the fund approved for it will go to waste on account of past experience.
Rehabilitating the Port Harcourt refinery under the new trustworthy leadership at NNPC will save our hard earned foreign exchange that would be spent on importing refined oil. It will protect Nigerians from the monopolistic tendencies of private refineries opening shops in the country and influencing pump price stability in addition to making the product more available. What else can be more comforting, at times of economic difficulties than this, sentiments aside?
Hassan, wrote from Abuja
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
