Mele Kyari, the newly appointed Group Managing Director of the national oil company, Nigerian National Petroleum Corporation promised that Nigerian government owned refineries will be fully operational by 2023. He made this known on Monday while setting the agenda for his tenure.
What he said: “We will see to the successful completion of the ongoing rehabilitation of our refineries within record time and we will further encourage the establishment of private refineries either as independents or in some form of public private collaboration before 2023.”
Why it matters: Nigeria’s refineries are barely functional. The refineries have been unable to meet domestic capacity, making the crude-rich country dependent on imports for its petroleum products. Fixing Nigeria’s refineries will go a long way towards halting this trend. However, the devil is in the numbers:
- According to a report released last year by an NNPC committee, Nigeria spent over $396 million on fixing the refineries between 1998 and 2008 (aka Turn Around Maintenance).
- Today, the four refineries in Nigeria produce products at a combined capacity utilization of 14%. NUPENG also claimed the NNPC has spent billions of dollars but did not substantiate it.
- Nigeria’s refineries are running at an operating deficit. According to the NNPC, the refineries lost about $327bn (N132.5bn) in 2018. This figure represents a 39% rise from about $263.8m (N95bn) deficit recorded in the previous year.
- Nigeria spent around $13 billion on the importation of petrol in 2016 per former petroleum Minister Kachikwu. According to him this represents about 30% of the Central Bank’s ‘foreign exchange outlay.’
We know that several TAM projects in the past for these existing refineries end up being abandoned after payments have been made to contractors by the NNPC. Historically, every NNPC GMD or Petroleum Minister makes this boast only to realise that they have failed at the end of their tenure. A former GMD and junior Petroleum Minister, Dr. Ibe Kachikwu admitted his failure to fulfill this promise, which he made to the Nigerian people just like Kyari.
Likewise, it is interesting to note that Kyari’s predecessor could not make progress in spite of his strategic move to handover the repairs of the refineries to their original builders.
It is quite a complex matter. Nonetheless, the single biggest problem with Nigeria’s ailing refineries remain its ownership by the Nigerian government. This is a fact that even Vice President, Professor Yemi Osinbajo admitted to recently in a policy speech. “If you look at the refineries we have today – Warri, Port Harcourt and Kaduna – the primary reason they are not working today is because they are government run,” he said.
So why not sell them? Well, President Muhammadu Buhari is unpersuaded that refineries should be sold or privatized. Per former NNPC GMD, Ibe Kachikwu, the President advised against his plans to sell the refineries to private investors from the start of the administration. We cannot rule out that the President sees the refineries as his personal legacy. According to the President, he built two of the four refineries during his tenure as the chairman of the NNPC and petroleum minister in the late 70s.
One more thing: GMD Kyari says that the NNPC will encourage private investors to establish private refineries. He specifically pointed out that the NNPC would give “every necessary support to the Dangote Refinery in order to achieve timely start-up.” However, it will take the government to take strong fiscal measures such as the removal of subsidies to get more investors interested in taking the NNPC seriously.
Bottomline: Kyari is being quite optimistic here. It is hard to comprehend how he intends to go about making Nigeria “a net exporter of petroleum products within the life of this (Buhari’s) administration.” It is even more important to note that Kyari is not saying anything new and he is toeing the path of his many predecessors who have failed at restoring the refineries. We think it is safe to say that this point of Kyari’s agenda will take a miracle to accomplish.