Sell outdated refineries now!

The old question resurrected the other day when it was reported that the Nigerian National Petroleum Corporation (NNPC) had inaugurated a committee with a mandate to bring them (the refineries) to 90 per cent capacity with a whopping USD1.12 billion. According to the report, combined capacity utilisation of the refineries had been on the downward trend such that as recent as June 2017 the rate dropped to 12.73 per cent from 23.09 per cent in May. The refineries’ combined production, even at full capacity, has never been enough to satisfy domestic demand of petroleum products.

Consequently, the country has been depending on imported refined petroleum products involving huge foreign exchange outflows. This is in spite of huge amounts of money, in hard currencies, that had been spent in their repair or rehabilitation or turnaround maintenance or refurbishment (expressions that had been variously adopted to pull funds out of public treasury for use in the refineries).

As discussions persist on whether the refineries ought to be repaired or outsourced or privatised or concessioned, sides have been taken with varying supportive reasons. Some experts, the other day, were reported to be against government putting N342.72 billion (USD1.12 billion) needed now to repair the money guzzling refineries. The experts, who instead, recommended sale of the facilities, were reported to have justified their position on the fact that, the facilities are obsolete and since 1999 till date about ‘‘N963 billion’’ had been spent for the same purpose without results.

The point is clear: The recommendations by some other stakeholders for the refineries to be privatised or concessioned, will fail when past experiences in this connection, are subjected to objective and transparent evaluation. For instance, how many of the privatised and concessioned government businesses are today successful and delivering benefits to the citizens?

In view of the fact that there will always be different optional recommendations and of course interests, what should be of concern to the government in this situation is the course of action it should take that will be most beneficial to the economy and the citizens.

Meanwhile, experts on crude oil refining have long foreclosed discussions on continued maintenance of the countries obsolete refineries. The world has moved on with modern oil refining systems. So, what does the Nigerian government want to achieve with obsolete systems? Can water be squeezed out of a rock, which is about what is being propagated by officials of government in recommending repairs? Again, what is the guarantee that government will manage the refineries efficiently even if they are repaired?

From past experiences, it makes some sense to claim that as long as the refineries are under government’s management and control, they will remain moribund and unprofitable, no matter the amount of money spent. In this regard, government should consider what it can salvage from the already bad situation to cut its losses. What is realistic is that the refineries should be sold as most experts have proposed. But before putting them on the shelf for sale, comprehensive evaluations must be undertaken to determine both their attractiveness to buyers and market value. Only qualified valuers of proven integrity should be used to conduct the evaluation.

Besides, the sale arrangements including due diligence should be made transparent and only persons that are proven to be capable of putting the facilities back to use should be given opportunity to bid and buy.

As the country is still in need of refining crude oil domestically, it is further recommended that government should create the enabling environment for the establishment and operation of Modular refineries across the country. This should be given to licensed private operators under strict and measurable guidelines. Modular refineries are easier and cheaper to establish, operate and maintain. They can also be managed more efficiently given the level of our present development and environment. Besides, meeting the needs of the nation will be best assured with modular refineries scattered across the country. If any of them has major challenges, the entire country will not be shut down as the unaffected ones will continue to produce. Thus, foreign exchange for PMS import will be saved; significant number of employment will be created, individuals, households and other economic units will be empowered. Lest we forget, the much-advertised modern refinery being built in Lagos by Africa’s richest man, Aliko Dangote will also be completed to complement these aforementioned deregulated environments for oil refineries.

NPRC completed the first refinery in Nigeria in 1965 at 38,000 barrels of crude oil per day at a cost of 12 million pounds. The Warri Refinery, the first Nigerian government-owned refinery built to process 100,000 barrels of crude oil per day was commissioned in 1978.

In the main, any committee already set up by government to turn around the moribund Nigerian refineries should be disbanded today. Government no longer has business in the business of managing refineries. It will even be in public interest to set up a technical committee to determine how billions of naira worth of turn-around maintenance (TAM) had been used without any visible results.