Everywhere in the world, particularly in oil-producing countries, the business of refining crude oil is an elixir for improved economic performance, provision of jobs for a large number of people, reduction of capital flight and building of a new set of industries, especially petrochemicals.
But in the case of Nigeria, Africa’s largest oil producer, refineries are more of a drainpipe and a means through which few individuals enrich themselves at the detriment of the masses.
Data released on Thursday from Nigeria National Petroleum Corporation (NNPC) show the country’s ailing refineries had an operating deficit of N123.2 billion between January and October 2019.
Further analysis shows that throughout 2019, the deficit in Nigeria’s refineries has been moving at a geometric rate. In January 2019, the refineries recorded a deficit N8.6 billion which skyrocketed to N18.89 billion in February. In March, the refineries recorded a much higher deficit of N34.9 billion which increased further to N59.9 billion in May 2019.
By June 2019, Nigeria’s refineries recorded an operating deficit of N77.4 billion which ballooned to N104.4 billion in August 2019. In September and October, the refineries had losses of N111.5 billion and N123.2 billion, respectively.
The highest average capacity utilisation of the three refineries in an 11-year period from 2008 to 2018 was 26 percent recorded in 2009, while the latest data from NNPC revealed the three refineries currently operate at zero percent capacity utilisation.
NNPC, the government agency entrusted with the national asset, said in September that the three refineries processed “no crude and produced no product compared to the previous months as combined yield efficiency is 0.00 percent owing largely to rehabilitation works being carried out in the refineries”.
To be more specific, while analysis from NNPC financial records show that the corporation recorded losses in the region of N551.46 billion from January 2015 to December 2018, refineries top the reasons why losses were not abating.
While the refineries remained dormant, another government parastatal, Nigeria’s Petroleum Products Pricing Regulatory Agency (PPPRA), said the country is expected to spend N750.81bn on petrol subsidy in 2020. The figure is N300.81bn higher than the N450bn approved by the Ministry of Finance in 2019 for subsidies.
“The problem is not that the refineries are old or obsolete; the oldest refinery in Nigeria is younger than the oldest refinery in Europe. The problem is, who is managing them?” Ademola Henry, team leader at the Facility for Oil Sector Transformation (FOSTER), said.
“If the efficiency ratios of Nigeria’s refineries are strong, why can’t Nigeria supply petrol to Ghana, Togo, Benin or Niger Republic?” he asked.
Further analysis revealed operating expenses of Nigeria’s refineries for the first 10 months of 2019 stood at N192 billion.
Despite poor performance and large overheads, Nigeria has reportedly spent billions of dollars on turn-around maintenance, an amount almost beyond the cost of constructing the assets.
“Billions of dollars has been spent on turn-around maintenance (TAM) of these refineries since inception with nothing to show and nobody to be held accountable,” Charles Akinbobola, a Lagos-based energy analyst, said.
While the NNPC has repeatedly said the total costs are not readily available, some stakeholders said the nation has reportedly staked about $6 billion on the rehabilitation of the four refineries between 1993 and 2016.
During the Ernest Shonekan-led Interim National Government as well as Abdulsalami Abubakar-led transitional administration, the NNPC was reported to have spent about $308 million on the repair of the refineries.
From 1999 to 2007, about $1.67 billion was spent on the refineries, apart from the $39.7 milllion said to have been set aside by the Abdulsalami Abubakar-led military government in the 1999 transition budget prepared for the then-incoming Olusegun Obasanjo administration.
In the midst of all this, Maikanti Baru, immediate past GMD of NNPC, made a shocking revelation in January last year when he said the country’s refineries have not undergone any TAM for an aggregate of 42 years, which implies that funds allegedly approved for the maintenance of the refineries may have ended in private pockets.
Wunmi Iledare, Ghana National Petroleum professor and chair, University of Cape Coast, Institute of Oil and Gas, said corruption, tribalism, funding and sundry mundane factors were responsible for the perennially poor state of the refineries.
Iledare sees no transparency and accountability in the manner the government runs these refineries, especially the funds allegedly spent on them.
“I think the way the government spends money to maintain the refineries leaves a lot to be desired. As far as I am concerned, the government is not particular about getting optimum value from the money it is investing in the refineries. That has been the case from one government to the other,” he said.
Adeoluwa Eweje, an international oil and gas expert with an understanding of Nigeria’s oil and gas sector, said apart from the bureaucratic nature of the operations of the refineries, foundational downstream challenges were enough to keep the refineries as they are.
“Instead of deregulating and allowing competitive market, government is insisting on controlling prices of petroleum products,” Eweje said.
He described the current performance of the refineries as an organised sabotage orchestrated by high-ranking government officers and business owners who prefer personal gains to the national interest.
The huge expenses on the ailing refinery are taking a toll on other critical sectors of the economy, with the nation’s education, health, security and agricultural sectors all struggling for funds, while the country remains the world’s poverty capital.
Apart from importing more than 80 percent of needed petroleum products, the multiplier effects of this development put immense pressure on the country’s foreign exchange, national reserves, standard of living, infrastructural development, as well as lead to unemployment and import of by-products of petroleum.