A Review of the Nigerian Energy Industry

Petrol scarcity and public refineries

18 March 2015, Lagos – With a confusing oil industry policy, sleaze and the lack of political will to privatise the refineries, petrol shortages, including the recent one in March, have become a permanent stain on our national life. As usual, the last scarcity provoked a tempestuous storm of queues in several parts of the country, inducing economic losses.    


This is deplorable. As a major oil-producing country, the government has no excuses for shortages.

The scarcity, which bit harder in major cities, led to a hike, with petrol selling for around N100 per litre, instead of the government-regulated N87 per litre. Nigeria is the only oil-producing country in the world massively importing refined petroleum products to the detriment of its economy.

But, instead of appeasing the populace, government officials offered contradictory reasons for the scarcity. Ngozi Okonjo-Iweala, the Finance Minister, blamed the shortages on the “disruption of pipelines and logistical issues,” and those who refused “to open letters of credit for marketers.”

However, the PPPRA, the agency charged with the pricing of products, stated that the shortages were caused by the devaluation of the naira and the failure of Abuja to pay a backlog of subsidy arrears to fuel importers. “The first one that took place on November 28 devalued naira from N155 to N168 to $1, while the second one that took place on February 18 brought the exchange rate to N199 to $1,” Farouk Ahmed, the PPPRA Executive Secretary, told lawmakers. A few days after the government offset N100 billion subsidy arrears, the queues disappeared.

All the excuses are tenuous. In a clime where the government is held accountable by citizens, the officials concerned would be out of jobs by now. Instead, the government rubbed salt on the injury during the crisis by asserting that its failure to secure an agreement with labour unions delayed the privatisation of the nation’s comatose refineries.

This is a worn-out excuse. But with the way the economy is haemorrhaging, the Goodluck Jonathan Administration has to apply sound economic principles to transparently privatise the four refineries in Port Harcourt (two), Warri and Kaduna, which have the capacity to refine 445,000 barrels of crude oil per day.

Although there are some misgivings about the privatisation of the electricity assets in 2013, it is not enough reason to abandon the sale of the refineries. The electricity sector is witnessing regression because the unbundled Power Holding Company of Nigeria assets were sold in an opaque manner to incompetent cronies.

Without the privatisation of the refineries, Nigeria will forever witness shortages, and more importantly, will go on losing income and jobs to the countries which it is importing refined products from. This is a matter of concern and should be handled expeditiously by the Jonathan government as the platform for privatisation has already been laid. The take-off was in 2007 when the Olusegun Obasanjo government sold a controlling stake in the Port Harcourt refinery to Bluestar Consortium for $561 million. The company also acquired the Kaduna refinery.

Though there were hitches in the sale, the company would have stabilised by now, to be producing at its full 210,000 bpd capacity, eight years after, if the sale had not been reversed. But what have we had since the ill-advised reversal by Umaru Yar’Adua, a few months after he became president? Only circuitous motion, double-speak and millions of dollars in dubious maintenance costs by Jonathan and his ministers.

The confusion in government was laid bare late in 2013 when Diezani Alison-Madueke, the Petroleum Minister, told Bloomberg in London that the refineries, from which were producing at 10.46 per cent of installed capacity as of June 2014, according to the Nigerian National Petroleum Corporation, would be sold in the first quarter of 2014.

“Government does not want to be in the business of running major infrastructure entities and we haven’t done a very good job at it over all these years,” she said. This is precisely the point. But sadly, after labour kicked against the move, the government quickly back-pedalled and overruled the minister. In all this, it is the economy that loses.

Already, too much money has been committed to the resuscitation of the refineries. In May 2010, the Yar’Adua government signed a $23 billion agreement with the China State Engineering Corporation to build three Greenfield refineries with a five-year completion tenure. They were to be sited in Lagos, Bayelsa and Kogi states, with the capacity to refine 400,000 bpd.

It was only after the fuel subsidy protests in January 2012 that the government made a veiled commitment to reviving the projects, hiking the cost to $51.8 billion. According to media reports, nothing concrete has happened at the three sites at a time work should be nearing completion.

Similarly, in October 2012, Alison-Madueke told the parliament that the government would spend $1.6 billion on Turn Around Maintenance on three of the existing refineries, promising that the facilities would produce at full capacity after the repairs. It turned out to be a ruse. In 2012, the government wasted N2.5 trillion on petrol subsidies, but reduced the amount to N971 billion for 2013 and 2014 after the outcry of the 2012 bazaar.

As late as last month, the NNPC officials were still claiming that the refineries would work at full capacity by early 2016, adding that Nigerian engineers had been saddled with the task of repairs.

We cannot continue with these futile efforts. To save Nigeria from the shame of fuel importation and recurrent scarcity, we demand immediate, transparent privatisation of the refineries. Besides, the government should encourage the establishment of private refineries. Any obstacle to the emergence of local refineries should be cleared and an investment-friendly policy introduced.


– Punch Editorial

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