Nigeria: Sell the refineries for $1— Maduafokwa

*Oil production platform.

*Oil production platform.

14 February 2016, Lagos — Mr. Casmir Maduafokwa is the Chief Executive Officer, of  Tecon Oil Services, and NigerBlossom Drilling Company. In this interview, he speaks about salient issues in oil and gas, as well as the economy, from a problem solving stand point.

Excerpts:

The oil industry is dollar-denominated and the scarcity of dollar is prevalent now due to government policy on foreign exchange, FOREX.  How have these affected operations  in the oil and gas sector?

I want my colleagues in the industry, whether it is oil and gas or banking, to make contributions to current issues from a problem solving stand point. At Tecon Oil Services Ltd. we provide integrated drilling and  Workover  Contract Services to the Oil and Gas Industry in Nigeria, Congo and Angola. We are trying to build a Pan African franchise. We believe that Africa can develop itself with indigenous solutions and resources. On the policy of government, the oil industry is engine that drives the economy. It is wrong to distort the money flow, especially on the domiciliary end because it has a lot to do with the growth of the banking system. If you look at countries like India or China with a lot of their people, it is their personal remittances to their countries that help to develop their economies. Also, take the  Philippines  example, their biggest reserve comes from the citizens in diaspora. My worry is whether our government understands the imperative of maintaining integrity of domiciliary account system, which provides convertible currency option for long term savings in Nigerian Banks for both Nigerians and residences at home and abroad.  Government should welcome the dollar because the bulk of their cash flows from oil sales, the royalty, equity cash flows are in dollars. You can even assume that for transparency, the budget should be stated in dual currency like Naira and Dollars, especially for those commitments  where expenditure or intended  budget component is in currency.

The refineries have been producing below their installed capacity for a very long time and the government has hinted about   privatisation plan.   Is this the solution to the problem?

It is more than the solution, although I have issues with the manner in which government attempts to  privatise  some of these operations like the former NITEL and then the refineries.   If you look at it, in the first place, the government should not have been involved in the refineries.

What is the price?

I mean the price the buyers will pay. From experience, the results will always collapse invariably because from the government stand point, the value of the refinery is the sum total or the book value of the expenditures. The problems with that are twofold, the cost may have been inflated due to  corruption. In addition to that, the technology or assets on ground may have been mal-investments, meaning that they are not fit for the purpose at hand. Therefore, you have a double jeopardy. There has to be a game plan because the downstream sector is very critical to everything,  because now we are wasting money importing products. Without solving that problem, even  with  lower prices, the negative impact will multiply. If we have the refining capacity and the crude oil prices have fallen, the impact will not be as severe. But now with the limited income we have, we use it to import and  subsidise  and then you have multiple contraction. I will suggest that each of the refineries be sold for one dollar to a seasoned refiner that meets stringent operational criteria. The buyer must have access to crude to refine, the government can give some incentives and have some kind of arrangement for profit sharing.   But to say there is going to be a bid round for the refineries, it is not going to work.

The issue of oil price has become a concern to Nigerians. In fact, at the last count, oil price was about $28. What is the impact of this on the economy?

In the oil service sector where we operate, there has been a problem dealing with the International Oil Companies (IOCs) as regards budget and cash calls. This issue has been there in the last three or four years, even when oil prices were over $100. There were institutional problems that led to this. The vital measurement of the level of activity in the oil sector is the level of rig activity. The rig count has been shrinking. In the period 1990 to 1991, the rig count was close to 50. The current rig count is below 30 as at June 2016. We have a lot of stacked rigs. We too have two stacked rigs. We also have four  workover  units stashed. Even with no income, you have to maintain them. There  are lots  of idle rigs in the market.   The rig activity normally drives a lot of other activities. If you pull a rig out of the system, all these services basically dry up.

How much are service companies owed?

I don’t have the precise figure but some IOCs and JV companies are owing everybody huge amounts of money. That is where we were before the oil price crashed. Obviously, government revenue has been hit badly. The oil companies themselves, their margins too have been hit, may be not as much as that of the government.  Most companies have been given some discounts but the problem of course is that if prices go up tomorrow, they are not ready to look at your face to ask you to reverse your prices. It is very tough in two ways. The volume of available work has fallen drastically. Then the payment of the limited work done is severely constrained. The other thing of course is the employment consequences. For example, in Tecon Group, we have over 400 personnel. We have the unions. If you notice, the multinationals started downsizing since mid 2014. They have had these rounds of downsizing. But in Tecon Group, we have not downsized in any meaningful manner because we find it difficult to throw our staff into the labour market. It is tough but we are constrained by the rate of unemployment in the country. But how far can we go on, not much longer.
*Sebastine Obasi-Vanguard

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