Confronted with a long-running crisis in the petroleum downstream sector, the Nigerian National Petroleum Corporation’s latest response with the plan to build two new refineries is befuddling. Unable to run its existing four profitably despite having an absolute monopoly and with the Dangote Group’s 650,000 barrels per day capacity refinery expected to come on stream soon, the NNPC’s proposal is another red herring, the latest in the determination of successive Nigerian governments to dominate the oil industry. President Muhammadu Buhari should stop this painful trend and cede control of the wholesale and retail sector to the private sector
The announcement by the Group Managing Director of the NNPC, Mele Kyari, though eerily familiar, was still a letdown to the business community and other Nigerians who had hoped desperately for an end to their three-decade-old nightmare. The corporation, he said, would establish two new refineries, each to refine 200,000 barrels of condensate per day into petrol. These are laudable objectives and desirable for a country with current maximum production capacity of 2.5 million barrels of crude per day, and this of high-value low sulfur content. But it is misplaced because of the NNPC’s incompetence and corruption. It is incapable of running refineries profitably.
Any practical measure to achieve refining self-sufficiency and export is welcome. Currently, however, Nigeria is the world’s laughing stock: it imports almost all its needs for refined products and this, according to the NNPC’s website, is costing between $12 billion and $15 billion annually. Some N2.95 trillion was spent on petrol imports in 2018, the National Bureau of Statistics said, while a corruption-fuelled subsidy scheme pays billions more to marketers to defray landing costs and more still for transportation to ensure price parity across the country. In 2018, the 36 state governors protested the N800 billion that NNPC claimed as subsidy annually.
There can be no solution to the problem outside of the NNPC exiting the downstream and the government working strongly to encourage other investors to compete with Dangote, whose facility, when completed, will be the world’s fifth-biggest, according to Hydrocarbons Technology, a consultancy.
The NNPC’s record is so terrible that it has no business spending taxpayers’ funds on acquiring new refineries. It should rather sell its downstream assets. By its own admission, the four refineries suffered combined operating losses of N77.15 billion in the first six months of this year, up from N68.10 billion loss in the corresponding period of 2018: their outing in June is typical; from N6.34 billion worth of crude collected, they spent N13.1 billion on freight and operational expenses but had an output of only N2.01 billion.