New Telegraph

Energy Crisis: Why FG Should Declare Emergency on Refineries –Experts

…Warn Against Private Monopoly on Fuel Refining

The Nigerian National Petroleum Corporation Limited (NNPCL), has again become the sole importer of Premium Motor Spirit(PMS). That is contrary to the announced liberalisation of the sector, amidst reported government resumption of subsidy payment. In this report, PAUL OGBUOKIRI writes that experts expressed a need for the government to declare national emergency on rehabilitation of the four national refineries to lift the economy and ward off a possible monopoly when Dangote Refinery it comes on stream in 2024.

The messy oil subsidy

President Bola Ahmed Tinubu announced the end of petrol subsidy when he assumed office on May 29. Currently, it is believed that the Federal Government has silently restored it to force the current stable price of the product in the face of rising price of crude in the international market and the rapid depreciation of the value of the naira. These are the two factors that determine the landing cost of Nigeria’s imported fuel.

The development confirms the position of Dr Muda Yusuf, the Chief Executive Officer, Centre for the Promotion of Private Enterprise, that Nigeria’s long-running petrol subsidy payments have become a “gargantuan conundrum, the result of inertia, corruption, and incompetence by successive governments since 1999, which its removal though necessary won’t be easy without first cutting off importation of fuel.”

Ex-President Muhammadu Buhari’s administration wanted to remove it before his administration ended on May 29 but the regime feared the consequences. The Nigerian Extractive Industry Transparency Initiative said the government paid N16 trillion for petrol subsidies in 16 years (2005 to 2021), enough to build four big refineries and turn Nigeria to a net exporter of refined petroleum products.

Now, the Tinubu regime is caught in the unpalatable dilemma after taking the bold step to end the subsidy and plug the unsustainable fiscal hole but the risk of social and economic upheaval with uncertain outcomes that could follow the skyrocketing price of petrol according to experts, may have forced the government to beat the alleged fast retreat. However, experts say the dilemma is all the government’s making.

Having failed for 24 years to promote self-sufficiency in domestic refining, successive governments have neutered private investment in refining – save for the giant 650,000 barrels per day Dangote Refinery –entrenched corruption, state monopoly, inefficiency, corruption, and shortages in the supply and distribution of refined petroleum products. A development that made Nigeria to currently rely wholly on imports for its petroleum needs under a state monopoly and a primitive subsidy system.

Return to status quo

The Nigerian National Petroleum Corporation Limited (NNPCL) has again become the sole importer of petrol, four months after imports were opened up to private players. Africa’s largest oil exporter, Nigeria, imports almost all its fuel as it does not refine enough to meet the demand of its 200 million citizens. In recent years, it has swapped crude for fuel, depriving it of a source of US dollars.

Opening up petrol imports to the private sector was part of reforms by President Bola Tinubu to wean the country off decades-old fuel subsidies, with some fuel companies starting imports in July. This came as the licensed local private firms have been unable to obtain foreign currency needed to import the petrol, known as premium motor spirit (PMS), according to NNPC Chief Executive, Mele Kyari.

“We are the only company importing PMS into the country,” Kyari told an energy conference on Monday. “None of them (fuel companies) can do it to- day. For them, access to foreign exchange (FX) is difficult. We create FX, therefore we have access to FX and their access to FX is limited.” Petrol pump prices have not budged since July despite a more than 30 per cent rise in oil prices, which has led to insinuations that the government has reintroduced a partial subsidy.

Weak local currency

Kyari did not directly respond to the accusation but said current prices showed that “the market is adjusting itself.” Petrol is widely used by households and small businesses to power generators because millions of Nigerians are not connected to the national electricity grid. Nigeria is in the grips of foreign currency shortages, which have seen the local currency, naira, weaken to record lows on the parallel market. The new Central Bank Governor, Yemi Cardoso, has said that policymakers faced a nearly $7 billion backlog in foreign exchange demand.

Non-functioning refineries cost Nigeria N11.35trn in 13 years – Reps

The House of Representatives Ad Hoc Committee on the State of Refineries in the country has said that the Federal Government spent a total sum of over N11.35 trillion on rehabilitating the nation’s four refineries from 2010 to date. Chairman of the Committee, Ganiyu Johnson, however, failed to convince the then Deputy Speaker, Ahmed Wase, who chaired the Committee of the Whole House, to consider the report.

Wase dismissed the recommendations by the committee as failing to address the main issues for which the panel was set up as well as not being far-reaching enough to change the current situation of things. In the report, the committee gave a breakdown of the actual cost of rehabilitating the Nigerian refineries between 2010 and 2020, and from 2020 to date. According to the panel, the total cost of rehabilitation within the period is N11, 349,583,186,313.40 while the additional costs in other currencies are $592,976,050, €4,877,068.47 and £3,455,656.93.

Giving a breakdown of the figures, the committee said while the cost of rehabilitation projects was N42,646,596,313.40, the deduction from Federation Account for rehabilitation was N191,670,000,000 and the losses by the refineries over a given period at N366,524,140,000. While subsidy payments from 2010 to 2020 were N5,948,140,000,000, the total cost of running the refineries was N4,800,602,450,000.

Listing its findings, the committee said it discovered that the nation’s three refineries became unproductive from 2010, “making the following range of losses: Port Harcourt Refinery Company at 7.6 percent losses to the tune of N132,526 billion from 2012; Warri Refinery at 6 percent losses to the tune of N111.376 billion from 2014; and Kaduna Refinery at 10 per cent losses to the tune of N122,621 billion from 2014.

From 2010 to 2019, the committee said the nation’s refineries were performing “sub-optimally with an annual combined capacity of less than 30 per cent. Therefore, in the year 2019, the NNPC obtained executive approval and shut down the refineries for comprehensive rehabilitation to restore the plants to a maximum of 90 per cent nameplate company utilisation.” The committee said it found out,

“That the total losses from the non-functional refineries since the year 2010 is put at N366,524,140,000 only; that the total cost of operations and running the refineries from 2010 – 2020 is put at N4,800,602,450,000 only; that the Port Harcourt Refinery Company carried out rehabilitation projects over a period of seven years, ranging from 2013 to 2019 valued at about N12,161,237,811.61 only;

that the Warri Refinery and Petrochemical Company carried out rehabilitation projects over a period of six years, ranging from 2014 to 2019 valued at about N28,219,110,067.10; that Kaduna Refinery and Petrochemical Company also carried out rehabilitation works over the period under review valued at about N2,266,248,434.69.

“That the total cost of rehabilitation for the three refineries based on the submissions of the NNPC from year 2013 to 2019 is put at N42,646,596,313.40 only; that other project costs were reported in foreign currencies at KRPC such as USD43,672,537.56, EUR2,852,068.15 and GBP 3,455,656.93.” According to the committee, these costs were gotten from four subheads such as cost of operations and running of refineries, cost of rehabilitation projects, subsidy payments, and deductions from the Federation Account for rehabilitation.

A national emergency on rehabilitate of refineries

To escape the dilemma of fuel subsidy removal, President Bola Tinubu has been advised to declare a national emergency to quickly fix all the country’s refineries, run them efficiently or sell them to the private sector as part of measures to recover and turn around the nation’s ailing economy. According to experts, the continuous shifting of the completion of the nation’s three refineries being rehabilitated with about $2.7 billion as well as the delayed coming on stream of the Dangote Refinery, is adding to the pains of most Nigerians, as the reality of the petrol subsidy removal dawn on homes and businesses.

President Tinubu had promised agitated Labour unions that the state-owned refineries would resume in December, a similar promise by the NNPCL over the years amidst a growing culture of silence by the national oil company on the exact date the facilities would be fully rehabilitated. While Dangote refinery was projected to start pushing out products by the end of July this year and curb total dependence on importation, a development which may be adding about N33.3 billion to consumers’ pump price from freight alone, the Port Harcourt Refinery Company (PHRC) being rehabilitated at the cost of $1.5 billion and handled by Milan- based Maire Tecnimont S.P.A, in collaboration with its Nigerian affiliate,

Tecnimont Nigeria, was supposed to have started production over a year ago but the commissioning date has remained a mirage. Renowned energy expert, Prof. Wunmi Iledare, said the current pump price in Nigeria is arrived at after adding up the actual cost of Premium Motor Spirit (PMS), freight cost, insurance, local distribution, margins by marketers, charges by the Nigerian Port Authority (NPA), Nigerian Midstream Downstream Petroleum Regulatory Authority (NMDPRA) and Nigerian Maritime Administration and Safety Agency (NIMASA). While the actual cost of the product as of July 14 stood at N529 per litre, freight, insurance, NPA, NMDPRA and NIMASA charges would have been avoided if the product were refined locally.

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