Jonathan, sell the refineries now

ANOTHER damning report has exposed the depth of corruption in the Nigerian oil and gas sector. The Idika Kalu National Refineries Special Task Force, like previous reports, revealed the dismal state of Nigeria’s four government-owned refineries, thus depicting how colossal funds spent on their Turn Around Maintenance have gone down the drain. The revelations in the report are serious ones that cannot easily be dismissed.

The report claimed that Nigeria had the third largest refining capacity on the continent with its  445,000 barrel per day installed capacity, but had 18 per cent capacity utilisation and efficiency, compared to South Africa with a capacity of 540,000bd and capacity utilisation of 85 per cent and Egypt with 774,900bd capacity and 81 per cent efficiency level. The report then made a watertight case for the sale of the moribund state-owned refineries.

The Kalu committee further revealed that, of the 42 oil refineries operating in Africa, the three in Nigeria recorded the worst performance in terms of efficiency and capacity utilisation. By the Nigerian National Petroleum Corporation’s admission, the combined average refining capacity utilisation for 2010 was 21.53 per cent as against 10.90 per cent in the previous year. The figure for 2008 was 24.11 per cent, which is 51.34 per cent more than that of 2007. Even the marginal improvement in capacity utilisation was achieved at a huge cost.

It is no longer news that the country’s four refineries barely function, which is all right for those with sufficient political connections to make big fortunes from imported fuel. Every successive government had also had its share of the juicy TAM contracts, most of them in a dubious manner. While the late dictator, Gen. Sani Abacha, awarded a major contract valued at $215 million in 1997 for Kaduna refinery alone, the Abdulsalami Abubakar administration in 1998 set aside $92million for the refineries without achieving any result. During President Olusegun Obasanjo’s first term (1999 – 2003), it was estimated that between $254million and $400.4million was wasted on the rehabilitation of the refineries and pipelines. In 2007, the TAM contract for Kaduna alone cost about $24 million in cash and materials worth $30 million, bringing the total to about $54 million. The record is shockingly awful.

Curiously, that is exactly what the Federal Government is planning to do again.  The $1.6 billion Alison-Madueke TAM is expected to begin in January 2013 and is scheduled for completion in October 2014. Nothing will come out of it, except opening up another avenue for graft. That the original firms which built the refineries have been contracted by the Ministry for the purpose, as repeatedly emphasised by Alison-Madueke, is immaterial. It is more like an old wife’s tale. The experience since 1999, with hundreds of millions of dollars appropriated yearly for TAM but without results, is enough to establish the futility of further cash injections.

Why is it that oil firms operating in the country run oil refineries elsewhere and refuse to do so here? Singapore, with its total oil-refining capacity of 1.3 million bpd, is a major oil refining and trading hub in the region, but has no oil deposit. India imports 70 per cent of its crude oil requirements, mostly from Middle East. However, the country is not only self sufficient when it comes to refining the crude oil but is also able to export refined petroleum products.

It is not the right thing to do for government to build new refineries or even repair the existing ones.  As the Finance Minister, Ngozi Okonjo-Iweala, rightly suggested, the private companies that have been issued licences to build their refineries should be encouraged. The Kalu committee’s build their refineries should be encouraged. The Kalu committee’s recommendation that the refineries should be sold within 18 months should be implemented.  All over the world, refineries are changing hands on a regular basis.

Among other deals, British Petroleum just recently sold its Texas City Refinery in the US to Marathon Petroleum Corporation for $2.5 billion. In April, Delta Airlines announced that it was buying a closed 185,000 bbl/day Phillips refinery in the Philadelphia area, United States for $180 million, and would spend $100 million to get it back up and running. Let the buyers of Nigeria’s obsolete refineries use their money to do the TAM, as was the case with Delta Airlines and Phillips refinery deals.

This grand fraud must end.  The proposed $1.6 billion TAM for the refineries is uncalled-for and should be dropped. Billions of dollars earmarked for renovating refineries have vanished over the years.  This $1.6 billion is also up for grabs. Nigerians have had enough of the Federal Government’s insincerity and intrigues on the refineries. It is deeply troubling that Alison-Madueke & Co are still fixated on wasting resources on them. It can’t work.

The Federal Government needs to create an enabling investment environment to encourage the private sector, through various incentive packages, for the establishment of private oil refineries for domestic consumption and export.  The stringent requirements for establishment of private refineries must be reviewed.  As Ghana has done, all that should be required for a private refinery are proof of funding for the project; technical capability of the company; refinery configuration and products specifications for the refinery and evidence of land allocation.