No money to repair refineries?

Distressing news came from the nation’s accident-prone oil sector last week when Minister of State for Petroleum Ibe Kachikwu said the Federal Government has no money to repair the country’s four refineries. Speaking soon after last week’s Federal Executive Council (FEC) meeting, Kachikwu said the situation has left government with no other option other than Public Private Partnership [PPP] model to raise money to revive the refineries. This, he said, “will involve a process.”

Kachikwu also dismissed hopes that the envisaged modular refineries will help to bridge the supply gap in the country’s petroleum products market. Rather he placed his hopes on the eventual revival of the existing four refineries and the upcoming Dangote Refinery with an estimated capacity of 600,000 barrels a day. Kachikwu’s statement further underlined the twists and turns that have been government policy towards repair and maintenance of the refineries, which has cost this country dearly. At the tail end of his administration in 2007, President Obasanjo actually sold them off to the private sector, only for President Yar’adua to reverse the sale and consider other models, which never worked.

With most or all of the refineries in a comatose state, this country depends entirely on imported refined oil, hiccups in which ensure that we stumble from one fuel scarcity regime to another. Interestingly, days after Kachikwu spoke, Group Managing Director of the Nigeria National Petroleum Corporation [NNPC] Dr Maikanti Baru said the era of fuel scarcity in the country is gone for good. He said NNPC had learnt a great lesson during the recent fuel scarcity in the country. To assure that there will be no more fuel crises is puzzling considering that the four refineries are down and the minister said they cannot be revived anytime soon. That means we will continue to be totally dependent on import refined fuel with all the uncertainty, international price volatility, wrangling over un-appropriated subsidy and withdrawal of all private sector operators from fuel importation.

The question of what to do with the country’s refineries has been a sore point for both the government and the Nigerian public. Several options including privatization and out rightly selling them off to private sector interests have all been considered and none sailed through. This latest option of PPP seems to enjoy strong appeal to the government given the gusto with which the Minister of State Kachikwu is advocating it. If that is the option adopted by government, Nigerians will be looking forward to see positive traction in that policy very soon. With PPP we also expect petroleum products to be available to Nigerians under conditions of affordability and sustainability. Anything short of that will translate into another failed attempt to resolve pump point scarcity of petroleum products.

PPP scheme envisaged by Kachikwu may offer some prospects of relief but it also requires some adjustment in mindset by the government. Essentially PPP schemes involve the invitation of and participation of private sector interests to join government in providing service in areas where government may be handicapped with respect to funds and or technical expertise. But private sector money does not flow without strict conditionalities that will guarantee profit and integrity of investments. Experience from PPP schemes in Nigeria indicate that public sector partners in the schemes are often not compliant with the expectations of profitability and investment integrity. PPP hardly works well in an environment of shifting policy sands. And given the slippery nature of the country’s oil and gas sector, fears of risks by would be private sector participants in PPP over refineries repairs and maintenance will arise.

Given Kachikwu’s long experience in the industry, Nigerians expect this PPP option to be delivered quickly and cost effectively. The need for the full implementation of the Petroleum Industry Regulatory Bill (PIRB) is critical as the primary success factor. To invest private sector funds when there are no adequate protective laws is like playing football without fixed goalposts.