N570bn for refinery rehabilitation, a waste of resources

No. 20 P.O.W. Mafemi Crescent, Off Solomon Lar Way, Utako District, Abuja

The Minister of State for Petroleum, Timipre Sylva, last week announced approval by the federal government for the rehabilitation of the Port Harcourt Refinery. The project, which will be handled by an Italian Company, Technimont SpA, is expected to gulp N570 billion (1.5 billion US dollars) and will be done in three phases of 18, 24 and 44 months.

The minister said funding for the project will come from the Nigeria National Petroleum Corporation (NNPC), Internally Generated Revenue (IGR), budgetary allocation provisions and Afreximbank.

Within the past five years, a total sum of N1.47 trillion has been spent on the country’s refineries and the latest approval for the Port Harcourt Refinery will raise the figure higher.

It is even likely to go higher considering that the government also plans to rehabilitate the Warri and Kaduna refineries in a similar manner.

Sadly, despite all the huge amount of money spent, the refineries are not operating to the expectation of Nigerians. Nigeria is still a net importer of petroleum products which gulps billions of naira. If we add the cost of importing petroleum products into the country to the amount so far expended on the refineries, we get a very dismal picture of monumental waste by the federal government in this sector.

Against this background, there has hardly been any voice of support for the latest decision by the federal government to spend such an outrageous amount of money on a project that for all practical purposes stands to go the way of similar ones.

Adding to the sense of outrage on this decision by the government is the fact that the minister did not disclose to Nigerians whether the rehabilitation of the Port Harcourt Refinery at such a huge cost will result in Nigeria meeting its local refining capacity in full or in part and also in the availability of petroleum products at affordable prices for citizens.

It is also a matter of great concern to Nigerians that at a time the country is having to cope with dwindling revenues which dictates prudence and prioritization of expenditure, the government is instead directing scarce resources in such a profligate manner.

There are several reasons to call on the government to have a rethink on this project if it has not yet committed itself fully to it.

On the economic side, it does not make sense that government should continue to be involved in running refineries. In the first place, if there were any benefits in government running refineries, we would not be talking about moribund refineries that have yielded little to the country under government control all these years.

Secondly, without any clearly spelt outcomes in terms of raising our local refining capacity and curbing the importation of petroleum products, we will be committing the country to paying back loans procured for a project that is of little or no economic benefit.

Technically, the refineries having been built a long time ago using the technical specifications and requirements of that time, will most likely be obsolete by today’s technological situation. It stands to reason that they would need a complete overhaul of their operating units and replacement of their equipment to function optimally.

Another very germane reason is that strides in research into alternative energy sources indicate that in the not too distant future, oil will cease to take pride of place as the world moves towards other energy sources. In this regard, it hardly makes sense to spend such a massive amount of money on an energy source that will soon be substantially out of sync.

We recall that during the President Obasanjo administration, some private individuals were licenced to build and operate refineries. The government at the time also made moves to hands off the running of refineries.

It is regrettable that successive governments after Obasanjo have not followed up on the option of privatizing the refineries. It is also unfortunate that with the notable exception of Aliko Dangote, whose massive capacity refinery is now nearing completion, none of those given licenses to build and operate refineries have done so. Something should be done about that.

Rather than expend scarce resources on revamping the refineries, government should consider the options mentioned as better alternatives.