Refineries, Subsidies and Misplaced Priorities

Jonas Odocha

As Nigerians eagerly look forward to the inauguration of a new government, come May 29, 2015; which has promised CHANGE, there are 3 key expectations uppermost on their minds. These are the “how and when strategies” to tackle the lingering concerns over Power availability; Insecurity, particularly in the north-eastern part of the country, and the dwindling Economy as a consequence of the drastic fall in oil price, which is our major revenue earner. Without doubt the assessment of the “change credentials” of the incoming government will commence with the handover of governance baton on that date, judging from the myriad of comments and write-ups in the media since the conclusion of the general elections in April.

It is a well rehearsed cliché that change is the only permanent feature of life. One finds it pertinent, therefore, to look back to where we were, where we are and where we expect to be, as an empirical assessment of the changes hitherto encountered or anticipated, whether positive or negative, in the effort aimed at adding value to overall economic growth and national well-being. The management and utilization of available resources should serve as the springboard for economic growth, realizing that mother-nature has endowed humanity with the resources for achieving growth and development. In this regard it is deemed appropriate that we refocus our attention on key elements of our God-given resources and assess how they have been applied or misapplied in this journey towards our collective economic growth and national development.

Since the Industrial Revolution of the 18th century, petroleum has dominated the global energy scene as the major energy resource, having displaced coal, as a consequence of the technical dirtiness and lower efficiency rating of the latter. It is incontrovertible that energy is the key ingredient that propels industry, economic growth and national development; hence the demand for petroleum has since assumed tremendous heights. Nations endowed with this resource have, therefore, proven its potency in boosting revenue generation, power generation and socio-economic wellbeing of the citizenry. In Nigeria the search for this commodity which commenced in 1908, with interruptions by the World Wars, culminated in the discovery recorded in 1956 and production and shipment for export following in 1958. Today with a production level of 2.5 million barrels per day and a potential daily producibility of 4 million barrels and proven reserves of 40 billion barrels, Nigeria is ranked very high up in the global petroleum production ladder. The gas component is even more attractive with a proven reserve base of 189 trillion standard cubic feet, even though current gas production is incidental on crude oil exploration and production. But then gas has been projected as the energy resource of the future in view of its efficiency, environmental friendliness, cost effectiveness and abundance, necessitating the need to pay more attention to its exploration and exploitation, rather than its accidental encounter while exploring for oil.

This rosy scenario of Nigeria’s energy resource endowment calls to question some worrisome challenges being experienced in the management and utilization of this resource in Nigeria. Petroleum occurs in the 3 phases of matter as liquid crude oil; gas, and solid asphalt or bitumen, all of which abound in Nigeria. Crude oil when refined produces a variety of components which include Premium Motor Spirit [PMS or Petrol], Kerosene [Dual Purpose Kerosene as in Household Kerosene or Aviation Kerosene], Automotive Gas Oil [AGO or Diesel], Liquefied Petroleum Gas [LPG or Cooking Gas], Fuel Oils [High Pour and Low Pour], Bitumen and some other lower ends. This is to illustrate the complexity and importance of this petroleum resource in our daily needs and economic empowerment. It is therefore important that we take a hard look at where we were, where we are today and where we believe we should be, in harnessing this WONDER RESOURCE.

The creation of the Organization of Petroleum Exporting Countries (OPEC) in 1960 was an opportunity for countries endowed with this resource to look inwards and participate fully in the petroleum business, instead of depending on payment of ROYALTIES and TAXES from the foreign oil companies owned principally by western operators. When Nigeria joined OPEC in 1971 it acquired equity interests in these companies and also set up a national oil company, the NIGERIAN NATIONAL OIL CORPORATION [NNOC], to engage in petroleum exploration and production, which later transformed to the current conglomerate, the NIGERIAN NATIONAL PETROLEUM CORPORATION [NNPC] in 1977. To commence the refining of our crude oil and boost the local production of refined petroleum products, a refinery was built and commissioned in 1965 in Alasa-Eleme [Port Harcourt refinery] by the then Shell BP [now SPDC]; the major exploration and production company in Nigeria at the time. With the increased demand for petroleum products, 2 more refineries were built in Warri and Kaduna and a third was also built in Alasa-Eleme as the new component of the primordial refinery, with the sole purpose as an EXPORT REFINERY. All these 4 refineries have a combined daily nameplate capacity of 445,000 barrels of crude oil, TO MEET LOCAL DEMANDS AND ALSO EXPORT PRODUCTS TO THE WEST AFRICAN SUB-REGION!!!

REGRETTABLY these refineries have remained MORIBUND for quite a number of years, and with a daily national consumption of petroleum products [especially PMS] in excess of 30 million litres per day, it became imperative that these products are sourced from outside our shores. Over these years that our refineries became dysfunctional and with a continuous increase in crude oil prices and refining processing fees, an equally escalated cost of imported petroleum products became inevitable, necessitating the introduction of FUEL SUBSIDY by the government to absorb part of this cost, as a welfare cushion for the citizenry. Subsidy per se is a commendable social welfare scheme for the masses provided that the implementation is well thought-out and there are funds for its sustainability. Majority of Nigerians will frown at the continuation of fuel subsidy patronage for a good number of reasons bordering on grounds of SUSTAINABILITY, MORALITY, TRANSPARENCY and NATIONAL PRIDE. Recently with the drastic fall in the price of crude oil which is our major revenue earner can we afford to subsidize the cost of petroleum products whereas there are other challenging priorities in the provision of basic INFRASTRUCTURE, HEALTHCARE and EDUCATION? Is it morally justifiable that a few individuals will dominate this importation bazaar whereas the government could organize better options like direct negotiations and elimination of middlemen or even the involvement of major foreign marketers to bail us out? With the probes and sordid revelations during the fuel subsidy saga most Nigerians now know that there is minimal transparency in the fuel subsidy process. The most worrisome is the negative impact on our national pride and psyche. How come that we are not able to fix our refineries or build new ones but can afford to spend trillions in the importation of products? Is it not a sad commentary on a major oil producing country which had built an export refinery in the late 70s that it is today pre-occupied with importation of products 40 years after? This is where we are today with regard to local production of petroleum products. What is the rocket science required for maintaining or building refineries? Did we not have Nigerian engineers at the NNPC who were well trained at the time to run and maintain these refineries up to the late 80s? Again should we not search our conscience to find out how come Biafra could build and run 2 refineries at Uzuakoli and Amandugba, no matter how unsophisticated, during a war period even when the enclave was blockaded? It is a big shame that over the years we surreptitiously misplaced our priorities as we preferred to patronize some privileged individuals, enrich a few cronies and turn a blind eye to patriotism and national pride, as we took to the QUICK FIX OF IMPORTATION OF PETROLEUM PRODUCTS.

Nigerians are expecting the incoming government to take a hard look at this shameful scenario and come up with measures to ensure that petroleum products are not only available but also sold at justifiably lower costs which should reflect that Nigeria is abundantly blessed by mother-nature with this resource. Therefore the resuscitation of existing refineries should and must be a priority performance contract for the Petroleum minister and the Group Managing Director [GMD] of the NNPC. A timeline of maximum of 18 months should be the target to accomplish this goal or the incumbent GMD should leave the scene without being prompted. This also implies that Mr President must give the GMD and the minister all the necessary support they need to execute this achievable task. But then what do we do in the interim while the refineries are being fixed and new mini-refineries are being built, with regard to products availability and FUEL SUBSIDY? I suggest direct government involve- ment in negotiations with identified foreign refiners who should be directly supplied our crude, and modalities worked out for pricing the needed products like PMS, AGO and DPK while recognizing that other end products do accompany the refined supplied crude which we may not bother to import. Effective sincere negotiation along this premise will reveal that the landing costs of the products would be drastically reduced. When such reasonably lower costs are achieved by this arrangement, it is then left to government to determine the desirability of FUEL SUBSIDY, which even when applied should be low and manageable. To this end the Nigerian masses would benefit from lower costs of petroleum products while at the same time the government will frugally manage the subsidy regime till such a time that our refineries are back ON STREAM! This will definitely be a welcome CHANGE!!!