The Cost of Half Measures: Nigeria's Missed Opportunity in Oil Refinery Privatization

 

Despite pouring billions into state-owned refineries, Nigeria remains shackled by its reluctance to embrace full privatization, a decision costing the nation trillions in fuel imports and lost economic opportunities.

Nigeria, a country with an abundance of oil reserves, faces a significant challenge in the management of its oil refinery sector. The recent decision by the Nigerian National Petroleum Company Limited (NNPCL) to rehabilitate the 210,000-barrel per day Port Harcourt Refinery, at a cost of $1.5 billion, and then hand over its operation and maintenance to private entities while retaining overall management, highlights a broader issue. The government's reluctance to fully privatize its refineries is not only a misstep but also a missed opportunity for economic growth and efficiency.

Despite the substantial financial resources poured into Nigeria’s state-owned refineries over the past decade, the outcomes have been disappointingly lackluster. Between 2010 and 2020, a staggering sum of N11.4 trillion (approximately $8.8 billion), alongside $592 million, €4 million, and £3 million, was allocated for the upkeep and maintenance of these facilities. This vast expenditure was not limited to maintenance alone; a substantial N127 billion was also disbursed as salaries, wages, and benefits to the staff of the Nigerian National Petroleum Corporation (NNPC) at the Kaduna, Warri, and Port Harcourt refineries, as reported by Dataphyte, a research organization based in Nigeria. Despite this colossal investment, the refineries have largely failed to function as expected. Their continued dormancy has had a significant economic impact, compelling Nigeria to allocate trillions of naira for the importation of fuel. This situation highlights not only the inefficiency in the management of these refineries but also the urgent need for a strategic overhaul in the approach to Nigeria's oil sector management.

The global trend in the oil refinery sector favors privatization. In the United States, none of the 132 refineries are government-owned. They collectively refine 19.68 million barrels per day (bpd), representing 20.3% of the world's daily consumption. Canada has followed a similar path, with the government divesting Petro Canada to Suncor Energy. The private operation of these refineries has led to improved efficiency and competitiveness in the oil sector.

In Nigeria, the persistent and heavy-handed involvement of the government in the refinery sector has only proven to be a major impediment to its full potential. On the horizon, there is a glimmer of hope with the upcoming Dangote Refinery and other emerging private modular refineries, which offer a new vision for the future of the industry. These private initiatives are poised to inject much-needed vitality and innovation into the sector. However, the overarching influence of the Nigerian National Petroleum Corporation (NNPC) continues to cast a long shadow over the industry, disrupting the equitable distribution of crude oil resources, dampening competitiveness, and impeding overall growth. This overbearing presence of the government in the refinery operations stifles the entrepreneurial spirit and market-driven efficiencies that are crucial for the sector's advancement. Moreover, the government's preoccupation with direct involvement in refinery operations detracts from its ability to address other critical challenges plaguing the industry. A case in point is the alarming issue raised by National Security Adviser Nuhu Ribadu in August 2023, who reported that Nigeria was hemorrhaging 400,000 barrels of crude oil daily due to rampant theft. This startling revelation underscores the dire need for the government to pivot its focus towards tackling such pressing concerns that threaten the very backbone of the nation's oil industry. By stepping back from direct refinery operations and concentrating on regulatory and security roles, the government can create a more conducive environment for the sector's growth and ensure the protection and optimal utilization of its precious oil resources.

The economic and environmental implications of the government's approach are considerable. Nigeria lost approximately $10 billion to crude oil theft between January and July 2022. Environmental issues, such as oil spills, are also of concern. The divestment of Shell Petroleum Development Company's onshore assets to Renaissance for $2.4 billion due to theft, sabotage, operational challenges, and lawsuits is a clear indication of the need for reform in the sector.

President Bola Tinubu's administration is at a pivotal point. Privatizing the refineries to competent international companies would bring in foreign direct investment (FDI) and save the government from incurring high operational and rehabilitation costs. This would align Nigeria with international best practices and allow the government to focus on regulation, taxation, and addressing systemic challenges in the oil sector.

End Statist Control

To truly revitalize Nigeria's oil sector, the administration of President Tinubu needs to decisively break away from the statist policies of his predecessor, former President Muhammadu Buhari. Under Buhari's tenure, the NNPC underwent a superficial transformation, merely rebranding to the Nigerian National Petroleum Company Limited (NNPCL). However, this change in nomenclature did little to alter the fundamental issue: the government's overbearing influence and control over the company. This continued state dominance under the guise of a new name has done little to address the deep-rooted inefficiencies plaguing the sector. The Tinubu administration now stands at a critical juncture where bold and transformative decisions are necessary to steer the sector towards a path of true revitalization.

Embracing full privatization and relinquishing governmental control over the NNPCL would be a significant step in aligning Nigeria's oil sector with global trends. Such a move would not only be a financial necessity but also a strategic imperative to unlock the untapped potential of the nation's vast oil reserves. By divesting state ownership in the oil refineries and fostering a competitive, market-driven environment, the Tinubu administration can pave the way for sustainable, long-term growth. This would shift the government's role from being an overbearing operator to a regulator and facilitator, ensuring a more efficient, productive, and globally competitive oil sector. Such a transformation is essential for Nigeria to fully leverage its oil wealth for the benefit of its entire population, marking a departure from the half-measures of the past and moving towards a future of prosperity and growth.