Clearing confusion in downstream oil sector – Punch
Nigeria's downstream sector of the oil and gas industry is currently in turmoil and in need of an urgent turnaround to streamline its operations. Nothing is more symptomatic of this sorry situation than the bedlam and sheer despondency witnessed in petrol retailing outlets across the country as Nigerians, on a daily basis, engage in the drudgery of a forlorn search for fuel to power their cars and generators.
Brought about by prolonged scarcity, many Nigerians now make petrol stations their second home as they sleep and wake there in their desperate bid to secure some quantities of the now precious product. Others who cannot keep vigil at petrol stations endeavour to wake up early and take their turns in endless queues, hoping for luck and praying that fuel attendants would not suddenly announce that they have run out of stock; this has been the situation in many petrol stations. Reports of people shot dead by security agents or escaping with broken heads in the struggle for fuel have made headlines.
For many, it is still difficult to imagine that these bizarre occurrences are taking place in a major oil producing country - a paradox of suffering amidst plenty. But that is the price to be paid for years of poor governance, unpatriotic policies, lack of transparency and downright graft. It is a shame of a country that has for the past 20 years chosen to import refined petroleum products despite being the largest oil producer in Africa. Apart from the lack of capacity to refine crude oil locally, the crisis has been exacerbated by the failure to adequately police oil installations, especially pipelines, thus hampering the distribution of refined petroleum and the delivery of crude to refineries.
There is no doubt that the Muhammadu Buhari administration inherited a messy, corruption-ridden system, where nothing seemed to work. It is a system where trillions of naira of public funds was fraudulently funnelled into private pockets in the name of subsidy payments on refined product imports. It is also true that he met four rickety refineries that have never functioned near full capacity, with more time and money being wasted on their maintenance than they have been able to compensate for with actual refining.
Clearly, the situation has been worsened by lack of a well-thought-out plan of how to put a permanent end to the crisis. There has to be a road map, with well-spelt-out timelines, for this purpose. That is why Nigerians embraced the clamour for change that brought the administration to power. But that vision has been lacking. The Minister of State for Petroleum Resources, Ibe Kachikwu, has made not a few conflicting statements about his plans for the country's oil industry, which have contributed in no small measure to unsettling the downstream sector.
In the beginning, he spoke of his preference for the sale of the government-owned refineries, only to follow up with a volte-face about making them work. Evidently, this has been an exercise in futility. A December deadline he set for improved performance of the facilities has come and gone with a little gain which was soon followed by a colossal relapse. Recent reports indicate that the government is shopping for $500 million for another round of turnaround maintenance, which will be coming after the Goodluck Jonathan administration, in its twilight, reportedly secured a $1.6 billion foreign loan for the same purpose. For how long will the government continue to do things the same way and expect a different result? With the country's current dire financial situation, the past luxury of spending freely with nothing to show for it can no longer be entertained.
Although Kachikwu has said that the country will become self-sufficient in local refining of petroleum products in the next 12 to 18 months, targeting the use of modular and regular refineries, there is not much on the ground to show that this target is achievable. Licensing of private refineries offers only little comfort; this was done in the past with practically no success. The idea of asking prospective private refinery investors to co-locate their refineries with existing ones has also failed to kindle interest. With the exception of Aliko Dangote, whose refinery is expected to come on stream in 2018, it has been more motion without movement.
This is the time for the government to quit the downstream sector for private investors, starting with the sale of the money-guzzling and unviable refineries. Private investors have so far shied away from Nigeria, citing continued government participation and undue advantage it confers on the national oil company, the Nigerian National Petroleum Corporation. The role of the government should be mainly regulatory.
There should also be a more determined effort to pass the Petroleum Industry Bill that has been gathering dust at the National Assembly. The bill, which is often cited as reason why investors have not been overly excited about prospects in the country, is expected to clear the current fog in the petroleum industry. An investor going into any business should have a clear-sighted vision of what lies ahead, not to be second-guessing the government in a country noted for her policy somersaults and other inconsistencies.
The government has to do all within its power to end the subsidy payment, which, at over N900 billion annually, is no longer sustainable. It is also obvious that a new approach to pipelines policing has to be adopted. A recent report put what it cost the NNPC to protect pipelines in 2015 at N104.4 billion. Yet, a loss of N57.7 billion was recorded as a result of vandalism during the same period.
CLH, Spain's leading company in oil transport and storage, has reportedly been able to minimise its loss through the use of technology to monitor the pipelines. Together with aerial surveillance, the incident, which has robbed the country of trillions of naira, can be drastically reduced. Another way to ensure a proper policing is to privatise the pipelines. This will make for a better and proper monitoring and safety of pipelines and products.