Subsidy jinx

June 18, 2019
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•FG’s resolve on turnaround maintenance of refineries won’t solve the problem

Finally, the Federal Government has gotten close to making its four refineries economically useful. It has entered into partnership with an Italian company to do a full turnaround maintenance of one of the country’s four refineries. But before reaching this stage, the four refineries: Old Port Harcourt Refinery with a capacity of 60,000 barrels per stream daily (bpsd); Warri Refining and Petrochemical Company with capacity for 125,000 bpsd; Kaduna Refining and Petrochemical with 110,000 bpsd capacity; and New Port Harcourt Refinery of 150,000 bpsd capacity had in the last four years cost the country N231billion for abysmal performance during the four years of Muhammadu Buhari’s first term as president.

Too much of the nation’s resources had been lost because of dilly-dallying on the part of governments for too long. If the four refineries had been put in good working condition in a timely manner, they could have been able to refine a total of 445,000 bpd for the benefit of consumers. With this number, locally refined premium motor spirit (PMS) could have met 50% of the country’s need that has hovered between 2017 and now around 750,000 and 850,000 barrels per day. And such development could have brought oil subsidy payment down considerably, thus raising the hope of ending decades-old oil subsidy payments for importation of petroleum products to meet domestic needs in Africa’s largest petroleum producer.

There may be no exaggeration for keen observers of Nigeria’s economy to feel, as many do, that the country must have been jinxed since the onset of post-military rule. For illustration, the first post-military government of General Olusegun Obasanjo inherited a regime of subsidy payments that had been created by years of erosion of capacity utilisation of each of the four refineries.

Even though Obasanjo got to the point of pushing for privatisation of the refineries, this move was aborted soon after Mr Umaru Yar’Adua became president, on account of what he saw as the need to perfect the privatisation process. After Yar’ Adua’s death, President Goodluck Jonathan could not in almost six years of his presidency fix the refineries, despite the high rhetoric about the imperative of making the refineries work as they should. And even in the last four years under a government elected on the platform of change, the refineries remained partially comatose till the recent announcement that one of the refineries is ready for proper turnaround maintenance.

The government-owned refineries have been financial liabilities to the nation for too long and it is about time the Federal Government took the right action. Although a lot of resources have been lost in the distant and immediate past, the decision of the Federal Government to begin to take the bull by the horn is welcome, because good moves are better late than never. Another positive side to the move to turn the refineries around is the information that the first maintenance will be completed within six months. This suggests that, with continued commitment on the part of the Federal Government to restore the four refineries to full capacity utilisation, a lot of the uncertainties that have bedeviled the supply of PMS may get substantially reduced within 24 months, should the government fix the refinery one after the other.

Read Also: Photos: Buhari, APC Govs meet in Abuja

With restoration of the four refineries to full utilisation and the likelihood that the 650,000 bpd capacity of the Dangote Refinery expected to come on stream within the next 18 months, Nigeria will be in a position to stop importing PMS and end payment of billions of naira subsidy, at least in the short-term.

But for the long term, there is reason for the government to pause for reflection on downstream and upstream sides of the petroleum sector. Current uncertainties about profitability of the Nigerian National Petroleum Corporation (NNPC) deserve a new policy attention. And the need to determine the fate of the Petroleum Industry Bill (PIB) is a necessary condition for the executive and legislative branches of government to think things through once and for all.

Even as the Federal Government has decided to do turnaround maintenance of the refineries, there is still the need for it to look beyond the few years of their post-maintenance life. In another 18 months, most of our refined petroleum will come from the private sector, as Dangote’s company will refine about 70% of the country’s PMS. The existence of government-owned refineries is fast becoming anomalous, especially decades after privatisation of telecommunication, electricity and other sectors of the economy. So is the distortion of the economy by decades of oil subsidy payment due for permanent solution, just as protecting the NNPC from temptations for corruption crying for a fitting reform of the downstream sector.

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