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Petroleum Industry And Its Reforms.

  • Posted by: Center for Social Justice

Petroleum industry and its reforms

It is sometimes a frustrating experience being a Nigerian. But Nigeria is a land full of bright ideas, opportunities, possibilities and challenges. We have enjoyed 16 years of uninterrupted civil rule and its promises of democracy welded to development. We have not been short of ideas for the development of our economy, politics, sports, social life etc. But something usually happens at the point that the percolated ideas need to be implemented. Somehow, we usually snatch defeat from the jaws of victory and give a million excuses about why we failed. We hardly have good stories to tell as the reasons informing our success.

Consider the challenge of refining crude oil into finished petroleum products. The challenge has been with us for decades. We spend so much of our resources and over 35 per cent of our foreign exchange earnings importing refined petroleum products. Everyone knows that the right thing to do to stop this waste is to build new refineries and petrochemical plants. The existing refineries are very old and despite several billions of dollars invested in turning them around, no concrete results have emerged. Indeed, we have over the years spent more than would be required to build refineries of their sizes in the drive to turn around the dead assets. The last exercise, which was carried out by the present administration, came with a lot of hype until the dust settled and it was clear to all that nothing came out of it.

It is either the Federal Government is disciplined enough to build and manage refineries and petrochemical plants or the private sector is allowed to do it. However, everyone, including the government, has admitted that they lack the capacity to execute such a project – nor to manage commercial and business-oriented projects – at reasonable costs. This leaves only the private sector as the feasible alternative to build and manage the businesses. But the simple idea of how to let the private sector in has stalled progress for many years. The unnecessary polemics about privatization, liberalization, cost recovery, et cetera, has led us into sterile debates that have yielded no dividend except poverty, misery and continued export of our resources to buy what we can produce.

Recall that in the last days of the Olusegun Obasanjo administration, the refineries in Port Harcourt were handed over to the private sector and some Nigerians cried blue murder that a national patrimony and heirloom was being sold off. This led the Umaru Yar’Adua administration to cancel the exercise. Even the labour unions in the sector stated that if resources were made available, they would repair the refineries and make them fully functional. Today, after so many turn-around maintenance exercises, the refineries are still operating at about 10 per cent of their installed capacity.

The fixation with the price of petroleum products keeps going in circles. The private sector that should have been allowed to come deeply into the sector is alienated with the exception of one of its leading lights Aliko Dangote who has invested big time. What Nigeria needs in the sector is beyond Dangote’s investment. We need more investors in both refining and the production of other derivatives from crude oil. We also need a strategic approach guaranteeing that we produce enough for the domestic market and for export to nations where we can compete in terms of prices and other comparative advantage factors. The industry needs pragmatism of what works to produce results and win-win situations for the populace and the government. It does not require any ideological leanings, but essentially the question should be: what is it that can work in our peculiar environment?

The Petroleum Industry Bill was introduced into the National Assembly in the Sixth and Seventh National Assembly. Members of the National Assembly sat on the bill until the end of the life of the administrations. They complained about sections of the bill, as if to state that they were under obligation to pass the bill in exactly the same format that it came into the legislature. Every section of the bill was politicised and the definition of issues, such as host community, became the core of bickering and agitations because everyone suddenly wanted to be part of the rent collection. After collecting their official and unofficial emoluments failed, the lawmakers refused to pass the bill. Nigerians will never forgive and forget them, including those who now claim to be progressives after the heist. For Nigeria to have made the right gains, that was the best time to have reformed the industry at the height of the boom in commodity prices.

Today, the fuel queues are back and Nigerians are complaining. They have been informed to wait on the roll out of reforms in the petroleum industry in the next couple of days. Funny enough, there are no bills before the National Assembly to found these reforms and we are about getting back to the circuit. Reason demands that a PIB that has the input of many stakeholders should have been prepared and now resting with the National Assembly, which would have given itself a deadline of a few months to get the law out.

Even if I have to repeat well known facts, refining crude oil in Nigeria will save scarce foreign exchange and reduce the pressure on the naira. It would create jobs in Nigerian refineries and as such, reduce unemployment. The companies will pay companies income tax and the employees will pay tax. Technology will be transferred. Essentially, it is a win-win situation for all. There have been talks about modular refineries and using them as a stop gap measure pending the establishment of the lager refining complexes. But, what are we doing? The leadership joins the followership in complaints and nothing is done to deal with a national calamity.

The government should declare a state of emergency in the petroleum industry. Some of the contours of the state of emergency will include deadlines for enacting new laws and policies in the sector to liberate the resources and energy of the private sector and Nigerian citizens to invest in the sector. It is important that the reforms provides that opportunity for broad ownership of emerging new assets rather than the closed shop of brief pocket and straw men investors, who have no financial capacity – the type that emerged from the privatization of the power sector. These straw men go shopping for capital and loans with an eye to passing on the interests and costs to consumers; most times they stall progress in the sector because of their incapacity. Other contours of the emergency will include special funds from a number of sources including those from the Central Bank of Nigeria and other stakeholders which will be channeled to stop the importation saga with a record time of not more than 2 and half years. If the CBN can make resources available to less important sectors and the sums are even not well utilised, the case for special support to the petroleum industry is self evident.

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Author: Center for Social Justice

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