The Politics of Privatisation of Refineries

Investors who are prospecting for Nigeria’s moribund refineries may have to wait for a longer time for inexplicable reasons. In the face of the current political upheaval and sundry economic issues his government has to contend with, President Goodluck Jonathan is not willing to allow any pressure group to have its way by lashing onto the proposed privatisation of the refineries to foment trouble. That was the clear message the President sent to Nigerians and prospective investors in the nation’s oil sector when he reversed the planned privatisation of the nation’s four refineries, which is part of the oil sector reform.

The swift reaction of the presidency came on the heels of plans by oil workers to declare an industrial action with effect from the first working day of 2014 as a preliminary protest against the planned sale of the refineries. The news in government circles was that strong opposition party members had infiltrated the ranks of the oil workers to press for a strike that would paralyse the country. The game plan was to make it difficult for Nigerians who had travelled for Christmas and New Year celebrations to return to their base with ease as cost of transportation would skyrocket in the first two weeks of the year. In that case, President Jonathan would have lost more political grounds and popularity among the people. His 2015 presidential ambition would have been punctuated just as the declining popularity of his party stares him in the face.

Oil workers in the country, under the aegis of the National Union of Petroleum and Natural Gas Workers, NUPENG, and the Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN, had drawn the battle line a few weeks to the end of last year following the pronouncement made by Diezani Alison-Madueke, petroleum minister, to the effect that the country would initiate moves to privatise its refineries before the end of the first quarter of 2014. Madueke’s pronouncement was in line with the plans by the Bureau for Public Enterprises, BPE, which had opened discussion with the petroleum ministry, the Nigerian National Petroleum Corporation, NNPC and other relevant stakeholders in the oil sector on the planned privatisation.

So far, the government has shown lack of strategy and the political will to privatise the refineries. Way back in 2007, when the late Umaru Yar’Adua emerged as president, one of his first major decisions was the reversal of the sale of the four refineries to Blue Star Consortium, owned by a group of private sector investors led by Aliko Dangote and Femi Otedola. The Yar’Adua administration, with Jonathan as vice president in charge of the privatisation portfolio, said the transaction which was carried out in the twilight of former President Olusegun Obasanjo’s administration was not transparent. But pressure actually came from competitors who lost out in the bid to acquire the refineries.

In quick succession, Abubakar Yar’Adua, a bureaucrat of about 30 years in the oil sector, was appointed group managing director of the NNPC. What stands out today as one of the monumental frauds in the history of the oil sector was his promise to fix the refineries within six months from the time he was appointed. He merely raised the hope of Nigerians and the President. But up till 2009 when he was removed from office, the refineries were not fixed. Yet, the contract sum for the Turn Around Maintenance, TAM, of the refineries under his regime was put at $57 million. That was the beginning of a new circle of failed promises made by government.

Since 2008, the two refineries in Port Harcourt, the ones in Warri and Kaduna have been intermittently shut down due to insurgence in the Niger delta region as well as disruption of flow of crude oil to the locations. That is in addition to poor maintenance and neglect of the oil facilities. At some point, crude oil was being imported from Basra in Iraq for refining in Kaduna. In 2009 alone, about $20 million was spent on maintenance of the Kaduna refinery.

In 2011, Alison-Madueke declared at the annual conference of Society of Engineers that government was to embark on a strategy that would raise refining capacity of the refineries to 90 per cent within two years. That is yet to be actualised. In 2012, she said at the Organisation of Petroleum Exporting Countries, OPEC, meeting in Vienna, Austria, that Nigeria would stop importation of refined petroleum products as soon as government was done with the comprehensive maintenance of the refineries it embarked upon. The minister put the time frame for this to be accomplished at 24 months beginning with Port Harcourt, which was to be completed the same year while maintenance of Warri and Kaduna refineries were projected to be completed by the end of 2013. That target was never met. Prior to that, the last TAM was carried out in year 2000.

Despite the projections and promises made by the petroleum minister, the refining capacity of the four refineries remained at about 10 million litres per day at the end of 2013 as against the daily consumption of 35 million litres per day while the installed capacity of the refineries is 450,000 barrels per day. To make up for the shortfall, the federal government pays about N667 billion annually on fuel importation.

In all the pronouncements she has made on the oil sector and its reform since her appointment as minister, the reversal of the planned privatisation of the refineries was the first instance where the Jonathan administration disclaimed Alison-Madueke. She is believed to be very close to the President and a strong member of his cabinet. But the President couldn’t risk an industrial action in the oil sector at the beginning of the year, just as the Academic Staff Union of Universities, ASUU, was ending its five-month-old strike and medical doctors were gearing up for another.

When the government was eventually brought to a round table, the oil workers did not only make demands, they also accused government officials of plotting to sell the refineries in a clandestine manner. Seyi Gambo, spokesman for PENGASSAN, said the oil workers are opposed to what he described as “giving away public assets built at very high costs to cronies and proxies.” The union leader also accused government of deliberately frustrating the running of the refineries by wielding overbearing influence in the running and maintenance of the refineries.

In like manner, Tokunbo Korodo, chairman, Western Zone of NUPENG, claims that government is yet to discuss the issues of severance package with the workers, declaring that their interest comes before privatisation.  Furthermore, they demand to know those that are buying the refineries to determine whether they are genuine investors, understand the sector, and to confirm that they are into oil and gas business. Korodo admits, however, that so much is happening in the oil sector that government needs to checkmate, including operation of illegal refineries, and threatened that until these issues are addressed the issue of privatisation should not arise. Now, the workers are demanding equity participation, where government will own part of the asset without being fully involved in the running of the refineries. These are some of the issues they are likely to hold on to in further negotiations with government in the weeks to come.

Oil workers strongly believe that if routine maintenance and repairs are carried out, the refineries would be restored to at least 80 per cent capacity utilisation, just as regular supply of crude oil to the refineries. By their assessment the nation’s refineries are comparable to several others in different countries except that those in other countries are routinely maintained, reconfigured and modernised even when they have been operated for 30 years and above. That is why Martin Onovo, an engineer and energy expert, says the country needs to look into “ethical issues that make it difficult for the refineries not to work effectively and address issues of corruption, where the stewards are richer than the companies they are working for, and where the director general is richer than the organisation he is running.”

Why the failure of federal government to manage state-owned enterprises is becoming worrisome is that examples abound where governments of other countries have effectively managed corporations. In the case of Venezuela for instance, government achieved success in the management of its oil sector by getting rid of corruption. That is why petrol sells in that country for about 12 cent per gallon, which is the equivalent of about N5 per litre, depending on the exchange rate.

In the light of that, Peter Adebayo, a management consultant, believes that until government begins to show sincerity of purpose and demonstrates the political will to deal with these issues, there may be no changes. “Corruption has to be dealt with decisively if progress must be made,” he declared, pointing out that whereas privatisation of the refineries may not be a bad idea, if the transaction is handled in a transparent manner, it is also an indication of management failure on the part of government.

For the government, what is paramount for now is to forestall any attempt by oil workers to go on strike. According to Bayo Olowoshile, general secretary of PENGASSAN, the federal government has already agreed to work with the unions to formulate workable business models and strategies for the refineries instead of outright sale. And in line with that thinking, the TAM by the ministry of petroleum resources, which is already said to be in progress, will continued. Government was also said to have realised that it needed to inject funds into the sector. But whether government is going to abide by this agreement is yet to be determined. What is very clear for now is that the Jonathan administration may not touch privatisation of the refineries, not even with a long spoon in a long time to come.

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