Why Buhari MUST sell our refineries NOW!

Year 2017 is ending like its brothers, 2014, 2015, and 2016, featuring at least one major economy-wrenching fuel scarcity. The year is rounding up with biting scarcity of petroleum products, especially petrol, in every nook and cranny of Nigeria. The errors and deceptions of yesterday finally caught up with us as a people, and we have to pay dearly for acting too little, too brittle and too late.

As a journalist, who has written largely about fuel scarcities and the petroleum industry for at least five years, a friend thought I should have the solution to the fuel crisis. Sadly, no one has the magic wand, but when asked what we can do, I gave three possible solutions: The quick fix will be return of fuel subsidy, the hard pill will be hike in pump price of petrol, and the long term solution will be sale of Nigeria’s refineries and deregulation of the downstream petroleum sector.

As expected, my friend retorted “ah, how can we sell our national refineries?” The same thoughts shared by many Nigerians and the president himself. But if we do not do that now, we would not see the last of these biting fuel crisis.

Let me explain how this works: You have a farmland behind your house where you plant yam stems, and in a few months, you harvest one of the best tubers of yam in the world. The major food eaten by your family is pounded yam. But you cannot make pounded yam because you do not have a good set of mortar and pestle for pounding the yam. Your mortar is good but the pestles are bad.

So you sell your good yams to one of the richest men in your community, who has many sets of mortal and pestle. He runs a restaurant selling pounded yam. Then you go to his restaurant to buy pounded yam for your family everyday.

You have members of your family who can fix your broken pestles or buy another one altogether. You also have people from outside your family who can do the same, but will do it for you at a price, but you have refused to hire them to do so.

Let’s bring it home: Nigeria has one of the best crude oil variants in the world. We do not refine because our refineries are bad. We sell our crude oil at $66 per barrel as at Wednesday morning, and we buy petrol at the international market at about $620 per metric tonne. And according to the Organisation of Petroleum Exporting Countries (OPEC) standard factors, there are 7.33 barrels in a metric tonne. This translates to $84.58 for a barrel of petrol.

So we are exporting a barrel of crude oil at $66 per barrel, and importing a barrel of petrol at $84.58. Who is gaining?

WHY THERE IS SCARCITY TODAY AND PROBABLY IN 2018

Why is there scarcity? Simple answer: because the price of petrol went up in the international market. In May 2016, when the federal government and NNPC reviewed the petrol pricing template, the cost of a metric tonne of petrol was $440. Today, the same volume is around $620, so we do not expect the retail price to remain the same. If it does, then someone is paying for the $180 difference on every metric tonne.

Since the government will not pay subsidy to independent marketers who import the product, and the marketers will not make profit, except they sell above N145 per litre, then it makes no sense for them to import. This leaves importing to NNPC alone, and Nigeria’s oil sector history has shown that NNPC cannot do it alone.

As oil prices rise, and energy demand across the world increases, there is a corresponding rise in the price of petrol. Therefore, when the prices go up again in 2018, Nigeria may experience another scarcity or hike in subsidy being paid.

WHY BUHARI MUST SELL REFINERIES NOW

For the first time in decades, NNPC, under Ibe Kachikwu as GMD, published its financial statement in August 2015, and what we saw was not pretty. Those refineries owned by the state were draining billions, with no results to show for it.

By the end of 2015, NNPC’s loss was at N267 billion ($1.34bn at the time), and a majority of these losses were from the refineries. The refineries were shut down for seven months of repair, and at the end of that, they were still producing at less than 30 percent of their capacity.

According to NNPC’s figures, the refineries got as much as 3,322,510 barrels of oil in August 2015 and produced 116,464,509 litres of petrol and 83,780,928 litres of Kerosene (NNPC Financial report; p.13). By implication, one barrel that went into our refineries in August 2015 produced 35 litres of petrol.

A standard refinery is expected to produce 91 litres of petrol from one barrel, 54.5 litres of diesel, 18 litres of Jet fuel and some litres of kerosene and other products.

Hence, for every barrel of oil, we lost 55 litres of petrol, amounting to a loss of (55 X 3,322,510) 182.7 million litres that month. That loss could have sold for over N15 billion at the time. Not including loss of diesel, jet fuel, kerosene, gas and asphalt.

By August 2017 (NNPC Financial report) , the same refineries were producing 37.7 litres of petrol from one barrel of crude, losing 52 litres on every barrel, due to inefficiency.

We do not need PwC or McKinsey to audit these refineries or run some consulting, to see that it makes no financial or social sense to keep these refineries. It is not making profit, it is not meeting needs, and we are losing billions every month. Remind me again, why are we bent on keeping them?

Back to our pounded yam story: Would it not make sense to give out your broken mortar and pestle for free to someone who can really fix them, and let him pound your yam every day and feed your children on your own terms.

If we give out our refinery to a standard oil refining company for free, and the company fixes it, and produces at capacity, it can produce at least 302 million litres of petrol per month — that is about a third of our monthly need. We would make profit, create jobs, meet a chunk of our needs.

If we sell it, we would make money from the sale; create jobs from the repair and revived production chain; make revenue in taxes; and meet a chunk of our local needs. It therefore makes no sense holding on to those refineries.