Funding challenge damns  Sylva’s Warri, Kaduna refineries optimism

• Country spent N1.47trn in H1 2021 on petrol import – NBS
• Opinions differ, with some calling for refineries’ outright sale

Nigeria’s minister of state for petroleum resources, Timipre Sylva said the country will soon witness a high level of reduction in the volume of refined products imported into the country, as activities are afoot to ensure the rehabilitation of Warri and Kaduna refineries kicked off quite soon.

But hit by serious funding challenges,  analysts say the minister’s optimisms are damned, except there are plans to resort to another round of borrowing for the rehabilitation. 

The analysts feel so strongly about their position that they have suggested that nothing short of an outright sale of the refineries for effective management is best at this time if Nigeria and Nigerians are to get genuine benefit from them.

A strongly differing opinion from Sylva’s and the government’s about the utility of the refineries to Nigeria is common among experts. Some industry watchers are calling for the outright sale of the refineries along with other government assets, to recoup funds to run government business, given the huge deficits inherent in the outgoing 2021 budget, and the N6.3 trillion expected deficit in 2022 fiscal year.

It is the disposition of the experts that it is quite necessary to dispose of government assets seen as a financial drain pipe that impedes economic growth.

For the South-South chapter of the Institute of Chartered Economists of Nigeria (ICEN), it is rather an effective management of the refineries that would make for domestic economic growth. ICEN said, it is neither the quantum of loan (borrowed) nor the volume of transactions on sell-off of the government assets, including the refineries, that would bring needed positive economic change. For loan that is tied to consumption is essentially subject to ‘virtual wealth’ which keeps compounding, the economists’ body said in a note to Business A.M.

But earlier in August, while appearing before the National Assembly committee on finance and appropriation hearing on the 2022 – 2024 medium-term expenditure framework and fiscal strategy paper (MTEF/FSP), the managing director of NNPC Ltd, Mele Kyari, said Nigeria will stop the importation of Premium Motor Spirit (PMS), popularly known as petrol, when the Petroleum Industry Act (PIA) comes into full effect, and when the 650,000-bpd capacity Dangote Refinery kicks off operations.

Till date, Nigeria, Africa’s biggest oil producer, imports 100 percent of all its petroleum products. The country’s four oil refineries with combined nameplate capacity of 445,000 bpd have been moribund for several years.

According to the National Bureau of Statistics (NBS), Nigeria has spent N1.47 trillion on the importation of premium motor spirit (petrol) in the first half of this year (H1 2021), which is more than 73 percent of what was incurred in the whole of last year (2020).  The N1.47 trillion is about 86 percent of what the country spent on petrol imports in all of 2019, the NBS data show.

For the second quarter of this year (Q2, 2021), petrol imports gobbled up N782.46 billion, up from the N687.74 billion spent on the importation of the product in Q1, the NBS data further shows.  For H1 2020, the country spent N1.09 trillion on petrol imports, up from N766.06 billion in H1 2019. The data also showed that petrol topped the list of products imported into the country in Q2, accounting for 11.26 percent of the total amount spent on imported products, up from 10.04 percent in Q1.

For all of 2020, Nigeria spent N2.01 trillion on petrol imports, against N1.71 trillion spent in 2019. Also, the Nigerian National Petroleum Corporation incurred N756.99 billion petrol subsidy cost from January to July this year, citing data by the corporation.

Additionally, records show that the country had spent N10.7 trillion on fuel subsidies in the last 10 years, including N750 billion in 2019. 

A number of attempts had been made by the government to remove the subsidy in 2020 and this year, but it had to bring it back in March following a global oil spike, as oil has been trading 35 percent higher at above $65 per barrel. The removal of the subsidy saw several increases in fuel prices in the second half of 2020 (H2 2020), which attracted labour unions to warn of severe protests if further increases were announced by the government.

But Sylva said the rehabilitation of Warri and Kaduna refineries will commence soon, as the federal executive will soon approve the exercise. He said the ministry was already putting the Port Harcourt Refining Company (PHRC) in good shape. 

The award of contract for the rehabilitation of the 210,000-bpd capacity refining plant was done in June this year at a cost of $1.5 billion, an amount many industry analysts say is outrageous because they claim it will be enough to build a new plant, considering the level of standardisation of technology sophistication in refinery construction these days.

The minister, whose portfolio is now redundant following the recent implementation of the PIA with the collapsing of DPR, PPPRA, NAPIMS, among others, and the emergence of NNPC Ltd, did not give a timeline for completion of works on the Warri and Kaduna refineries.

He was speaking at the graduation ceremony of the Petroleum Training Institute, Effurum, Delta State. He however, affirmed that the ministry was working to secure approval of the federal executive council (FEC) for the comprehensive rehabilitation of all refineries in the country.

For Sylva, the passage of the Petroleum Industry Act (PIA) is a watershed for Nigeria, observing that the law “provides legal, governance, regulatory and fiscal framework for the Nigerian petroleum industry, the host communities and other related matters.” 

He said the quick approval given by President Muhammadu Buhari for the constitution of a steering committee to oversee the implementation of the PIA showed how important it was to national development.

But oil industry analysts ask one critical question: where would the Buhari government get all the money to undertake the four refineries’ repairs. The work on PHRC is yet afoot, with the fund borrowed from offshore. So much had already been borrowed by the current Buhari administration. 

As of July, this year, the Debt Management Office (DMO) said Nigeria’s total debt accretion was in excess of $83.6 billion.

The Buhari administration has since 2016 developed a questionable likeness for external borrowings. The government has earmarked over $6 billion foreign credit to finance the deficits of the current 2021 and 2022 budgets. The government requires funding of N6.3 trillion deficits in the N16.39 trillion appropriation bill for 2022 fiscal year.