On local refining and national productivity

By Sunny Chuba Nwachukwu

Business will be meaningless if the aim of setting it up (which is primarily, to make ‘profit’) is not achieved. In our national life, the nation’s oil industry is basically comprised of all aspects of hydrocarbon operations. It involves exploration of fossil fuel deposits, production and utilization/consumption of its energy derivatives, sourced from the crude oil and gas value chains. The business (as it were) provides petroleum products and numerous ancillary services for expected economic gains. This has been the major source of earnings in the economy (especially the foreign exchange earnings from the upstream, extractive operations) through the exports of crude oil to our foreign partners and international customers over time.

What is actually killing the nation’s economic life is deeply rooted in the style of governance that does not recognize the essence of business viability and sustainability in all facets of governmental sectors that should be constantly programmed to generate revenues and real financial income, than this obvious losses being recorded as if they were charity organisations. In other words, the operational style of running government institutions does not presently make them viable and sustainable in the long run.

A classic example is the Nigerian National Petroleum Corporation’s poor business performances as a profit oriented organisation. The harsh times on the economy is evidenced in the recently published NNPC’s projected zero remittance to the Federal Accounts Allocation Committee (FAAC) for the month of May. If one may even ask, without prejudice, how can the three tiers of government continue to depend on such monthly sharing bazaar? When will this end in the life of this country? It can never be sustainable unless we aggressively and drastically restrategize the governmental business model in the downstream, and change the entire business operational structures of all federal government agencies in other sectors and ministries.

We must be productive, by adding value to our natural resources than this charity prone, non serious, poor corporate governance structural template the institutions presently operate. Is it not shameful and ridiculous that we continue to talk about “shortfall to the rising average landing cost of petrol…, ex-coastal price”, while we have excellent stock of crude available in massive amount for value addition, within the economy? Our sensibility is being insulted, I must say because, it beats one’s imagination that we are experiencing this. The nation needs to wake up fast because people are dying in their numbers due to hunger! The claimed changes in the macroeconomic variables affecting petroleum products pricing can only start adjusting favourably, once we start refining locally for the right energy security within the economy, and shall continue to be relevant in the global energy equation for another four to five decades. That of course, shall automatically impact on the excessively devalued foreign exchange rate to our local currency, the naira!

The trajectory of crude oil pricing at the international oil market can only be contained by the federal government’s policy on a deregulated pump price, being determined by market forces, if and only if the economy is self sufficient for daily domestic energy supply. There can be no magic performed under the present scheme since all the refined products are imported. Looking back at the glut in the international oil market, in the first quarter of 2020, when the price of crude was terribly low; if Nigeria had been on with local refining, then it would have made a lot of sence at the downstream sector, about PMS and other refined petroleum products being sold at favourable pump prices that would be determined by market forces.

Backward integration of national economic development and commercial activities along the entire value chains in the oil industry is a veritable instrument for high productivity and GDP growth in the nation’s economy. This vision should be the target for better economic growth, where the downstream shall significantly impact on an impressive GDP growth and high productivity.

The analytical titbit clearly shows that the economy is bound to significantly be improved with enhanced and fully operational economic and commercial activities of the downstream subsector, judging by the obvious importance of the export earnings from the industry’s upstream operations over the past five decades. It is, therefore, pertinent that the downstream should significantly manifest its effect on the productivity profile of the nation’s economy; especially when it will change the tide of import/export equilibrium along the hydrocarbon value chains in the economy. Its daily percentage volume for (contribution by) local usage of crude, over the daily crude oil productions in the economy, shall be highly impressive. It shall then continue to ease the foreign exchange demand stress from the nations’s foreign reserves (by the advantages of import substitution, backward integration and improved local currency exchange rate). The overall GDP growth rate trajectory shall definitely continue to be in an upward trend, amongst other economic sectors’ productivity impact on the nation’s economic growth.

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Nwachukwu, a graduate of pure and applied chemistry with an MBA in management, is an Onitsha based industrialist, a fellow of ICCON, and vice president, finance, Onitsha Chamber of Commerce.

Sunny Chuba Nwachukwu (FICCON, LS)

Onitsha, +2348033182105