There are four major state-owned refineries in Nigeria located in Port Harcourt, Warri, and Kaduna. These refineries were opened in the 1960s and 1980s. Over the years, their facilities have become outdated and inefficient. This has led to frequent breakdowns and expensive repairs. For decades, there have been reports of operational failures and corruption in the oil & gas sector. Thus, efforts by the government to substantially invest in the rehabilitation and modernisation of these assets were to no avail.
According to the Nigerian National Petroleum Company Limited, Port Harcourt and Warri refineries recently commenced operations at 70 per cent (of its 210,000bpd capacity) and 60 per cent (of its 125,000bpd capacity), respectively. When considered alongside the Dangote refinery, this is progress in the country’s refining capacity. Interestingly, these recent developments have sparked debates on whether privatising these government-owned refineries offers the most viable path to sustainable refinery management in Nigeria. For context, privatisation is the transfer of government-owned shareholding in designated enterprises to private shareholders, comprising individuals and corporate bodies. In lending a voice to this call, the reason these facilities should be privatised would be considered from the legal, economic and technological perspectives.
The Petroleum Industry Act was enacted in 2021 to introduce some reforms to the oil and gas sector. Its major objective is to accelerate economic growth by encouraging investments to drive oil and gas production, investments in midstream gas infrastructure as well as promoting frontier exploration.
In terms of privatisation, the Nigerian Privatisation and Commercialisation Act of 1999 makes provision for a broad legal framework for divesting state-owned assets. By the Act, the National Council on Privatisation must ensure that such privatisation aligns with the nation’s economic objectives. In alignment with the Act, privatising the refineries would create more jobs and boost the economy. Evidently, it would create a competitive downstream sector, and enhance energy security in Nigeria, et al. However, the government must ensure that the processes are transparent and that the refineries are sold to competent companies with proven track records of managing and running refineries.
According to Reuters, Nigeria imports most of its refined fuel because of limited production capacity. Blackgold reports that Nigeria’s total import for petroleum products is about $28bn per annum. Financially, this is not viable as it has depleted the nation’s foreign reserves. According to a report by PwC, the importation of refined petroleum products from the Netherlands and Belgium has been a major driver of inflation in Nigeria. Considering the above, the investment of $1.5bn in the rehabilitation and the eventual commencement of the Port Harcourt refinery has been commended as it will help to curb inflation.
According to the House of Representatives ad-hoc committee on the state of refineries in 2023, despite the Federal Government spending over N11tn on the rehabilitation of the refineries from 2010 to 2023, these refineries performed below optimal levels. In a way, this suggests that maintaining and running the recently rehabilitated refineries would cost the government a lot of money. It is for this reason that the Petroleum Products Retail Outlets Owners Association of Nigeria has advised the Federal Government to privatise the Warri and Kaduna refineries, especially now that the value of the assets is high.
PETROAN believed that privatisation would encourage healthy competition, improve infrastructure, and reduce the financial burden on the government. Privatisation would attract the required technical expertise and local and foreign direct investments to the sector. It will culminate in investments in ancillary industries like petrochemicals and fertilisers. This would transform these refineries into profit-driven entities and boost the Nigerian foreign reserves.
It is common knowledge that these refineries are poorly maintained and run on obsolete technologies. Privatisation offers the potential of using modern refining technologies to enhance operational efficiency while meeting environmental sustainability standards. Skilled manpower and sustainable maintenance practices are needed for technological success. In sustaining technological advancements in the sector, privatisation would encourage continuous investments in research and development and workforce training.
For the successful implementation of privatisation of government-owned refineries, there are numerous challenges that must be addressed. Objectivity and balance in policy decisions is one major challenge that must be addressed. The government must ensure that state, private and public interests are balanced adequately. It must ensure inclusivity and fairness in its approach. This would help to curb monopolistic practices.
Privatisation also poses the risk of job losses. Clear and transparent workforce transition plans to minimise the impact of privatising these refineries on employees.
For the privatisation of these refineries to be successful and its goal achieved, the government must ensure transparency and accountability. Having invested billions of dollars in these facilities, the government must establish clear, transparent and enforceable mechanisms to guard against corruption. Lessons must be learnt from previous privatisation failures in Nigeria. Most importantly, historically, political interference and favouritism during privatisation have derailed the energy sector reforms. There must be strong political will and consistency in policies to ensure that the goal of privatising these refineries is met. The privatisation process should be aligned with current economic and energy sector realities, focusing on long-term sustainability.
Regulatory agencies must enforce strict compliance with environmental and operational standards to ensure that privatised refineries operate efficiently and sustainably. The sector has been plagued with corruption for decades. To curb this menace, the operations of these refineries should be independently audited to maintain accountability and transparency.
To complement outputs from these refineries, the government should strengthen downstream infrastructure through investments. This would enhance the overall efficiency of the sector. To mitigate resistance and ensure smooth transitions, necessary stakeholders, including but not limited to host communities and labour unions must be actively involved in policy discussions. Finally, credible data must be used to guide and inform privatisation efforts and decisions.
Privatization would help achieve sustainable refinery operations in Nigeria because the government have no business running businesses. Notwithstanding, to achieve the essence of privatisation, the approach must be strategic, transparent, and well-regulated. There must also be careful planning and execution.
