NINETY-SEVEN years after oil was discovered on its shores, current projections in the international market, given that the United States has authorised exports, is that Nigeria’s crude may sell for as low as $5 and $10 per barrel. And when that happens, the nation’s refining capacity may warrant further reliance on importation. That is, if the country’s crude does not end up as product for auction in the international market!
This is coming as the Federal Government voiced optimism, saying the Port Harcourt refinery would commence production next week with a daily target output of 5.5 million metric tons of Premium Motor Spirit and other products.
Minister of State for Petroleum and Group Managing Director of the Nigeria National Petroleum Company (NNPC), Emmanuel Ibe Kachikwu, made the disclosure during an inspection of the Turn Around Maintenance (TAM) at the facility, Friday evening.
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“Over the next one week, we (NNPC) expect the product (PMS) out here (at the Port Harcourt Refinery),” Kachikwu said, stressing that the final solution to the problem of fuel subsidy is getting the refineries working, in order to halt importation.
The Nigeria Union of Petroleum and Natural Gas Workers (NUPENG), and the Independent Petroleum Marketers Association of Nigeria (IPMAN), however, have challenged the government to match its words with action, saying they have become weary of unfulfilled promises.
Reacting to Kachikwu’s announcement, the Eastern Zonal Chairman of NUPENG, Godwin Eruba, and IPMAN Chairman, Port Harcourt Zone, Sunny Nkpe, said the development would only cheer Nigerians, if the government delivers on its assurances.
“There is no alternative to local refineries. They will create employment, reduce the price of PMS to even less than N50 per litre, expose the corruption embedded in the subsidy scheme, eradicate scarcities occasioned by importation of oil, and end the stress experienced by citizens,” said Eruba.
He urged the government to ensure machinery needed for the production is in top shape and is properly maintained, warning that an on-off pattern does not portend well for the nation’s economy.
Cautiously optimistic, Nkpe regretted that Nigerians have been through much pain and hardship, but that sustainable move to address the challenge is welcome.
Nigeria joined the Organisation of Petroleum Exporting Countries (OPEC) in 1971. Six years later, in 1977, it merged the Nigeria National Oil Corporation with the Federal Ministry of Mines and Steel into the Nigeria National Petroleum Corporation (NNPC). In 1981, that is after a period of four years of NNPC, the corporation was decentralised into nine subsidiaries including the National Petroleum Investment Management Services (NAPIMS); Nigerian Petroleum Development Company (NPDC); Nigerian Gas Company (NGC); Products and Pipelines Marketing Company (PPMC); Integrated Data Services Limited (IDSL); Nigerian Liquefied Natural Gas Limited (NLNG); National Engineering and Technical Company Limited (NETCO); Hydrocarbon Services Nigeria Limited (HYSON); Warri Refinery and Petrochemical Company Limited (WRPC); Kaduna Refinery and Petrochemical Company Limited(KRPC) and Port Harcourt Refining Co. Limited (PHRC).
Despite the unbundling of NNPC, however, the nation’s petroleum industry continued to thrive in official corruption, while the downstream sector became a source of continual hardship for citizens, as they experienced erratic supply of petroleum products especially, Premium Motor Spirit and kerosene.
Against the background of this epileptic sourcing and fluctuating pricing of petroleum products, the federal government under President Olusegun Obasanjo, initiated the process of deregulating fuel prices in 2003. In furtherance of that policy, the government hinted that it planned to privatise the four major oil refineries located in Port Harcourt, Warri and Kaduna. Two years after the initiative took off; NNPC signed a contract worth $1bn with Chevron Texaco Nigeria, to construct the Floating, Production, Storage and Offloading (FPSO) Vessel at the Agbami deep offshore oil field.
Perhaps, because the NNPC came into being on a ‘fool’s day’ (April 1, 1977), the establishment has not translated its operations to profit-making or good life for Nigerians. Despite its extra mandate through production, refining, petrochemicals, product transportation and marketing, NNPC had remained at the centre of allegations of sleaze and revenue evaporation.
The refineries it put up at Port Harcourt, Warri and Kaduna did not help the downstream sector or increase the capacity of Nigerians in the upstream. Worse still, the commercialisation effort, which yielded multiple strategic business units for exploration, gas development, refining, distribution, petrochemicals, engineering and commercial investments, gave way to subsidy payment and insider trading through importation of petroleum products by private concerns.
Its many subsidiaries fuel systemic inefficiency rather than enhancing productivity and profitability. An example is the Department of Petroleum Resources (DPR) in the Ministry of Petroleum Resources, which is charged with the responsibility of ensuring compliance with industry regulations. But despite its existence, poor quality fuel was once imported and distributed in the country while fraudulent importers claimed subsidy payment for non-existent imports. The secrecy and corruption that characterised subsidy payments sparked off debates on the necessity or otherwise of subsidising the price of PMS.
Attempt by the federal government under President Goodluck Jonathan to scrap the subsidy in January 2012 led to spontaneous protests instigated and supported by entrenched political and business interests. It was noted then that in times of acute scarcity of the product, Nigerians showed marked ability and willingness to pay as much N200 per litre for PMS. Even when the price of oil in the international market was showing signs of constant decline, Nigerians continued to pay more for the product, even with subsidy. While other countries in OPEC have shown improvement in infrastructure and diversification of their economies, Nigeria’s situation keeps getting worse, as few privileged individuals grew fat from importing oil smoothened by state subsidy.
The announcement by the Minister of State for Petroleum, Mr. Ibe Kachikwu, that the government can no longer afford to pay subsidy, therefore, comes with mixed feelings.
Kachikwu explained that two crucial developments necessitated the removal of subsidy notably: corruption and falling revenue from crude sales. But while indicating an official price of N85 and N87 per litre, the Minister retained the confusion that beclouds official policies in the oil industry.
Experts have questioned the rationale for state interference in price regimentation, given its resort to deregulation of the downstream, because just as the government was announcing a pricing ceiling of N87 per litre, the product was being sold in some states thrice that amount, amid scarcity. And even without talking about sourcing, the Minister hinted: “Marketers would get advice on that.” The same marketers had after receiving arrears of subsidy owed them decided on a temporary cessation of importation, as they put it, “to know where this government stands on subsidy.”
Going by Kachikwu’s announcement, government may, at last, have decided to allow market forces to determine effective pricing of petroleum products. The buck now shifts to the marketers or NNPC, to address the issue of supply to match domestic demand.
The Minister had said: “For the first time, people will understand that the pricing modulation I was talking about is not a gimmick. It is for real. We have gone to find out how to fluctuate the market to reflect what the reality of the crude market is. The objective is that we cannot afford to continue to subsidise…we can’t even understand where those subsidies were going to. There are a lot of fraud elements in it, so we need to cut that off. Secondly, the earning capacity of the federal government is deteriorating by the day with lower prices of crude.”
It would be recalled that in September, Kachikwu disclosed that the nation’s four refineries at Port Harcourt, Warri and Kaduna “must become fully functional within the next three months, to guarantee uninterrupted fuel supply in the country.” Speaking at the Kaduna Refining and Petrochemical Company, Kachikwu declared that the NNPC “would provide all that is required to enable the refineries operate optimally. He stated: “We must make all the FCCUs (Fluid Catalytic Cracking Units) and the fuel sections to work efficiently in the next three months, so that Nigerians will continue to enjoy uninterrupted supply of petroleum products.”
Though the NNPC GMD explained the need for the establishment of more refineries, to avert reliance on importation, he failed to factor in the issue of paucity of funds, as the price of oil continues to plummet.