Amidst a severe petrol scarcity and soaring prices of diesel, kerosene, aviation fuel, and lubricants, the Federal Government has once again failed to grasp the core issues surrounding the prolonged petrol subsidy payments. During the 2023 World Economic Forum in Davos, Switzerland, the Minister of Finance, Budget and National Planning, Zainab Ahmed, suggested that the government would gradually end the subsidy regime starting in the second quarter. However, this approach merely scratches the surface of a complex problem that has been clouded by sentiment, half-truths, corruption, and official incompetence. Despite Nigeria being Africa’s leading crude oil exporter, the country has faced ongoing petrol shortages since January 2022, exacerbated by opaque subsidy payments.
Ahmed stated, “We also have to exit fuel subsidy, because that is also a significant contributory factor. You can look at it in two ways – it is revenue that would have come to the government, but it doesn’t because it has been spent on fuel subsidy. But also, where there is nothing for the government to buy the refined petroleum products, we have to borrow to buy the petroleum products. So, if you take that out, that’s about N3.25 trillion; that is a significant relief.” This reasoning is perplexing. Despite the government’s subsidy payments and the Nigerian National Petroleum Corporation Limited’s failure to regularly remit oil sales proceeds into the Federation Account, petrol prices have soared well above the regulated N185 per litre in many regions, with some areas seeing prices as high as N300 to N600 per litre. The Federal Government remains optimistic that discontinuing the subsidy payment, currently complicated by the forex crisis, will resolve the bottlenecks in the oil sector. This perspective is fundamentally flawed, as the challenges facing Nigeria’s oil sector are multifaceted.
In addition to subsidy payments, critical issues plague Nigeria’s oil downstream sector. Key problems include the government’s reluctance to privatize refineries, the involvement of the regulator (NNPC) in retailing products, and inadequate domestic refining capabilities. According to data from Blackgold Energy Authorities, Nigeria imports petroleum products at a staggering cost of $28 billion annually, which exceeds half of the N21.83 trillion budget for 2023. The firm highlighted that Nigeria’s per capita refining rate is approximately 0.002 barrels per day, a figure that underscores the country’s embarrassing lack of refining capacity. As long as Nigeria continues to rely on imports for petroleum products, prices will remain unsustainably high.
The President, Major General Muhammadu Buhari (retd.), and his administration must recognize that the first crucial step toward resolving this crisis is to enhance domestic refining capabilities. Nigeria has four refineries located in Port Harcourt, Rivers State; Warri, Delta State; and Kaduna, with a combined installed capacity of 445,000 barrels per day. However, decades of inefficiency, corruption, and lack of focus have kept their operations far below capacity. Successive governments have neglected the necessary reforms, resulting in the refineries consuming millions in running costs annually, with taxpayers’ money wasted on turnaround and rehabilitation efforts. Over the past 25 years, the Federal Government has reportedly squandered $25 billion on these facilities. In 2021, the government allocated $1.5 billion to repair the Port Harcourt Refinery, which generated only N10.33 billion in revenue from 2015 to 2019, while incurring a total loss of N229.14 billion during that period.
Several stakeholders, including Vice-President Yemi Osinbajo, have advocated for the privatization of the refineries. In 2020, Osinbajo argued that the government should not be involved in running refineries, stating, “If the refinery is left in the hands of the government, it will continue to experience the same problem it is experiencing now. I do not think that it is the business of the government to run the refinery. It should be the business of the private sector, which is why we are trying to focus on assisting the private sector to develop modular refineries.” Since 2015, Nigeria has issued 65 licenses for modular refineries, yet only about four have become operational, primarily due to a lack of access to feedstock (crude oil). This situation indicates that the leadership is merely paying lip service to the need for domestic refining.
Political disputes and labor unions’ vocal opposition to refinery privatization reflect a nation unprepared for a diversified economy. In the waning days of his administration, former President Olusegun Obasanjo sold a controlling stake in two refineries to the Bluestar Consortium for $721 million in 2007, but his successor, the late Umaru Yar’Adua, irrationally reversed this decision. Former President Goodluck Jonathan also failed to achieve their privatization, and Buhari has remained committed to public ownership of these underperforming assets. This approach has detrimental effects on the economy, particularly as the Buhari administration has resorted to borrowing to fund subsidies, which is fundamentally poor economic policy.
Privatizing the refineries would allow Nigeria to alleviate the financial burden associated with them and enable the private sector to take on refining, similar to practices in other countries. For instance, Singapore, despite being a minor crude producer, has become a major hub for refined petroleum products with a capacity of 1.5 million barrels per day, according to the International Trade Administration. The subsidy regime is further marred by corruption and the government’s unwillingness to address oil theft, which the Senate estimated cost Nigeria $2 billion within eight months in 2022. Additionally, the Economic and Financial Crimes Commission reported recovering about N13 billion from illegal payments made under the subsidy regime between 2017 and 2021. In 2011, the Jonathan administration could not account for N2.57 trillion in subsidy payments. Therefore, the starting point for reform must be the privatization of Nigeria’s ailing public refineries to foster competition and promote self-sufficiency in petroleum products within a robust commercial framework.
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