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Published On: Sun, Jan 26th, 2014

What Nigerians’ll Gain on Refineries’ Privatisation

Minister of Petrleum Resources, Deziani Allison-Madueke

By Oghenekevwe Laba
LAGOS JANUARY 26TH (URHOBOTODAY)-The pronouncement of the Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke over plans by the federal government to sell the four oil refineries in the country no doubt attracted criticisms from labour unions, non-government organizations and the populace.
According to the minister, the planned sale was part of President Goodluck Jonathan’s effort to transform the petroleum sector through privatization. The Minister noted that all four state-owned refineries are to be sold to private investors in the first quarter of 2014 to end years of under-performance and financial burden on the country.
Those against the proposed sale of the refineries located in Kaduna, Warri and Port Harcourt argued that the sale is against the overall national interest and is only in the interest of few Nigerians who are lurking around the corridor of power to milk the country dry. They alleged that the government advertently underfunded the refineries and deliberately refused to carry out routine turn around maintenance (TAM) and failed to supply adequate crude oil to the refineries to have reasons for selling them to their cronies.
Critics of the sale of the refineries have their right to do so in as much as they may be afraid of the unknown once the refineries are run by private hands. The question we need to ask ourselves is that do we have to borrow money to run the refineries when experienced from other parts of the world have shown that it would be more beneficiary if the refineries are privatized?
It is a known fact that Nigeria is blessed with vast quantities of oil and is the sixth largest oil exporter in the Organization of Petroleum Exporting Countries (OPEC). This has generated billions of dollars in revenues over the last forty years since oil was found in Nigeria. As in most developing countries, this has not translated into an improved economy for the country. Instead through inefficiencies, corruption, abuse of natural monopoly powers, mismanagement, smuggling, bureaucratic bottlenecks and excessive subsidizing, the supply of refined crude oil (gas) in the country has virtually collapsed.
For instance, the Federal Government budgeted about N971billion for subsidy on Premium Motor Spirit (PMS) otherwise called petrol in 2013, while over N635billion has been spent on subsidising kerosene for the last three years. This money would have been spent on other areas of the economy if the refineries were working well. The refineries are capable of producing these products if they are working and the excess can be exported to the benefit of the country. To achieve this objective the refineries need to be handed over to private hands who can manage them very well hence past experience had shown that government is running at lost by managing the refineries itself.
There is no doubt that the Nigerian government is aware that it cannot face the problems of the downstream sector in isolation and is well aware of the potential effects on the labor market. It is possible that in the short term unemployment may arise due to price increases and the attendant problem of potential job losses by workers in the refineries, this will be done by investors who aim to maximize efficiency, once they acquire control.
However, it is in this regard that the Nigerian agency charged with privatization; the Bureau of Public Enterprises (BPE) undertook a study of such effects and have come up with possible solutions such as rather than divest 100% to a core investor, 49% will be sold on the Nigerian Stock Exchange for ordinary citizens and part of that amount will be kept for current employees to acquire. Employees are also given the option of severance packages if they agree to resign before the actual sale takes place. The problem of unemployment would be for a short term as studies from other countries had revealed that privatising the refineries would attract investments, create job opportunities, enhance efficiency, free the downstream of all sorts of distortions and put an end to payment of subsidies on some petroleum products and corruption in the downstream sector of the oil and gas industry.
Giving credence to sales of the refineries, Emi Membere-Otaji, the Managing Director of Elshcon Nigeria Limited postulated that government has no business being in business. This, according to him, is more apt in Nigeria because the outcome is not just inefficiency and non-profitability but actual drain pipes.
He said further, “Our refineries have failed us as a country; but privatisation and following due process, leading to the emergence of the right winner is the way forward.
It is worth noting that the biggest gain will be in savings generated from divesting in the sector. as this will free up government funds for other activities.
The approach government has chosen about the privatization is quite interesting because it is novel in the third world. The Government has created a policy that affects the upstream sector. Government has sent a bill to the Nigerian senate for approval. This bill which is receiving accelerated hearing makes it mandatory for major oil companies operating in Nigeria, i.e. Shell, ExxonMobil, Chevron and Elf to refine at least 50% of their crude oil in the country. What this means is that there will be many suppliers in the Nigerian market, thereby encouraging competition and attendant lower costs. Although, the oil majors are not too thrilled about this but it is a price they have to pay if they want to remain in the Nigerian market.
All said and done, Nigeria is heading on the right track and is potentially going to be better off in the long run with the current intended plans on privatization. Already the benefits of maintaining a good fiscal policy is coming to bear, government has moved away from over dependence on oil revenues and is diversifying into other areas.
Oghenekevwe Laba is a Lagos based journalist

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