Nigeria’s public refineries, under perpetual government control, remain trapped in a cycle of dormancy and inefficiency. At best, they operate sporadically, with the country squandering resources on endless rehabilitation efforts that yield little progress.
This reality was underscored again late in May when the Nigerian National Petroleum Company Limited announced that it had shut down the old Port Harcourt Refinery in Eleme, Rivers State, for another round of maintenance.
Indeed, when the NNPC announced the restart of the 60,000 barrels per day PH Refinery in November 2024, many Nigerians received the news with scepticism. Industry watchers argued at the time that the restart was merely window dressing rather than actual progress.
Now, six months later, recent developments have validated those doubts. Despite over $1.5 billion spent on refurbishment, the refinery was shuttered for “planned maintenance and sustainability assessment”. What is the sense in spending so much without result? This calls for a rethink.
Typically, the Turn Around Maintenance Schedule for the plant should be 30 months after the restart, not six. This abrupt shutdown has raised concerns, especially as it followed reports that the refinery was only blending naphtha into diesel, while questions hung over its actual petrol production.
For three decades, Nigeria has depended on petrol imports, incurring enormous costs, while its four public refineries, with a combined nameplate capacity of 445,000 bpd, remained largely inactive.
The Warri Refinery, which has a capacity of 125,000 bpd, faced a similar fate. After a brief resumption of operations in December 2024, it shut down again within a month.
In December 2024, the NNPC announced the return of production at the refinery; however, a month later, it was reportedly closed once more.
Yet, the Federal Government said it had provided $1.55 billion for the rehabilitation of the PH Refinery, $740,669 for the Kaduna Refinery, and $656,963 for the Warri Refinery. This is money badly spent.
Sadly, the epileptic performance of the Warri and PH refineries evokes memories of past failures, and there are genuine fears that the funds spent on rehabilitation may have been wasted once again.
The refineries’ history is littered with failed TAM projects and repeated waste of taxpayer funds on ventures that have become white elephants. It is increasingly clear that, under government ownership, these refineries are unlikely to ever operate efficiently.
Former President Olusegun Obasanjo appeared to have realised this when, towards the end of his second term in 2007, his government sold a 51 per cent stake in the two PH refineries at $561 million to the Bluestar Consortium. The consortium paid $300 million upfront.
However, Obasanjo’s successor, the late President Umaru Yar’Adua, reversed the sale. The cancellation has proved to be a bad and costly decision.
Different estimates suggest that Nigeria has spent over $20 billion in rehabilitating the refineries in the past 30 years, with nothing to show for it.
Conversely, billionaire Aliko Dangote built his 650,000-bpd refinery with a similar sum, highlighting the scale of public sector inefficiency.
Given the failure of the government to run the refineries efficiently over the years, the logical solution is full privatisation of these entities and to end the relentless drain on the country’s resources.
The transformation of the Eleme Petrochemicals plant post-privatisation strengthens the argument for this course of action.
Before it was sold in 2006, the Eleme Petrochemicals Company Limited was a huge loss-making subsidiary of the NNPC. Initial assessments indicated that EPCL had an untenable debt burden, needed capital investment, and would not be profitable for its buyer for several years.
However, the turnaround was instant after 75 per cent of the company’s shares were sold to the Indorama Group, which immediately embarked upon a $130 million turnaround maintenance and capital investment programme, returning the facility to operation within four months. It paid its shareholders dividends of N9.5 billion one year after privatisation.
The Nigeria LNG Limited is another success story. With a mixed ownership structure that sees the NNPC owning 49 per cent of the shares and Shell, 25.6 per cent, Total, 15 per cent, and Eni, 10.4 per cent, the company has thrived under astute private capital management since its inauguration in 1999.
The company has regularly paid dividends annually to the Federal Government and its other shareholders and plans to expand its production capacity from 22 million metric tonnes per annum to 30MMT per annum.
With the downstream sector now deregulated, the market is ripe for investment. There would be no shortage of bidders if the government opts to privatise the refineries.
As a major oil producer, Nigeria should be a regional refining hub, supplying petroleum products across West Africa. The Dangote Refinery’s recent opening moves the country closer to this goal.
Privatising the four government refineries would be a significant step towards refining over 1 million bpd domestically. It will bolster government finances and relieve it of the burden of looking for scarce dollars to fix the refineries.
Privatising the refineries will engender the much-needed competition in the crude refining sub-sector of the oil industry. With a 650,000-bpd capacity and the government refineries’ inactivity, the Dangote Refinery has almost become a monopoly.
Thus, to create a truly competitive crude refining industry, the Federal Government needs to put its refineries in a position to compete through privatisation.
Adequate support must be given to the 200,000 bpd BUA Refinery under construction and the planned 100,000 bpd Midoil Refinery to succeed in creating a robust, competitive industry.
In 2023, Americans consumed 376 million gallons of petrol daily. The private sector provided all this as the US government owned none of the 132 refineries in operation there. The United Kingdom and Canada also depend on the private sector refining for petroleum products.
Remarkably, Singapore, which produces crude oil of 20,170 bpd, refines 1.5 million bpd. President Bola Tinubu should learn from these countries.
However, the privatisation effort must be transparent and undergo serious due diligence. Buyers must be reputable foreign or local investors involved in the crude refining business.
Asset strippers, carpet baggers, and other investors who are not in that line of business should be excluded.
Nigeria must break the cycle of repeating past mistakes. The government has demonstrated a lack of discipline and accountability necessary for managing state-owned enterprises successfully.
The parent company of the refineries, the NNPC, should be listed on the Nigerian Stock Exchange if the Federal Government is serious about pursuing transparency and sector efficiency.
NNPC’s peers, such as Saudi Arabia’s Aramco, Brazil’s Petrobras, Malaysia’s Petronas, and others, are listed companies.
The NNPC was conservatively valued at $300 billion as of December 2024. An IPO has the potential to raise billions for investments in infrastructure and social goods, apart from injecting strong management.
Crucially, the government must thoroughly investigate why billions of dollars have been spent with so little to show for it. The Economic and Financial Crimes Commission said it has commenced investigations into the tenure of former NNPC chief Mele Kyari, over allegations of abuse of office and misappropriation of funds. Kyari insists his hands are clean.
In May, the anti-graft agency said it had discovered a whopping N80 billion in a bank account linked to a recently sacked managing director of a government refinery. All those found culpable should face appropriate sanctions.
