Tuesday, January 09,
2018 08:55AM/ FBNQuest Research
The fuel shortages highlight Nigeria’s failure to
refine domestically the petroleum products it requires for its own consumption.
The scarcity has been attributed variously to: flaws in distribution; upward
movement in the international price necessitating subsidy payments under
another name (absorbed by the NNPC); hoarding; and the fact that the set retail
price of N145/litre (l) for premium motor spirit (PMS, or gasoline/petrol) is
far below that in the countries of the sub-region.
The FGN’s response to the
periodic shortages is to commit public monies to another programme of turn
around maintenance (TAM) for the corporation’s refineries, costed at US$1.1bn
and said to be achievable over 18 months. An earlier investment in TAM in 2013
made little, if any impact. In September 2017 the refineries achieved a
combined capacity utilization rate of 6.1%, compared with 9.5% the previous
We all know that the
combined capacity amounts to 445,000 b/d crude but very few of us can say when,
if ever, the refineries produced at this level. Such low rates tend to result
in losses. According to the NNPC’s Financial and Operations Report
for September, the refinery companies have reported operating losses for four
of the past 12 months.
We cannot say for sure
that the latest programme of TAM will not be a success. However, the age of the
refineries suggests not: Port Harcourt (commissioned in 1965), Warri (1978) and
Our message is “Local
refining, the obvious solution” (Good Morning Nigeria, 21 December 2017).
By local, we mean private sector. The corporation’s refineries should be
allowed to wither away in our view. The game-changer is the Dangote refinery
under construction in Lagos State, which over time is scheduled to process
650,000 b/d crude.
It is said that the
Dangote plant will start processing some crude in 2019. There are other
projects further down the line. To give a topical example, Petrolex plans to
invest US$3.5bn in a refinery with capacity of 250,000 b/d in Ogun State and is
talking of completion within five years. We would expect several more projects
if the retail price of PMS was genuinely deregulated.
An ideological battle has
to be won, and the combination of the corporation, organized labour and some
elements in the FGN defeated. The gains from victory would include job
creation, fx savings, the prospect of regular supply and, at some stage,
exports to the sub-region even. Imports of crude oil and gas totalled US$8.5bn
in the 12 months to September, a large part of which would be saved under a
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