THE President, Major General Muhammadu Buhari (retd.), on Monday inaugurated the mega Dangote Refinery in Lekki, Lagos and used the opportunity to flaunt it and others as evidence of his uncommon achievements in office. But the picture is not so rosy when the trophies claimed by the regime are juxtaposed with current realities in the petroleum sector. The country is crumbling under a prohibitive petrol subsidy bill (January to June), aviation fuel and gas shortages, continued gas flaring, and oil majors exiting, while Nigeria struggles to meet its crude oil production quota. Buhari leaves behind an oil industry performing well below its potential and inhibited by missteps and statism.
On his assumption of office in 2015, the challenges were huge.The mess in the industry was deep; the upstream was rowdy, but remained the country’s major revenue stream. The downstream was beyond messy; corrupt, and as opaque as the upstream, it was delivering shortages, losses and unsustainable import and subsidy bills that were crippling the treasury and ruining the economy.
Arriving in office to meet the rambunctious scene, Buhari held out hope. For one, he had repeatedly promised during the 2014/2015 electioneering to clean up the industry, break up the corrupt, opaque, and unruly state-owned oil company, the Nigerian National Petroleum Corporation (now renamed “company”) and end the messy downstream sector, where four state-owned refineries were losing billions and driving away investment.
Moreover, he had conveyed the image of an anti-corruption crusader. And since above everything else, the principal problem afflicting NNPC and the industry is corruption, Buhari was expected to come with a big broom. Above all, he had travelled that road before: first, as federal commissioner (minister) for petroleum 1977-78 under the military regime, returning as military head of state 1984/85 to “clean the Augean stable.”
His efforts have been underwhelming. He has failed to deodorise the stench of corruption in the state-dominated oil and gas sector, reform it to stop gas flaring, oil theft, or maximise the potential of the gas resources. Perhaps the greatest disservice is the failure to privatise the four state-owned refineries, and pull the state out of the downstream altogether. Instead, he dug into his statist instincts to entrench the retention of the moribund complexes and diversion of scarce public resources into oil exploration in the North.
Periods of shortages persist; aviation fuel, household kerosene, diesel and lubricants prices have skyrocketed. Airfares have consequently been priced beyond the reach of most Nigerians. Many households have returned to using firewood as they cannot afford to buy kerosene. Businesses are struggling to keep afloat because the costs of diesel which they rely on to power their generators have quadrupled. Smaller businesses are crumbling.
Undoubtedly, there is a renewed hope of better days ahead. Buhari was a late starter, but he deserves credit for seeing through the passage of the Petroleum Industry Act that had stalled in the National Assembly for two decades. Though inefficiencies, shortages and prohibitive costs. Apart from the projected final N7.7 trillion petrol subsidy bill of 2023, considerably toned down and still limiting in several respects, it is a major step forward.
Also, conceived in 2013, the construction of the privately-owned Dangote Refinery began in 2017 and the inauguration of its first phase on his watch is a major plus. The 650,000 barrels per day complex will go a significant way in meeting local demand for refined petroleum products, fertiliser and other by-products and save Nigeria both the prohibitive costs and the embarrassment of importing them amid its abundant crude oil reserves.
Failure to exit the downstream oil sub-sector is disastrous. State monopoly drove away private investment, entrenched supply glitches. The Governor of the Central Bank of Nigeria, Godwin Emefiele, said 20 percent of Nigeria’s total import bill was incurred on petroleum products, fertiliser, and associated imports. This rose from $8.4 billion in 2017 to a whopping $22 billion in 2022, he said, adding that if the trend continued, it would drain $30 billion of reserves by 2027.
The refineries processed no crude but posted losses of N104.3 billion February 2020 to February 2021, the NNPC reported. June 2019 to June 2020, combined, they spent N155.17 billion while also operating at zero percent capacity. The NNPC said in February that subsidy costs had risen to N400 billion a month. Unwisely, Buhari, who retained the petroleum ministry portfolio, allowed the company to borrow $1.5 billion for yet another fruitless turnaround maintenance when experts opinion says the facilities are obsolete.
The solution to the subsidy conundrum lies in promoting massive private investment in domestic refining, starting with the quick, transparent sale of the state refineries and extraordinary incentives to investors to make Nigeria a regional hub for refined products.
But in eight years, all that the regime can boast of apart from the Dangote refinery, according to its Factsheet of achievements, the addition of five ongoing modular refinery projects across the Niger Delta to the one it inherited, and several other measures that combined, have not transformed the sector. Moreover, modular plants reportedly struggle to obtain crude as the NNPC ignores them while it has pledged supply to Dangote.
The regime has handed Dangote a virtual monopoly, enabling it to set prices and control supply. The incoming government will have to examine this and consider encouraging other big investors to foster competition and ignite anti-monopoly rules. Again, like the PIA and other crucial measures, the Buhari regime failed to tame oil theft that had resulted in N16.25 trillion in lost revenue between 2009 and 2020, while petrol subsidy payments gulped N13 trillion from 2005 to 2021, NEITI reported.
Presented as a cure for the maladies afflicting the sector, the PIA was believed to be the ‘silver bullet’ that could overhaul the petroleum sector by facilitating investment opportunities for local and international investors. But toned down from its initial radical proposals, since it was signed into law in 2021 by the President, the impact of the PIA as envisaged by stakeholders is yet to be felt.
The National Bureau of Statistics said it accounted for just 5.66 percent of GDP in Quarter 3 2022, down from about 14 percent over a decade ago. The sector is still plagued by inefficiencies, and large scale oil theft. The industrial scale theft signals the failure of the state to stamp out oil theft and piracy.
Dataphyte reported that 8,560 incidents of vandalism were recorded 2015 to 2018. The crime is longstanding. Mele Kyari, the NNPC GMD, said 45,347 pipeline breaks were recorded from 2001 to June 2019. Necessary reforms are still absent as expressed in the turf fight between the Nigerian Upstream Petroleum Regulatory Commission and the Nigerian Midstream Downstream Petroleum Regulatory Authority. The industry’s declining contribution to the GDP fell to 5.66 per cent in 2022, compared to 7.24 per cent in 2021. Total revenue contribution also dropped to 41 per cent in 2021 from about 80 per cent.
Though a core part of the regime’s ‘Short- and Medium-term Priorities to Grow Nigeria’s Oil and Gas Industry (2015-2019)’ to process about 200,000bpd into the domestic system, this strategic goal was not achieved. Out of the 21 refining operators licensed to process an estimated 1.09 million bpd, only a few are still struggling to set up.
Beyond the corporate rebranding, and commercialisation as spelt out in the PIA, Buhari reneged on his promise to totally break up the NNPC and restructure it into two – a holding company and an investment firm. Instead, it remains a lumbering behemoth. It continues in its wayward ways: it has not remitted money to the Federation Account since 2022. Illogically, the government allows it to be the sole determinant of the subsidy it pays itself.
Elsewhere, Saudi Arabia restructured Saudi Aramco, enabling it to rise to the third largest company on the 2022 Forbes Global 2000 ranking of the world’s top corporations.
Though it has 200 trillion cubic feet of gas reserves, the world’s 10th largest, the country imported petrol worth N3.97 trillion, gas oil worth N568.5 billion and lubricating oil for N272.3 billion in 2021, says the NBS. Saudi Aramco and other oil giants are taking advantage of the energy crisis occasioned by the Russian invasion of Ukraine.
Having abandoned its 21 fuel depots across the country, the NNPC has allowed the private depot owners to monopolise the petroleum storage services.
Eight years later, the industry is still undermined by oil spills of which 4,919 incidents were recorded between 2015 and March 2021.
Data obtained from OPEC show that the average production quota for Nigeria was 1.73 million bpd during the first seven months of 2022. In that period, crude oil production fell to 1.1m bpd (July 2022) from 1.4m bpd in January (a shortfall of about 270,000bpd).
The grand theft of crude in the Niger Delta ensured that the country, while facing a cash crunch, did not meet its OPEC quota which was increased to 1.73mbpd. The value of oil stolen from Nigeria is said to be equivalent to the budgets of about four states. Nigeria, for a while, lost its position as the largest oil producer in Africa to Angola, says OPEC. It was only recently that the regime finally moved to reduce the massive oil theft and improve crude output. However, divestment by the international oil companies from 2010 reportedly cost the industry N20 trillion.
In all, Buhari’s efforts were not enough to radically transform the oil and gas sector, and the next administration will inherit the subsidy crisis, a looming Dangote refining monopoly, gas flaring and gas supply hitches. Sadly, the great expectations of a rebounding and reformed oil and gas sector from Buhari’s presidency were not met.