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Nigeria needs to quit oil refining business

Sunday January 22 2012

By CHEGE MBITIRU

Nigeria President Goodluck Jonathan is treating the country’s corruption- infested and notoriously inefficient oil industry as a voodoo surgeon would a gangrened leg: sprinkling herbs instead of amputating.

Mr Jonathan has ended petrol subsidies. He aims at saving some $6.2 billion — Nigeria’s figures on matters petroleum are dubious — this year.

Even without the subsidies, the price would be low compared to elsewhere in the continent: 74 US cents a litre. Nevertheless, Nigerians were furious.

Demonstrations followed. Labour unions called for strikes. The government sent troops to some cities. Petroleum industry workers threatened to shut it down. Jonathan retreated, partially.

Nigeria is the continent’s largest crude oil exporter, some two million barrels per day. Yet it imports 85 per cent of its refined petroleum needs.

Most of the country’s population live on less than $2 a day. Subsidised fuel price seems to be the only benefit most Nigerians get from the country’s black gold.

In March last year, Mr Philip Chukwu, executive director of refining and petrochemicals in the Nigerian National Petroleum Corporation, NNPC, had some news.

The country’s four refineries, with a 445,000-barrels capacity per day, operated at 30 per cent. Repairs and refurbishing would double that by the end of this year. If that’s progress, failure needs a new definition.

Oil provides up to 80 per cent of federal government’s revenue and 95 per cent of the foreign currency.

It would seem most Nigerians don’t do much work—the last drought, for example, is beyond memory—or they don’t pay taxes.

That said, the supply chain makes little sense. The NNPC is allocated so much crude to refine and then send petrol, diesel et al to the pumps.

The allocations stay even when the refineries aren’t working. So, the NNPC sells what it can’t refine at international prices.

As for imports, The Economist reported in December the NNPC has admitted to Parliament it couldn’t account for 65,000 barrels per day of crude it should be refining. The crude would fetch $7 million in current prices.

It’s no wonder Human Rights Watch last year reported diplomats in 2007 estimating Nigeria lost a minimum average of $4 billion to $8 billion per year to corruption beginning 1999.

The money didn’t finance roads construction, schools, hospitals, agriculture, et cetera. Mr Jonathan’s assault on subsidies wasn’t even a painkiller.

Daily Trust, a Nigerian newspaper, reported better suggestions by one Yusuf Y. Sani, apparently an engineer conversant with the petroleum industry.

The subsidies should be calculated on the basis of what gets out of the pumps, not what’s supposedly in the terminals. Result?

Little subsidized fuel will meander into neighbouring countries where prices are higher and non-existent stocks wouldn’t count.

That’s a start. The government should get out of oil refining business. Instead, it should require oil companies to refine 20 per cent of their production.

That would create jobs, reduce shortages and cut importations. Other options obviously exist. Mr Jonathan won his current term last April with a healthy majority.

Certainly, he has terrorist Boko Haram Islamists to contain. Nothing though would provide him a healthier following than amputating gangrened organs—real problem and not subsidies—in Nigeria’s oil industry.

Nigerians will rally behind him and the country would change, for better.