Opposition by labour unions in the oil & gas industry, powerful vested interests, as well as political exigency may have forced down the hand of the Federal Government to put the proposed sale of the nation’s ailing refineries on hold. But there are indications that when the exercise goes full stream, it would be a hard nut to crack, reports Assist. Editor Chikodi Okereocha.
A groundswell of opposition has continued to trail Federal Government’s plan to privatize or sale the nation’s ailing refineries to private investors. The opposition, led by two most powerful labour unions in the oil & gas industry, the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) and Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), contributed largely in forcing down the hand of government to put the planned sale of the refineries on hold ostensibly to get the buy in of all the stakeholders.
Apart from the hard-line posture of the labour unions, The Nation learnt that there are other forces at play, one of which is the political exigency of the moment, which does not favour dabbling into a transaction as delicate as auctioning critical assets in an industry considered as the nation’s cash cow. The belief is that government soft-pedalled on the plan to auction the refineries apparently to avoid playing into the hands of the opposition ahead of the coming 2015 elections.
“Its a knotty issue so, the Federal Government thought it wise to soft-pedal until after the 2015 elections,” says Obiora Akabogu, Lagos-based lawyer and public affairs analyst. He said because of the strategic nature of the oil & gas industry, government was mindful of the fact that the opposition may cash-in on the sale of the refineries to win unprecedented sympathy in the coming elections. Government is also said to be mindful of the activities of several over-night billionaires created through the importation of fuel, as well as the powerful oil ‘bunkerers’ whose illegal activities have continued to hold the country to ransom.
Perhaps, more importantly, the non-passage of the hotly-debated Petroleum Industry Bill (PIB) by the National Assembly is said to have also contributed to government’s decision to put the privatisation exercise on hold. The PIB was designed to reform the entire hydrocarbon sector to increase the government’s share of revenue; increase natural gas production; streamline the decision making process by dividing up the different roles of the Nigerian National Petroleum Corporation (NNPC) into a profit-driven company; privatize its downstream activities; and promote local content.
The Bill would also provide for a greater share of oil revenues to the producing communities and expand the use of natural gas for domestic electricity generation. But non of these has happened, as the Bill has since become a subject of intense politicking in the National Assembly. Differing versions of the PIB are currently being debated, especially around more contentious points such as the renegotiation of contracts with international oil companies (IOCs), the changes in tax and royalty structures and clauses to ensure that companies use or lose their assets.
Experts argue that if the PIB, which is like the roadmap for opening up the industry for increased investments had been passed, it would have comprehensively addressed the persistent fear of investors in building refineries, settled the issue of deregulation, as well as uncertainty concerning regular supply of crude oil at reasonable prices. Because of the non-passage of the PIB, investors who got licenses to build private refineries adopted ‘a wait-and see-attitude’ and are holding back their investment. The thinking therefore, is that selling the refineries without the PIB amounts to setting the cart before the horse.
Interestingly, the importance of the PIB in the plan to sale the refineries is not lost on the Bureau of Public Enterprises (BPE), the agency charged with preparing public enterprises approved by the National Council on Privatisation (NCP) for privatisation and commercialisation. Its Director-General (DG), Mr. Benjamin Dikki, said there is need to expeditiously and aggressively handle the issue of the PIB. As he noted, “The PIB is critical because presently, the regulatory powers are dispersed; Ministry of Petroleum Resources has regulatory powers, the Department of Petroleum Resources (DPR) has regulatory powers, Petroleum Products Pricing and Regulatory Agency (PPPRA) has regulatory powers, NNPC has regulatory powers and that is why all these years, many investors have collected licenses for refineries but none of them has set up except two.”
The BPE boss, who said this in an earlier interview with The Nation, pointed out that investors, all this while, have not made investments in the refineries because the regulatory environment is not clear. Hear him: “I believe if we have the PIB passed and create a regulator that has all the power of regulating the industry concentrated in one place, that regulatory agency will now conduct an industry study and set cost reflective prices for gas and for other oil related products, which will now provide clarity for investors to invest,” he said, appealing to the National Assembly and all the stakeholders to come together and quickly pass the PIB. “Let us remove those controversial clauses that have stalled the passage of the bill. Nigerians stand to gain more from the passage of that bill than we stand to lose.”
However, if and when the PIB is passed and the 2015 elections are over to allow government commence the sale of the refineries, it is unlikely that the privatisation of the refineries would be a smooth sail. For one, NUPENG and PENGASSAN, according to Dikki, appear not to be on the same page on the sale of the refineries yet. The DG of BPE explained that both unions were originally not averse to government looking at options and business model for handling the privatisation. He said shortly after that, the agency started receiving conflicting statements by branches of the same NUPENG and PENGASSAN to the effect that they are opposed to privatization.
“Government is now conscious that if we don’t have a unified voice between NUPENG and PENGASSAN about the privatization then there is a risk. This is because they can shut down the economy and no responsible President will want to create pains for his people by a policy that can be avoided, delayed, or you look at other options,” Diki said, noting however, that the labour unions have realized also that privatisation is eminent. “What they are craving for is that we should have the LNG model, which is to say that government should still have a stake; labour should still have a stake in the refineries. And we are not opposed to it. We have told them that it has been a longstanding policy of the NCP that labour unions should have shares in the companies they privatised. So refineries will only be privatised when government and labour are 100 per cent on the same page,” he clarified.
Indeed, both unions have been literarily up in arms; warning that any attempt to sale the refineries without the involvement of organized labour would be resisted. The immediate past President of PENGASSAN, Comrade Babatunde Ogun, articulated the Union’s position thus: “We condemn vehemently attempts by government to sell the four state-owned refineries in Kaduna, Port Harcourt 1 and 11 and Warri after several failures to do Turn Around Maintenance (TAM) on them. The union has noted government’s insincerity in implementing the agreement reached with NUPENG and PENGASSAN during the January 7, 2014 meeting on the sale of refineries. We are watching closely all the subterranean attempts by the BPE to go ahead with the sale of the refineries in spite of our engagement and agreement with the government.”
The agreement, which Comrade Ogun made reference to was to the effect that the nation’s refineries must not be privatised. The President of NUPENG, Comrade Achese Igwe, noted that a Memorandum of Understanding (MoU) signed at the end of the January 7 meeting in Abuja, agreed with the Federal Government to engage in social dialogue to develop viable and workable business models for the nation’s refineries. “We state that the refineries must be rehabilitated to work optimally, which will account for at least 70 per cent of domestic production instead of selling the nation’s strategic assets,” Achese said.
The unions believe that adopting the NLNG model, rather than outright sale, is a better business model for the refineries. Under the NLNG model being canvassed by organised labour, the National Oil Company (NOC) as owners of the four refineries, will hold a substantial minority share, while core investors/local participation hold the working majority, leaving the staff, trade unions, and the host communities also holding minority shares. Ogun argued that rather than outright sale to private owners who may come in to exploit Nigerians, government should divest a percentage of its holdings to willing state governments to improve and increase local refining and supply of petroleum products to Nigerians at affordable cost.
“What we are saying is, if government must sell the refineries let them sell 40 per cent to states and 30 per cent to Nigerians. Government must have a stake, and the refineries must be working. Government should not give refineries subvention again. Let them go to the Stock Exchange and raise money to run the establishments,” Ogun stated, insisting that, “Government’s money in the entities should be converted to shares and let private investors buy stakes and run them. They will refine and sell to government and the public at government subsidized rates. At the end of the year they will declare profits and government will get its share of the profit.”
The position of organised labour enjoys the sympathy of Oliver Mordi, an oil & gas expert, who insisted that as critical national assets, Nigerians must have a stake in the refineries. “Nigerians should be shareholders. Outright sale of the refineries is not the solution. What is needed is the political will and honesty of purpose on the part of government to make the refineries work optimally and profitably,” he told The Nation, pointing out that Petrobras of Brazil, for instance, is a state-run business that is working. “It is only in Nigeria that we see government business as nobody’s business,” he said, adding, “this is one area where the nation’s technocrats should feel challenged.”
Mordi however, said that selling the refineries, government is faced with the dilemma of making sure that prices of petroleum products are competitive to attract the much-needed investments and at the same time meeting its social contract to ensure that ordinary Nigerians afford the price of petroleum products. He faulted attempts by those in favour of the sale of the refineries to draw their conclusions from the success of the deregulation of the telecoms sector. He pointed out that unlike the telecoms sector, there is an existing template in the oil & gas industry on how business should be done. Besides, petroleum products, he said, are specialised products.
For labour, the opposition to the sale of the refineries is largely fuelled by self-preservation. For them, the fear of job losses is the beginning of wisdom. The BPE recognises this much. “Every policy you introduce brings changes. The labour leaders have a duty to their unions to get the best deal for their unions and staff. So, it is not unexpected that labour agitates and show resistance until you show them what they are going to take from it. Labour resisted the power sector reforms because they thought it will short-change their members who are staff of Power Holding Company of Nigeria (PHCN),” Dikki said.
The DG said government realized the fears of labour, which was why it took necessary steps to work on the fears by setting up a negotiation committee. “Government went into an agreement with labour in the power sector and government has fulfilled all those terms. I want to assure all those in the oil and gas sector also that if they come to table with government, table all their issues, government will discuss with them and come up with an agreement with the Unions and government has shown a track record of keeping to the terms of its agreement and will do so not just for the oil and gas sector, but other sectors that reforms are going to be mid-wifed,” he explained.
But as far as Akabogu is concerned, “The organised labour is a bit unpatriotic. They are afraid of shading off excess baggage, as most of them are redundant and feeding fat on the nation’s lean resources. The over bloated laour in the oil & gas industry get so much from the nation’s resources but give little in return.” He insisted that the best option for the refineries is to auction them off to private individuals, who would, at the end of the day, retain only hands that are adding value. He argued that handing over the refineries to private investors would make them perform optimally. Besides, the exercise, he said, is in line with global trend since the 80s, which favour a free market economy where government has no business being in business.
He has ally in the umbrella body for employers in the country, the Nigeria Employers Consultative Association (NECA). Its Director-General, Mr. Segun Oshinowo, has thrown his weight behind the privatization exercise, insisting that it is the only way the refineries would perform optimally in the long run. “If we had gone that way, the whole issue of our dependency on foreign source for fuel supply would have, to a large extent, been addressed effectively. So the same courage and determination, which government has demonstrated in privatizing the electricity sector can be extended to the refineries so that we can save national resources that are going to TAM every now and then for which we have not actually got appropriate benefits,” he argued:
The NECA DG hit the bull’s eye particularly on the nation’s age-long dependence on importation of petroleum products. Despite being ranked as world’s sixth largest crude oil producer and number one in Africa with proven reserve in excess of 38.5 billion barrels, Nigeria still imports almost 85 per cent of domestic fuel needs largely due to corruption and mismanagement of its four state-owned refineries.
The four refineries have a combined capacity of 445,000 barrels per day (bpd), but none of them has ever been fully operational owing to low capacity utilization resulting from poor funding, obsolete equipment, inadequate maintenance, attacks on oil facilities by militants in the Niger Delta region, which interrupts the flow of crude into the refineries, as well as weak management. The sub-optimal performance of the refineries is blamed for the continuous importation of petroleum products at huge cost to Nigerians and the economy. For instance, the International Energy Agency (IEA) estimate that product imports combined with subsidized consumption cost the Nigerian government between $3–$4 billion annually.
How does the huge cost come about? Experts say that when other oil-producing countries that have refineries come to buy crude from Nigeria they pay sundry charges such as freight, port charges and insurance, among others, before they ship the product. The same charges are replicated in their home countries before the crude goes into a refinery. After refining, the product goes through the same process when they are bringing the refined products into the country. All of these costs are ultimately transferred to Nigerian consumers at the end of the day, which is why the pump price of petroleum products is very high in Nigeria compared to other countries that have refineries.
The Group Managing Director (GMD) of NNPC, Mr. Andrew Yakubu, sought to raise the hopes of Nigerians on the refining capacity of the refineries when he disclosed that the refineries now have 60 per cent refining capacity utilization. Yakubu who spoke at a recent capacity building workshop for media practitioners in Uyo, Akwa Ibom State, said that the refineries have capacity to refine more crude but there is currently limited supply due to pipeline vandalism. “The capacity utilization of the refineries as we speak today is 60 per cent of their nameplate. The 60 per cent nameplate capacity is not because the plants cannot take more but because we have this challenge with crude oil supply,” he said.
However, to those conversant with the workings of the oil industry, the NNPC boss may have been economical with the truth on the capacity of the refineries. Some of them who spoke with The Nation on condition of anonymity, noted that if it is true that the refineries has achieved 60 per cent capacity utilisation as claimed by Mr. Yakubu, Nigeria would not be depending almost entirely on imported petroleum products. In fact, the existing four refineries, they argued, could not have been performing at above 30 per cent capacity at present.
This must be why the BPE boss noted that privatisation would not only make the refineries work, but also ensure that more than 10 spinoff industries spring up using the by-products of the refineries. “Once we get the refineries working, there will be other spinoff industries that will come up from there. It will create jobs, create products that Nigeria will sell locally and internationally and grow the Nigerian economy,” he pointed out.
Dikki must have drawn his conclusion from the success of the privatisation programme of the Federal Government so far. At a recent forum organised by the Just Friends Club of Nigeria in Abuja, where he delivered a lecture on ‘Federal Government’s Privatisation and Economic Reform Programme’, he disclosed that between 1999 and 2012, 122 enterprises had been privatised, raking in a total of N669 billion in revenue to the Federal Government.
The N669 billion, he said, included revenue generated from the privatisation of the power sector. The DG said $2.5 billion (about N417.5 billion) was from payments made by preferred bidders of 15 out of the 18 successor companies of Power Holding Company of Nigeria (PHCN). He said that N251.5 billion was realised as gross proceeds from the privatisation of the 122 enterprises, adding that N147 billion was remitted to the Privatisation Proceeds Account at the Central Bank of Nigeria (CBN) as net profit.
Would the groundswell of opposition allow the BPE rake in more revenue for government from the sale of the refineries? It would take the next two years to determine that, as the BPE has said that it would take two years to conclude the exercise given its intricacies.
