By Sunny Chuba Nwachukwu
Nigeria’s economy aggressively craves to be run like a BUSINESS CONCERN/VENTURE in the downstream of the oil sector; and this is a matter of urgency. The aims and objectives focus mainly on profit (with minimal or no elements of making “losses” expected in business dictionaries); if truly the Ministry of Petroleum Resources now means to get it right for the economy, as a corporate entity and nation. A feasible template urgently needs to be applied to protect private local investors in the oil industry, and it is of utmost importance now! If it means assembling a few Nigerians to brainstorm over such a proposal or template, that shall turn things around for better, all well and good.
The news of the government’s approval of $1.5 billion for the rehabilitation of Port Harcourt Refinery in Eleme has attracted/raised a lot of comments from well meaning Nigerians. Built in 1989, and the fourth government owned local refining facility, it has a daily production capacity of 150,000 barrels of crude.
The poor handling and management of the four refining plants (with a total daily production capacity of 445,000 barrels), which resulted in all going moribund, necessitated my view for the federal government to declare a state of emergency in the refineries before privatization (knowing that it ought to be the “cash cow” for this economy, with reference to a nation like Singapore that never produced crude but is a world-class, massive exporter of refined petroleum products).
Understandably, the ensuing debates, comments and reactions of the general public all point in one direction: prudent financial management of the commonwealth of Nigeria’s economy, and a “zero tolerance for corrupt practices” in the downstream. Based on the hard facts gazing at us, the pronounced plan on Port Harcourt refinery by the minister of state for petroleum resources, Timipre Sylva, the fixing of the facility in the next 44 months, as already concluded with an Italian firm, Tecnimont S.p.A., (acclaimed maintenance experts and recommended by original builders) is planned in three phases, with the first phase to actualize 90 per cent of its nameplate capacity by 18 months. Three sources will supply the maintenance project funds of $1.5 billion ($0.2 billion from the NNPC IGR, $0.8 billion from budgetary allocation provisions; and $0.5 billion from the lenders/AFREXIM Bank).
The stipulated conditions of the lenders as embedded in the agreement over a refurbished refinery calls for the privatization of the facility immediately after. For efficient management by private investors (core investors with proven capacity) this, therefore, calls for declaration of a state of emergency! This shall enable the private sector involvement to monitor critically every aspect of the expenditures made therein; which of course, they must eventually account for and pay the same back, to the coffers of the government (as part of the agreed purchase price of the facility). The minister’s argument that privatization comes after the rehabilitation is germane because, an outright sale off could be dicy/counter productive in two major ways of uncertainty. The project could face a delayed completion due to lack of funds to timely prosecute it; in the hands of private business (considering “time value of money”) other than these already arranged government assured sources. Secondly, it could be dumped for other purposes after purchase, than this proposed rehabilitation (in disappointment). The views of Bala Zakka, an engineer and energy expert, and Billy Gallis-Harry, president of the Petroleum Products Retail Outlets Owners Association of Nigeria, in support of this rehabilitation is hilarious, I must say.
All the government needs at this critical moment of acute, chaotic domestic petroleum products/energy supply, is to implement a right programme that creates an enabling environment (being the primary responsibility of any government; especially now that it is in a difficult situation to fund budget and provide basic needs for the people), to strategically mend the damaged economy through involving the private sector to participate fully in the economy; and sustainably manage it for future economic growth, instead of recording and posting losses (as reported), with a total loss of N229.14 billion, captured in the 2015 to 2019 audited financial statements (N35.81 billion in 2015; N43.44 billion in 2016; N53.77 billion in 2017; N45.59 billion in 2018; and N50.53 billion in 2019).
This poor business performance forced some experts to opine that the refinery should be sold off outrightly; saying that, “it is wasteful and senseless repairing a loss-making Port Harcourt Refinery”. However, I totally disagree with them that it’s like “flogging a dead horse” or “a white elephant project”. They are right and very correct to have adjudged it so though, based on the business performance in the years under review (generated a paltry sum of N10.33 billion as follows; N683.52 million in 2015; N3.37 billion in 2016; N4.82 billion in 2017; N1.46 billion in 2018; and finally recorded nothing in 2019)!
I still reiterate that, the aim of every business venture is to make profit and never losses; with a supporting argument of an African adage that, “wealth is not created through wastage of resources”. Business demands diligent accumulation of the generated profits, in a prudent manner and with disciplined approach. This is the grounds for my decided opinion (to first declare a state of emergency before rehabilitation starts; a win-win situation where the federal government actualizes her dreams to revamp the refineries) because, the private sector organisations meant to operate and manage the facility after the rehabilitation by the government must be involved from day one for accountability because, every expenditure made in the cause of this rehabilitation must eventually be part of their “incurred costs of purchase” of the plant.
The BPE needs to transparently work out the framework of the bidding modalities for the purchase by prospective private investors. This could subsequently include the mode of payment for the crude supplies (raw materials) for daily productions.
This could be achieved with a sincere and attractive package (a proposal planned to protect private investors and businesses from making losses), to realize a fast return on investment in downstream operations; if the federal government truly means well for the nation’s economic well-being. Again, such political will by the government indicates that the corrupt and ethnocentric tendencies that are fast tearing the nation apart presently must be done away with!
Nwachukwu, a graduate of pure and applied chemistry with an MBA in management, is an Onitsha based industrialist, a fellow of ICCON, and vice president, finance, Onitsha Chamber of Commerce.
Sunny Chuba Nwachukwu (FICCON, LS) Onitsha, +2348033182105
Frontpage April 14, 2020