Deregulation, refinery sales, subsidy removal topKachikwu’sreform agenda  …

… may clash with Presidential blueprint onoil and gas industry

OREDOLA ADEOLA

Barely one month in office, Dr.IbeKachikwu, the new Group Managing Director of Nigerian National Petroleum Corporation, NNPC, has unfurled his top priorities which include deregulation, sales of the country’s refineries and removal of the subsidy payment on petrol and kerosene.

Mr.Kachikwu who was appointed by President MohammaduBuhari, as the new GMD, NNPC on August 4, 2015, had within the last few weeks since he took over the affairs of the corporation demonstrated commitment to making the industry more competitive.

Pledging to embrace transparency and accountability through periodic publication of the corporation’s financial transactions, he said the corporation of his dream was anchored on the foundation of transparency by adopting globally accepted business practice of publishing its annual financial statements and accounts, like other national oil companies (NOCs), an initiative which had never happened since 1999.

Expressing his position on the deregulation of the downstream sector, he is also of the view that the deregulation is a key to sustainability of the oil and gas sector.  According to him, fuel subsidy is unsustainable and that over 5 trillion had been expended between 2006 and 2012 on the subsidy claims.

He believes the retention of the subsidy regime has continued to distort the revenue of the government as a result of round tripping and unnecessary carryover of expenditures. He is of the view that the Federal Government, is not in control of the factors that influence retail price, particularly the fluctuation of the factors that influences retail fuel price.

According to him deregulation policy is essential to the transformation and growth of the downstream sector of the oil and gas industry. He said, ”implementation of this deregulation in the country would go a long way in encouraging inflow of private sector and international investment. It will ensure that country derives fair deal from the abundant petroleum resources in the country through fair product for consumers and full cost recovery and reasonable margins for operators. It would also entrench efficiency in product usage, product availability and effective competition among investors.”

He believes deregulation is deemed imperative to ensure full growth of the sub-section by allowing private stakeholders to complement the government efforts in developing the industry. According to him this new effort would ensure fair market value and product availability as enshrined in the petroleum industry bill.

Sale of the refinery

Kachikwu has also recommended the sale of the country’s refineries in Port Harcourt, Warri and Kaduna due to challenges which may continually hinder their effective operation in the hands of the Federal Government.

Speaking recently on Arise Television, the NNPC boss said that the corporation would explore third party financing to boost the capacity of the refineries to 80 per cent within a 12 to 18-month period.

The NNPC Stock Reconciliation Committee, a committee set up to assess the performance of the refineries and associated logistics, in its finding had revealed that the operation of the refineries is unfavourable. According to them the refineries are not profitable under the current arrangements.

It is believed that the Ship-to-Ship transfer, which the corporation has employed to get crude oil to the refineries, cost between $6m and $7m per vessel and load one million metric tonnes of crude oil.

The committee, it was learnt, also recommended the stoppage of the SWAP and the Offshore Processing Agreement (which had been carried out), in order to increase local availability of crude to the refineries.

“Crude business is done three months ahead. It was already concluded during the immediate past administration that the three refineries would be sold, even though the government had stocked all the materials for the turnaround maintenance of the refineries.

Based on the committee’s findings, it is believed that the number of leakages along the Warri-Kaduna pipeline will not allow the transfer of petroleum products to continue. In July, when the Kaduna refinery was about to start production, the pipeline had been breached in 78 points between Warri and Lokoja.

The committee believed the best operation for the government was to sell the refineries in their current state while holding on to a “minimal stake” in the facilities. The recommendation is that the government should sell the refineries as they are no longer serving the purpose for setting them up.

In the instance that the government does not agree to the outright sales of the refineries, the committee had requested for a partnership through holding of a minimal stake in the venture, especially with those who built the refineries initially.

Stakeholders’ reaction

Reacting to the views expressed by the GMD and his team, Prof. Tam David West, former Minister of Petroleum resources, believes that the proposals made by the NNPC boss can’t work, because the President Buhari would initiate reforms that will address some of the challenges highlighted by the NNPC.

According to him, the working of the refineries requires good leadership and policies. He noted that the NNPC boss, who is also acting on the capacity as an advisory secretary to the president on the oil and gas sector, requires the directive of the Federal Government and the minister to be able to carry out some of his reforms.

He further noted that President Buhari who had served in various capacities within the oil and gas sector, had a blueprint that would ensure a turnaround of the downstream sector.

Mr.SeyiOdetola, an economic commentator based in United Kingdom, also believe that the GMD is only flying the kite of the interest of the industry stakeholders who believes that the removal of subsidy, deregulations and the sales of the refineries. He however noted that the refineries at its present state have not been able to meet the energy needs of the country. He also called for partial sales where shares would be sold to communities and institutional investors

It is however believed that President Buhari, may not accede to the view of the NNPC boss based on economic impact of the deregulation and sales of refineries may have on the Nigerians.