Refineries were shut over losses, not non-functionality

…calls for re-assessment of refineries operations on commercial terms

The prolonged shutdown of Nigeria’s state-owned refineries was driven by operating losses rather than their inability to refine crude, according to the outgoing President of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Festus Osifo. This is even as he called for re-assessment of the refinery on commercial perspectives.

Osifo said the Nigerian National Petroleum Company Limited (NNPCL) had to shut the facilities after determining that the value of products generated from the crude processed was lower than the cost of inputs, making continued operations commercially unsustainable. “So, the refineries were actually shut down, not that they were not functioning,” he said.

He explained that the refineries had been producing some petroleum products, but the economics of their operations meant that continuing to process crude under the existing conditions would result in further losses.

“If you put, let’s say, $5 million worth of crude, you feed it through, when the product comes out, you are supposed to get the product of, let’s say, $6 million worth. But when you feed in that crude, what you now get at the end will now be like $4 million. So, you are losing money,” Osifo said. He added the development reflected the need to assess refinery operations on commercial terms rather than merely keeping the facilities running.

Osifo also backed the proposed involvement of a Chinese company as an equity partner in the refinery arrangement, saying private ownership could reduce government interference in operational decisions.

He said PENGASSAN was advocating that private investors should acquire up to 51 per cent of the refinery, while the government retains 49 per cent.

“They are going to buy some shares of government from this refinery. So, for us, we are advocating that, because the company is about 3 in 1 company, so let them buy up to 51 per cent. Let government retain 49 per cent as it is in NLNG,” he said.

According to him, majority private ownership would allow the refineries to take operational and maintenance decisions without having to rely on government approval.

“What that is going to do is that the decision-making is going to leave the hand of government, so that if you want to do any maintenance, you don’t need to discuss it in federal council meetings anymore,” he said.

Osifo argued that private investors would be more likely to make decisions based on commercial considerations, rather than political or other non-business factors. “And because they are private people, they take business decisions, not decisions made from sentiment, emotions, or political leanings, but decisions that will grow the business,” he said.

On the broader oil and gas sector, Osifo said the Petroleum Industry Act (PIA) had delivered some reforms but that subsequent policy changes had created uncertainty for investors.

He said the PIA established the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the midstream and downstream regulator and NNPCL Limited, while also providing frameworks for host community development and frontier exploration.

However, he expressed concern over changes to fiscal provisions originally contained in the PIA and the use of an executive order to alter provisions of the law. “For us, one of the ways to attract investment is for you to have some level of certainty,” Osifo said.

He said investors needed to know the tax and royalty obligations applicable to their projects before committing capital. Osifo said uncertainty over possible changes to laws and fiscal obligations could discourage investors from making long-term commitments to Nigeria’s oil and gas industry.

“But if I’m investing today and I’m doubtful that tomorrow the laws will change and the laws might not favour me, I will be a bit worried in how I carry out my investment,” he said.

He urged the government to allow the PIA and its regulatory framework to operate for a reasonable period before making major changes, arguing that oil and gas projects require long-term investment horizons.

“In oil and gas business, you don’t just invest today and you think you will reap tomorrow. At times, for this investment, you start reaping even after the 30th year,” he said.