Nigeria’s state-owned refineries were shut down because their operations were commercially unviable, rather than because they were incapable of refining crude oil, the outgoing President of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Festus Osifo, has said.
Osifo said the Nigerian National Petroleum Company Limited was forced to halt operations after it became clear that the cost of processing crude exceeded the value of the petroleum products generated from the refineries.
“So, the refineries were actually shut down, not that they were not functioning,” he said.
According to him, the facilities were still producing petroleum products before their shutdown, but continued operation under the prevailing cost structure would have deepened the financial losses being incurred.
He explained the problem using a simple commercial example, saying a refinery should generate products worth more than the crude fed into it, but Nigeria’s facilities were producing less value than the crude and associated operating costs.
“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,” Osifo said.
“But when you feed in that crude, what you now get at the end will not be like $4 million. So, you are losing money,” he added.
Osifo said the experience reinforced the need to prioritise commercial viability in the rehabilitation and operation of Nigeria’s refineries instead of keeping them running simply because they are state-owned assets.
He also backed plans to introduce a Chinese company into the ownership structure of the refineries, arguing that greater private-sector participation could improve efficiency and reduce government interference in operational decisions.
PENGASSAN, he said, is advocating a 51 per cent private-sector stake, with the Federal Government retaining 49 per cent, similar to the ownership structure of Nigeria LNG Limited.
“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.
Osifo argued that majority private ownership would allow the refineries to make critical commercial, maintenance and operational decisions without prolonged government approval processes.
“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.
He maintained that private investors would be more inclined to make decisions based on profitability, efficiency and long-term business sustainability rather than political considerations.
“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,” Osifo said.
On the wider petroleum industry, Osifo said the Petroleum Industry Act had introduced significant reforms, including the establishment of the Nigerian Upstream Petroleum Regulatory Commission, the restructuring of NNPCL as a limited liability company and the creation of regulatory frameworks for the midstream and downstream sectors.
However, he warned that frequent changes to the regulatory and fiscal framework could undermine investor confidence, particularly in an industry where projects require substantial capital and long development periods.
“For us, one of the ways to attract investment is for you to have some level of certainty,” Osifo said.
He said investors needed clarity on taxes, royalties and other financial obligations before committing capital to oil and gas projects.
“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 added.
Osifo urged the Federal Government to allow the PIA and its regulatory framework to operate for a reasonable period before introducing major changes, stressing that oil and gas investments are designed around long-term returns.
“In the 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.