Nigeria’s state-owned refineries were shut down primarily because their operations were commercially unviable, not because they were incapable of processing crude oil, Festus Osifo, president of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), has said.
Osifo said the refineries were still capable of producing petroleum products, but the cost of processing crude was higher than the value of the products generated, resulting in operational losses.
‘The refineries were actually shut down, not that they were not functioning,’ he said.
He explained that continuing to operate the facilities under such conditions would have increased financial losses for the Nigerian National Petroleum Company Limited (NNPCL).
According to Osifo, the experience highlights the need to run Nigeria’s refineries on commercially sustainable terms rather than keeping them operational solely for the sake of domestic refining.
‘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 not be like $4 million. So, you are losing money,’ he said.
Osifo backed the proposed entry of a Chinese investor into the ownership structure of Nigeria’s state-owned refineries, arguing that greater private-sector participation could improve operational efficiency and reduce government interference.
He said PENGASSAN was advocating a structure under which private investors would hold a 51 percent controlling stake, while the Federal Government would retain 49 percent.
He cited the ownership model of Nigeria LNG Limited (NLNG) as an example of how government and private-sector interests could coexist in a commercially driven structure.
‘They are going to buy some shares of the government from this refinery. So, for us, we are advocating that, because the company is about a 3-in-1 company, let them buy up to 51 per cent. Let government retain 49 per cent as it is in NLNG,’ Osifo said.
He argued that majority private ownership would allow refinery management to take critical operational, maintenance and investment decisions without lengthy government approval processes.
‘What that is going to do is that the decision-making is going to leave the hands 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 said private investors would be more inclined to make decisions based on profitability, efficiency and commercial realities rather than political considerations.
Policy uncertainty threatens investment
Beyond refining, the PENGASSAN president said Nigeria needed greater policy stability to attract long-term investment into the oil and gas industry.
He acknowledged that the Petroleum Industry Act (PIA) introduced significant reforms, including the establishment of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), the creation of a regulatory framework for the midstream and downstream sectors, and the transformation of the NNPCL into a limited liability company.
The legislation also established frameworks for host community development and frontier exploration.
However, Osifo expressed concern over subsequent adjustments to some fiscal provisions of the PIA and the use of executive action to alter provisions of the legislation.
He said policy stability was critical because oil and gas projects require substantial capital and have long investment horizons.
‘For us, one of the ways to attract investment is for you to have some level of certainty,’ he said.
Osifo 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 said.
He therefore urged the Federal Government to allow the PIA and its regulatory framework to operate for a reasonable period before introducing major changes.
According to him, frequent changes to the regulatory and fiscal environment could increase investment risk and discourage the long-term capital required to develop Nigeria’s oil and gas industry.
‘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.