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NNPC, supply crude to local refineries

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The Dangote Petroleum Refinery’s admission that it missed its August target date for production due to the unavailability of crude oil from the Nigerian National Petroleum Corporation Limited highlights the mismanagement of Nigeria’s oil industry. In an interview, an Executive Director of the Dangote Group, Devakumar Edwin, stated that the refinery would begin refining between October and November, importing crude in the meantime. This situation is embarrassing for the nation, and the NNPC must ensure that local refineries receive sufficient crude supplies.

Despite being a major producer and exporter of crude oil, Nigeria has continued to depend on imported refined petroleum products, which is a significant issue. The NNPC, which owns and operates four refineries, continues to play this iniquitous role despite its negative impact on the country.

The hopes of ending decades of prohibitive fuel imports with the 650,000 barrels-per-day Dangote refinery now seem misplaced, as the refinery plans to process crude imported from Angola. Furthermore, the initial focus on diesel and lubricants, while neglecting petrol, has worsened the hardship for Nigerians.

Nigeria is Africa’s largest crude producer, and it ranks as the world’s 15th top producer. Angola ranks 16th. Nigeria’s production currently ranges from 1.22 million barrels per day to 1.5 million bpd, with an OPEC quota of 1.78mbpd and a capacity for much higher.

The NNPC has no valid excuse for not supplying the Dangote Refinery, established and upcoming modular refineries, and its own four comatose refineries with a combined capacity of 445,000 bpd. The government and the NNPC are undermining the country’s comparative advantage and causing suffering for Nigerians.

NNPC, which owns a 20 percent stake in the Dangote Refinery, has belatedly announced plans to supply the facility with crude in November. It should also start supplying the modular refineries. The Crude Oil Refinery-owners Association of Nigeria has stated that its member companies are barely surviving because NNPC does not supply them with crude, leaving their refineries idle.

The NNPC’s inability to supply the domestic market is linked to decades-old industrial-scale oil theft that undermines Nigeria’s production capacity. President Bola Tinubu should address this issue urgently. Achieving self-sufficiency in refined products should be treated as a national emergency, with private sector leadership.

The government should sell the four refineries immediately through transparent and corruption-free auctions to reputable investors to attract foreign investment and foster competition in the downstream oil sector. Tinubu should put an end to the wasteful spending on futile turnaround maintenance contracts.

Unfortunately, Tinubu and his predecessors seem comfortable with the current situation. Nigeria spent N16.9 trillion on petrol imports between June 2015 and October 2022, according to the National Bureau of Statistics. NNPC’s crude swap arrangements for refined products cost N2.6 trillion in 2021, according to NEITI. Subsidy on imported products cost N4.39 trillion in 2022 and N3.36 trillion in the first half of 2023, with devastating effects on the economy.

Other countries manage their resources and national oil companies more rationally. Saudi Aramco made a profit of $110 billion in 2021, and Brazil’s Petrobras closed in 2022 with a profit of $36 billion, both being major crude producers and refiners. Tinubu should restructure NNPC, privatize its midstream and downstream assets, and restrict the government to industry regulation, ensuring domestic refiners have access to crude.