Refineries were shut over losses, not failure to produce –PENGASSAN

By Chukwuma Umeorah

Nigeria’s state-owned refineries were shut down because they were making losses, not because they could no longer refine crude oil, the outgoing President of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Festus Osifo, has said.

Osifo explained that the Nigerian National Petroleum Company Limited (NNPCL) had to stop the refineries from operating after it became clear that the cost of processing crude was higher than the value of the products being produced.

“So, the refineries were actually shut down, not that they were not functioning,” he said.

According to him, the facilities were still producing some petroleum products, but their operations were not commercially viable. Continuing to process crude under those conditions, he said, would only lead to more losses.

He illustrated the situation with a simple example, saying, “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.”

Osifo said the experience showed that Nigeria needed to focus on making its refineries commercially viable rather than simply keeping them open.

He also supported plans to bring a Chinese company into the ownership structure of the refineries, arguing that increased private-sector participation could reduce government interference and improve efficiency.

According to him, PENGASSAN is advocating that private investors should acquire up to 51 per cent of the refineries, while the government retains 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.

He said private majority ownership would allow the refineries to take important operational and maintenance decisions without having to seek 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 were more likely to make decisions based on business realities and profitability 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,” he said.

On the wider oil and gas sector, Osifo said the Petroleum Industry Act (PIA) had introduced important reforms but warned that frequent policy changes could create uncertainty and discourage investment.

He noted that the PIA established the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), provided for the midstream and downstream regulatory framework and transformed NNPCL into a limited liability company. It also introduced frameworks for host community development and frontier exploration.

However, he expressed concern about subsequent changes to some of the fiscal provisions of 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 taxes, royalties and other financial obligations they would face before committing money 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.

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

“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.