As Nigeria’s general elections approach, politicians have made several promises to outline their administration’s economic policies, as major opposition candidates are backing pro-business policies.
Atiku Abubakar, the presidential candidate of People’s Democratic Party (PDP) on the Lagos Business School Alumni Day 2022 revealed plans to privatize Nigeria’s refineries.
According to him, privatization will help get the comatose but spend money into productive hands and ultimately ensure that Nigeria becomes a chemical refining hub.
Atiku argued that the private sector suffers when it is not productive. Therefore, one way to start its productivity is to privatize non-productive assets.
- “I will continue to privatize aspects of the oil and gas industry in Nigeria. Till now, the moribund refineries are not functioning and yet we are paying for them. I prefer them to be private (Kaduna, Warri, Port Harcourt); we spend without any production. “
He noted that if Nigeria had privatized the refineries, they would have been producing by now because no private sector operator would buy a refinery and finance it while allowing it to be unproductive.
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Current status of refineries: The Buhari administration also solved the refinery problem in its own way. The federal government recently spent the sum of $1.5 billion for the rehabilitation of the Port Harcourt Refinery, which they said would start operations soon.
In April 2021, the Nigerian National Petroleum Company (NNPC) Limited signed a contract with Tecnimont SpA, a subsidiary of Maire Tecnimont, for the rehabilitation of the Port Harcourt Refinery.
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Meanwhile, the federal government recently announced that the old Port Harcourt Refinery, which is currently undergoing complete repair and rehabilitation will be operational by December 2022.
Atiku noted that his plans would make Nigeria an export-hub for refined petrochemicals in West Africa.
Nigeria’s availability of raw materials means the country can leverage its comparative advantage in this industry. In the year 2020, the total trade for refined petroleum exports is $451 billion, with the top five exporters being the United States ($58.4bn), Russia ($48bn), The Netherlands ($29.7bn), Singapore ($27bn), and India ($25.3bn).
The Aramco model: However, analysts told Nairametrics that there are many ways to do this, as Nigeria can commercialize the operations of the refineries after the restructuring of the NNPC, adding that a full sales are not in the interest of Nigeria, citing the examples of Brazil’s Petrobras and Saudi Aramco.
The economist, Dr. Ayo Teriba noted that privatization can have many meanings, saying that it is rarely the right thing to sell the asset, because it can be prone to reversal, saying that countries know which privatized and then nationalized, which means you can’t jump in the dark.
- “The question is what is best for Nigeria and one that you must always be aware of, you must keep an open mind, exactly which part of NNPC to maximize the value of the refineries, which is an important issue,” he said.
- “An example, one of the largest companies in the world by the same market value, is Saudi Aramco, which is just the opposite of Apple in terms of market value, would you say Saudi privatized Aramco?”
He added that Nigeria should be clear on what it wants to achieve with the refineries, because Aramco was corporatized, before the public listing, so we need the NNPC first to be corporatized, which is isolated from political interference to sell The refineries are not necessarily the solution.
The Saudis discovered that making Aramco an efficient company, with global standards is not enough, that they still need to finance the company, and financialization means that Aramco’s market value must be built, so they need to do an IPO to have a reference market value,
- “For the $1.5 billion turnaround for the refineries, the question is, if that company is worth investing that amount of money, whose market value we don’t know, and you won’t know unless the division of chemicals listed, also available to NNPC.
- “The Saudis did not know the true market value of Aramco before it was listed on the public markets; now we have the Nigerian NLNG, which is 6, going to seven trains, but the real public value is unknown because it is not listed. Therefore, the financialization, which some see as privatization, but in the strict sense of the word, because the Saudis only sell, less than 5% of the public markets they own more than 90% of them , you can’t tell. Aramco is privatized, which does not fully appear to be privatized because it is still a state-owned company” he added.
He added that Atiku does not need to sell anything, stating that
- “you determine their market value first and foremost; you determine their market value by listing it on the market (after a complete turnaround).
- “That is the only transparent way to know, even if you want to sell, how much you will sell it, spending $1.5 billion before privatization is not very reasonable; selling it to a private company after spending a lot means sacrificing the national interest; you have no way of controlling what a private company can do with an asset it owns 100%, so you have to keep some seats at the table for Nigeria through ownership of several shares; That is what we are doing with NLNG, because Nigeria has 49%, ensuring that national interests are still served,” he urged.
He added that the way to talk about it is not to say “I will privatise” but to say “I will financialise”, and by that Atiku may want to make the market value more transparent so that Nigeria benefit, which refers to the greatest benefit. the Saudis have with Aramco on the public list so they have a company on his balance sheet worth more than his own GDP.
He added from a fiscal point of view, that this will also add to Nigeria’s balance sheet, which will show that Nigeria has more reliable assets than its debt, and can decide to securitize it to meet its cash needs. or sell a higher percentage of it like Brazil and India. dealing with government assets (selling between 20-30% of assets)
It doesn’t have to be 100%: Dr. Emeka Okengwu, an economist, also noted that the privatization of refineries is not the only thing a public facility can do, saying that there is, first of all, the commercialization, and corporatization; the message is to stretch the governance structure. If you commercialize it is a good deal.
He added, “Private does not only mean that he has completely sold it 100%; usually with privatization the government can still have a few percent, because there should be absolutely no direct sales.
He urged that commercialization options should be considered for refineries; but what is important is that people have moved away from fossil fuels, saying that Nigeria has too much sun and is not focused on green hydrogen, that South Africa is making moves to help reduce costs in energy and transportation and can be used by all.
Bottom line: While the NNPC is spending billions of USD on a turnaround project for the refineries, Nigeria can use the rehabilitated assets to its advantage by commercializing them into a separate asset in the public market, where the Nigerian government is the largest shareholder, as the Saudis do. Aramco.
However, Atiku has also noted that he wants a small government and we are waiting to see the approach he takes if he wins the 2023 General election.