August 11, (THEWILL) – The universal dictum: government has no business being in business is instructive in the resolution of the current energy bind in which our country’s leadership and followership find themselves.
It is needless rehashing the fact that Government is inefficient owing to the bureaucratic bottlenecks that governance in the public sector entails.
Such complex processes associated with the government are not suitable for the operation of the business of refining petroleum products, which is quite complex, owing to the interplay of man and intricate machinery driven by high technology. As such, operating an oil refinery requires a lot of nimbleness and agility in decision-making for optimum outcomes/outputs.
Besides the challenge of the inability to be swift in decision-making that stops the wheel of progress from turning accordingly in government, there is also the issue of the goal in the operations of government, which is quite distinct from that of business.
Basically, the objective of government is to organise and protect citizens in a society, community or country for progress and society. And it does so by getting the people to comply with the principles of the rule of law, which both the leaders and the led must respect. That is because adherence to the rule of law is the guardrail for the enthronement and enforcement of law and order for the betterment of all stakeholders in a society, community or country and also for the legitimacy of government.
What the above narrative implies is that government is not driven by efficiency and speed but by its ability to provide equity and justice for citizens as well as respect for governance codes and ethos to facilitate good citizenship for the greater good of all members of society, community or country.
As John Locke wrote, the purpose of government is: “to secure and protect the God-given inalienable natural rights of the people.“
Amongst other roles, the government essentially provides the legal and social framework within which the economy operates. What that means is that the government is not a business operator beyond providing a level playing field for business organisations in order to manage competition in the marketplace.
That is quite unlike the forces that drive business, which is that firms thrive on competition against similar service providers to gain a market edge and by so doing, add value to society.
But without competition, such as the situation that used to obtain in Nigeria whereby the government had been the sole investor in oil/ gas refining as far back as when oil was discovered in Oloibiri, modern-day Bayelsa, in 1956, a monopoly was created with the consequence of value not being created.
That is the unfortunate situation in which Nigeria had been wallowing before the Petroleum Industry Act, PIA, came into force last year and which has been followed by President Tinubu’s tenure commencement speech on 29 May that ended petrol subsidy. Before then, the monopoly of the Federal Government in the oil/gas business had been a sort of albatross hovering over the government.
Contrary to the goals of government, the ultimate objective of any business is to fulfil the needs and wants of members of society while making profit.
In some cases, especially with respect to large corporations, social content may be a driving force because remaining in business by maintaining their operations for the sustenance of the lives of those that provide employment and pay wages and salaries, can be a significant factor.
Taking into consideration the narrative above, and given that one of the key demands by the organised labour in Nigeria (Nigeria Labor Congress, NLC, and Trade Union Congress, TUC) is that President Bola Ahmed Tinubu should give a timeline within which the government-owned refineries in Portharcourt and Warri would go back into production, one can not help but conclude that the demand is ridiculous, simply because it is a settled dictum that government has no business in business.
The assertion above is underscored by the fact that the preconditions for calling off the strike action that they had called on 2nd day of August, with a view to getting the administration to reverse the second (2nd) increase in the pump price of petrol, which is a definitive pronouncement by President Tinubu on the timeline for government owned and operated refineries to go back into production, is antithetical to the letter and spirit of the Petroleum Industry Act, PIA, which is geared towards the promotion of government divestment from the oil sector.
In light of the earlier stated fact, which is that the government has no business being in business, the demand that the moribund state-owned refineries should be repaired and put back into service would be deemed by any right-thinking business savvy and 21st-century progress-conscious leader as a ridiculous demand.
The facts below further justify the assertion above, as l believe that the colossal financial loss incurred in the management of the refineries affirms the dictum that the government has no business in business.
Take for instance the report of a panel set up by the House of Representatives, HoRs, of the 9th Assembly that had revealed that the total cost of rehabilitating the refineries from 2010 to 2020 is N11,349,583,186,313.40, while the additional costs in other currencies are $592,976,050, €4,877,068.47 and £3,455,656.93. When added together, the total sum of the financial cost would be in the neighbourhood of between fifteen to twenty trillion naira.
The very vocal civil society advocacy group, Socio-Economic Rights and Accountability Project, SERAP, also tracked the expenditures on the repairs of refineries between 2015 to 2020 (five years period) under the watch of the immediate past President, Mohammadu Buhari and contended that: “About N82.82 billion was reportedly spent in 2015; N78.95 billion in 2016; N604.127 billion in 2017; N426.66 billion in 2019; -N218.18 billion in 2019, and N64.534 billion expenditure was recorded from January to June 2020.”
That is not all. The NNPC annual financial reports for 2018 showed that all the refineries’ operating deficits increased by 39% compared to 2017. In the 2018 trading year, the Port Harcourt Refinery posted a loss of N59.96 billion, Warri Refinery posted a N41.71 billion loss, and Kaduna Refinery recorded a N31 billion loss.
That is not inclusive of the current rehabilitation efforts that commenced in 2021, which is costing Nigeria an additional $1.5 billion for the Port Harcourt refinery and $1.4 billion for Warri and Kaduna refineries.
What the above reality reveals is that roughly $3 billion has been committed towards the turnaround maintenance of the three refineries from 2021 till date.
Under pressure from organised labour, President Tinubu has promised that the Port Harcourt refinery would come on stream in December this year.
It is relieving that Mr President created a leeway for the government to wriggle out, basically because he did not commit to the labour leaders on whether the refinery would be operated by the government, a concessionaire or sold outright, which is the ideal thing to do if the current concept of government not having business with business were to be taken to heart.
The reason that it is wise that President Tinubu did not promise NLC and TUC leadership that the refineries would be managed by the government even when the Port Harcourt refinery is reopened in December is rooted in the fact that, despite the monumental financial costs that have been applied in fixing the refineries from 2010-2020, not up to 30 percent of the capacity of the refineries was realizable until the turn around maintenance commenced in 2021.
As evidenced by the colossal losses in the operation of the refineries earlier highlighted, it has been proven beyond reasonable doubt that the government is a very poor manager of the business. So, it is preposterous that organised labour is calling for the return to status quo antebellum by demanding that a date be given for the reopening of the refineries.
Imagine if the mind-boggling sums expended in the maintenance of the ailing refineries, which is akin to trying to revive dead horses between 2010 and 2020, and the amount spent on refurbishing the same refineries that are ongoing were to be availed major players in the oil and gas sectors as government’s equity investment in the manner that South Korea in the 1990s invested in the chaebols such as Samsung, Hyundai, LG etc which metamorphosed into national and global icons?
There is no doubt that the narrative about Nigeria’s oil/gas sector would change from that of misfortune to prosperity if the full letter and spirit of the PIA are allowed to be applied to the fullest.
That would be in contrast with the current situation in Venezuela, home to enormous fossil fuel resources but which is suffering from an oil course. And Nigeria’s oil/gas sector contribution to the well-being of citizens would look more like the situation in the Middle East where oil/gas assets are driving progress and prosperity in countries such as Saudi Arabia, United Arab Emirates, UAE.
It would also be comparable to the positive experience of European countries like the United Kingdom, UK, Sweden and Norway amongst others.
Our country would also be like North American nations like the United States of America, USA and Canada that have positively converted the fossil fuel under their soil into tremendous wealth for the greater good of their
Today, about three (3) decades after the chaebol initiative was kicked-off in South Korea, most of the firms that the government promoted by providing funding to enable the private investors to become industrial giant players in the selected industrial sectors, with Samsung group, for instance, contributing 20% of South Korea’s GDP.
Nigeria can achieve a similar feat that South Korea attained, if the oil refineries and other strategic public utilities hitherto under the control of the Federal Government of Nigeria, such as electricity transmission lines, for instance, are left to the private sector to manage.
In our country, there is already a framework for the government to support entrepreneurs interested in establishing modular refineries through an agency set up to promote local content in oil/gas exploration. The same policy can be applied in other sectors.
For a start, that could be achieved with the National Assembly, NASS, passing a law compelling Ministries, Departments and Agencies, MDAs of government to use only made in Nigeria products that were available. Such a policy would tremendously boost our country’s GNP and GDP.
It is a no-brainer to figure out how the current pressure on foreign exchange, which has seen the naira heading towards the N1,000/$1 mark, would be reduced if there is an official pronouncement that only vehicles that are locally assembled would be patronised by the government and its agencies. Think of the millions of dollars that the Federal, State Governments and the MDAs spend annually to procure vehicles from Europe, Asia, India and North America, which amounts to capital flight.
Returning to the ongoing reforms in the oil/gas sector, the main hindrance to setting up modular refineries for which licenses were granted, had been with the pricing and profitability of the venture given that the pump price of petrol was being subsidised.
The good news is that, with the subsidy on petrol being removed by President Tinubu during his inaugural speech on 29 May, the disincentive for establishing Modular refineries has been removed and there is every likelihood that there would be a flood of investments in crude oil refining sooner than later.
It is doubtless that the grim picture of the state of refineries before the passage of the PIA and the end of petrol subsidy painted above would make anyone, who has an interest in the future of our country, to be struck with awe about the colossal waste that the concept of government being in business has wrought on our country.
At least, the magnitude of waste earlier catalogued would enable any advocate of government-operating refineries to appreciate the reason why the oil refining business has to be left to the private sector to take control, as is the case in other climes operating free market-driven economic systems.
But apparently, the organised labour leadership, comprising of Comrades Joe Ajaero and Festus Osifo, that are clamouring for the repair of the old refineries, appear to be oblivious to how inefficient and ineffective operating refineries by the government has been.
By ignoring the dire consequences of the ancient practice of government being involved in the business even when the private sector has developed capacity is out of tune with the modern public sector governance system, they are exhibiting the tendencies that tend to suggest that the labour leaders may not be in tune with the fact that that there has been a paradigm shift in public sector management style.
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As a panacea, labour leaders need to be made aware that far-sighted and dynamic governments have adopted the strategy of Private Public Partnerships, PPP, which is currently the new standard adopted universally. And it has proven to be a more efficient and efficacious approach to managing governments, which is currently the norm. As such government meddling in business has become obsolete.
That would enable our labour leaders that seem to have remained stuck in the past instead of embracing the future, to wake up from their slumber of using analogue tools to deal with digital age issues.
Were the above assertion not the prevailing outlook of the organised labour leadership, they would have negotiated with the government on how the ownership of the refineries should be passed to private investors that are known to possess the requisite capacity, ability, skills and motivation to manage such assets better, as opposed to pressuring the government to name the date that the refineries that were run aground due to bureaucracy, would be re-opened under the management of bureaucrats.
Could the dog-in-the-manger attitude of our labour leaders be an indication that they are not aware that the nation would be on a merry-go-round when the same refineries, after refurbishment, are to be operated by the same bureaucrats that literally ruined them down in the first instance?
On closer scrutiny, what immediately comes to mind as the motivation for the demand by organised labour for the bringing of the refineries back to life is primarily to provide employment for members of the union when the refineries are back in production.
While one does not doubt that the demand may, to a large extent, be altruistic, clearly there may be a selfish and myopic undertone to the agenda.
That is simply because what the organised labour leaders fail to recognise is that even if the refineries are privatized, they would still provide employment for Nigerians whether they are members of the NLC, TUC, or non-unionized members of Nigerian society.
In my reckoning, one of the reasons for the selfish and narrow mindset of the labour union leaders may be boiled down to the lack of continuous training for them about the modern dynamics of business.
That is why one is of the conviction that they need to be enlightened about the paradigm shift in governance from the old methods of government being in the commanding heights of business, which has been in practice in our country since independence in 1960, to a private sector or market dynamics driven governance style illustrated with the Private Public Partnership, PPP, popular in Western countries and the Chaebol system preferred in Asia.
Now, a simple initiative that would help wean our labour leaders of the outdated attitude that the government must have its fingers in every pie is to put them through training that would enable them to fill the knowledge gap on the new dynamics of change in public sector management sweeping across the world.
And that can be done by sending the leadership of NLC and TUC to the NIGERIAN Institute of Strategic Studies, Kuru, near Jos, Plateau state and the intermediate level leaders should also be availed training at the Nigerian Industrial Training Funds, ITF, based in Lagos, and Administrative Staff College of Nigeria, ASCON, Topo, Badagry, Lagos State.
In the event that learning courses focused on bringing labour leaders up to date with the new governance approach for more beneficial gains and the greater good of Nigerians are currently not available in the above-listed training institutions, such should be developed and introduced.
Furthermore, for labour leaders to have a better sense of the role of the private sector in nation-building so that they can be on the same page with the new governance paradigm, they should also be exposed to short courses in business schools such as Lagos Business School, LBS/Pan Atlantic University, also based in Lagos, where courses on public sector leadership are on offer.
The point being made here is that when labour leaders are armed with the right orientation of modern business practice, they would be more amenable to the policies and programs of the government, particularly under the watch of President Tinubu, who based on antecedents as Lagos State governor, believes in the ideology of less government interference in business.
What people in authority may not realise is that training leaders of organised labour would make negotiations with the government less rancorous and labour disputes would be less protractive, which by extension would augur well for the government as there would be less production downtime when the number of industrial actions undertaken be organised labours is significantly reduced.
Put succinctly, the funds spent in training labour leaders to re-orientate them from the mindset of government remaining in the commanding heights of business would be well spent by the government when they are on the same page with the authorities.
It may be recalled that until 1985-1993, when former military president, Gen.Ibrahim Babangida, IBB, held sway in government and unbundled banking services to private sector investors, provision of most of the critical services like banking, telecommunications, electricity, sea and airports were in the so-called Exclusive List.
Put plainly, key utilities such as oil/gas, electricity generation, telecommunications services, banking and other financial services, sea and air ports establishment and management were under the exclusive purview of the Federal Government, implying that only the Federal Government can invest in those sectors.
But beginning with IBB’s era (1985/1993), some of those unproductive policies changed when the private sector was allowed to invest in the banking sector.
Evidently, the policy change, which has seen banking licenses issued to the likes of Zenithbank, GT Bank, Access Bank, Fidelity Bank and a plethora of other banks beyond the First Bank, United Bank for Africa and Union Bank plus a handful of regional banks that ruled the roost in the past, has been quite beneficial to our country and by extension populace.
That is underscored by the fact that banks have not provided employment for teeming Nigerian professionals, they have also been paying corporate taxes to the government, just as they have equally been generating hard currency income as most of the banks are currently active in several African countries either with branches or subsidiaries, which is a salutary phenomenon that has resulted in the generation of foreign exchange income for the prosperity of all Nigerians.
A similar positive outcome can be extrapolated for the telecommunications sector that was unbundled in the year 2000 when then president Olusegun Obasanjo (1999-2007) liberalised the sector by taking it off the Exclusive List.
The direct outcome was the explosion of the number of telephone lines provided by Nigerian Telecommunications, NITEL, which skyrocketed from a mere four hundred thousand (400,000) lines for a country of over two hundred million people to roughly one hundred and seventh (170m) million GSM lines provided by four telcos- GLO Network, an indigenous Nigerian phone service provider owned by the serial investor and irrepressible oil/gas, banking, and construction tycoon as well as philanthropist, Dr. Mike Adenuga Jnr; MTN from South Africa, and Airtel, which has a Zimbabwe origin but is currently owned by an Indian concern, not forgetting 9Mobile, formerly promoted in Nigeria by Etisalat of United Arab Emirates, UAE, now owned by some Nigerian financial institutions.
The investments in telecommunications services in our country as enumerated above have not only created employment and resulted in positive developments similar to the contribution of the banking sector when it was opened up; it has also boosted the Gross Domestic Product, GDP, and Gross National Product, GNP, of our country as the telcos berthing of their services in our market has been a catalyst for the flow of Foreign Direct Investments, FDI, into Nigeria.
The National Bureau of Statistics, NBS, reckons that Nigeria’s telecoms sector drew a total of N23.982 billion ($57.79 million) in foreign direct investment in the first quarter of 2022. And as of June, the sector is recognised as contributing about 14.13% to the GDP of Nigeria, which is quite significant.
Perhaps buoyed by the obvious benefits of liberalising the telecoms sector, the electricity sector was also privatised with the Federal Government (previous sole investor in the sector) retaining significant equity in PPP arrangements.
The only snag to the sector blooming like the telecoms sector was that while electricity generation and distribution services were privatized, the government held onto the transmission aspect.
Without a holistic privatisation program of all three (3) critical components, which currently excludes the transmission aspect that got retained by the government and became a clog in the wheel of progress in the electricity-energy sector, a repeat of the superlative performance of the banking and telecommunications sectors when they became open to private sector investment, would not happen.
And given its reputation for lacking in capacity and ability to efficiently and effectively manage business reflected by the conventional wisdom: ‘Government has no business with business’, it has not been possible for the electricity sector to be turned around in the manner that the banking and telecommunications sectors got boosted after they were opened up for private sector participation.
However, with the Electricity Act 2023 signed into law by President Tinubu within the first two weeks of taking over the reins of power, the sector is on the verge of recording the type of boom that both the banking and telecommunications sectors generated when they got liberalised by opening them up for private sector investment.
To put in context the reason that l concluded in my opening statement that making the resuscitation of the moribund refineries, a condition for NLC and TUC to call off their 2nd August strike action, is counterproductive, it is worth recalling that in the twilight of President Obasanjo’s tenure (1999-2007), the refineries were sold off to amongst other private sector investors, notably Alhaji Aliko Dangote and his conglomerate.
But President Obasanjo’s successor, late President Musa Yar’adua (2007-2010), reversed the sale of the refineries and the process of privatisation of the oil/gas sector, which got truncated since 2007.
Perhaps, having done his homework before bidding for the purchase of the refinery in 2007, Dangote probably could not bear the thought of the effort that he had put into the bidding and purchase of the refinery to be wasted. Hence after he was denied the purchase, he resolved to establish a green field refinery resulting in the birthing of the mega Dangote Refinery and Petrochemical company in Lekki, Lagos.
The purpose of digging up the past history of the transition of government investments in the financial services sector and in other utilities like telecommunications and electricity power from which Nigerians have been reaping immediate benefits of private sector involvement, is to enlighten labour leaders of the gains that lay ahead of the oil/gas sector when it is allowed to be liberalised as provided in the Petroleum Industry Act, PIA, which is currently in operation in our country.
It is also aimed at allaying the fear of organised labour that there would be a loss of jobs when the oil/gas sector is liberalised.
In fact, with respect to the fear of job losses, the reverse would be the case as the entrance of private sector investors would result in the expansion of the existing operations of the refineries, which at best, would be between 30-60% capacity, has been the case with electricity power plants purchased by investors such as Tony Elumelu’s Transcorp of Ughelli power plant in Delta State and Femi Otedola’s acquisition of Geregu power plant in Ajaokuta, Kogi State amongst others.
Remarkably, since the takeover of Ughelli and Geregu power plants, the output capacities of the sold electricity assets have been ramped up since their sale and private sector investors took control of the management of the assets. And the expansion of capacity has led to a significant boost in power supply and the creation of more employment.
The reality that there was no job loss, rather more jobs have been created when the banking, telecommunications and electricity sectors were opened up for private sector participation should be proof of evidence to the labour leaders that their members’ jobs would not be threatened when the moribund refineries are sold.
Arising from the above, labour leaders should be guided by the fact by the aphorism: if you do not evolve, you become obsolete.
With the assurance that there is nothing to fear but every good reason to be optimistic, the labour leaders, who are clearly more concerned about jobs loss by their members in the dysfunctional refineries than the overall progress of our beloved country, hence they are anxious about their being reopened fast can be rest assured that the liberalisation of the oil/gas sector can only be a win-win situation for both the organised labour and Nigerians as a whole.
As such, their call for Mr President to give them a specific date on which the government-owned refineries would be reopened is at best, unwise and at worst, myopic, just as it is also ill-advised by all standards of measure.
Based on the above case made beyond any reasonable doubt against government owning and operating refineries, I am of the conviction that the seemingly belligerent labour leaders would see how unreasonable their demand that the date for the refineries to be opened as a condition for calling off their strike in the first week of August, truly is.
Arising from the above, it would not be out of order to expect our country’s labour force to be at the forefront of the agitation for the government to sell off the ailing refineries to private investors, which is in tandem with the new governance ideology of: government has no business being in business.
Based on past experience, in about another five (5) years, it is very likely that after the refurbishment, the refineries would sooner or later be needing another turnaround that had been embarked upon at a monstrous sum of money earlier highlighted.
It is even more gutting that when the refineries come on stream, they would not be performing at optimum levels even after they are repaired and recommissioned.
Is the leadership of labour accepting that the government should plough the humongous sums of funds running into multiple billions of dollars to carry out another turnaround maintenance? That is what they may be endorsing if they insist that the old refineries should be repaired and operated by the government irrespective of the astonishing losses suffered by the refineries under the suffocating management of the government.
Drawing from past experience, at best, the refurbished refineries would be performing up to perhaps 20-30% more than their 30% performance level in 2021 before being shut down for refurbishment.
In fact, it is believed in some quarters that it would be a tall order to expect 50-60% output levels after retrofitting the ailing refineries.
It is estimated by experts, that even though the refineries have been shut down for turnaround maintenance since 2021, about N70 billion is being expended annually as salaries and emoluments for about 1,701 workers at the Portharcourt, Warri and Kaduna refineries.
If there is no other reason to endorse the sale of the dysfunctional refineries, it is the fact that our country would be saved the humungous sum that it had been flushing down the drain in the name of turnaround maintenance of refineries. Presumably, that should be enough motivation.
The truth is that, in the manner that the government was saved the burden of allocating funds in the national budget for NITEL and NEPA before the privatization of those public utilities, the nation would not be spared the burden of wasting the mind-blowing sums of money that had been expended in refineries maintenance in the past four (4) decades, which some experts estimate would be enough to build three (3) new refineries, if put together. That is why a strong case is being made that the refineries should be offloaded by the government.
Best of all, our country would no longer be a dumping ground for European oil refineries of which Nigeria was hitherto believed to be the market for about 30% of their products. That is according to reporting by Reuters – the international news agency quoting Kpler, a data and analytics firm that tracks energy information.
With the oil/gas sector liberalized and the private sector is allowed to do what they do best, which is efficient and effective management of assets and resources, local refineries operated by private sector owners would produce enough locally refined products and by so doing, there would be massive employment creation for our army of unemployed men and women.
If the incentives underlined above are not enough reason for organised labour to set an agenda on not just when the refineries under repairs would come on stream but how and when to sell off the refineries to keen and competent private sector players, l do not know what would.
Magnus Onyibe, an entrepreneur, public policy analyst, author, democracy advocate, development strategist, alumnus of Fletcher School of Law and Diplomacy, Tufts University, Massachusetts, USA and a former commissioner in Delta State Government, sent this piece from Lagos, Nigeria.
*** Written by Magnus Abe
