A study commissioned by the Nigerian Natural Resource Charter reveals that capacity utilisation of Nigerian refineries is 18 percent and that the sector is running at a huge loss which reduces its contribution to the country’s GDP
IN 2016, Nigerian four refineries managed by the Nigerian National Petroleum Corporation, NNPC, contributed only 0.55 percent to the country’s Gross Domestic Product, GDP. A study commissioned by the Nigerian Natural Resource Charter, NNRC, and conducted by the Centre for Petroleum, Energy Economics and Law, CPEEL, University of Ibadan, showed that the contribution of the refineries to the GDP of other sectors of the Nigerian economy as at that time was 0.18 percent.
The study also stated that the refineries contributed -1.69 percent to the gross net output in the country’s economy. The report of the study was presented at a stakeholders’ workshop on “Assessing Petroleum Sector Wealth: NNPC’s Contributions to the Economy,” in Lagos.
It focused on the contribution that NNPC refineries and pipelines have made to the Nigerian economy in 2016. Its estimations were done along the lines of direct, indirect and induced contributions, as well as their contributions to the GDP; Gross Net Domestic Product, GNDP; value-added; indirect taxes; compensation in terms of wages and salaries for employees; as well as employment.
The report noted that its assessment of value-added was made up of wages and salaries; operating surplus and depreciation, while indirect taxes included value added tax, VAT; excise and custom duties. According to it, the refineries contribution to value added in the economy was 0.35 percent; contribution to indirect taxes in the economy was 0.19 percent; contribution to compensation of employees in the economy was 0.13 percent; while NNPC refineries and pipelines’ contribution to employment in the economy was 0.05 percent.
“The small contribution of NNPC refineries and pipelines across measures can be related to the sector’s low capacity utilisation – 18 percent for quite some time now. This has led to an unprecedentedly high importation of its products at the expense of the economy as every item of import is a leakage in the system. The importation is making negative contribution to the economy,” said the report.
It added: “The sector has also been running at a huge loss thereby reducing its contribution to the economy. There is a need for concerted efforts to promote accountability in the management and turn-around-maintenance of the refineries. The existing refineries and pipelines at full capacities appear inadequate to fully satisfy domestic demand for petroleum products as a rigorous CGE modelling exercise reveals.”
According to NNRC, the capacity of the NNPC to contribute to Nigeria’s economic development is still being hampered by the level of operational secrecy it practices. When truly assessed, it stated that the operational costs of the NNPC which, are deducted at source before payment into the Federation Account have not been transparent.
Odein Ajumogobia, chairman, expert advisory panel, NNRC, said when compared with other national oil companies such as Petronas of Malaysia, Sontrach of Algeria and Sonangol of Angola, the contributions of the NNPC to the economic growth of Nigeria was impacted by the lack of transparency in its operations.
He questioned the authenticity of data provided in the country’s oil sector especially of production levels and reserves.
According to him, “Nigeria’s economic growth and diversification in order to reduce our dependence on crude oil exports, is still however crucially dependent on the growth and efficiency of the oil and gas sector which is to partially fund and drive the diversification. We literally have to drill our way out of our current economic predicament. Thus NNPC if the existing structure remains, has a critical role to play in furthering a sustainable economic growth trajectory for Nigeria.
“It is therefore appropriate to inquire into how the corporation’s stated vision of becoming world-class oil and gas company is to be achieved if it is being undermined by external rather than internal factors of competence and commitment. Can such a vision indeed be achieved if NNPC is not insulated from political interference, as the NLNG incorporated joint venture appears to have been?”
As the NNRC benchmarking exercise recorded that the muddling of the corporations business roles with its non-commercial and auxiliary regulatory roles continues. It observed that commercial decisions and operational activities are still subject to political interference.
“It is in this context that we can properly question the extent of NNPC’s purposeful contribution to the nation’s economic growth as it is currently structured. Certainly no organisation can optimise its performance in contributing to a 21st century economy if its activities and decisions are not open and transparent,” said Ajumogobia.
– Apr. 7, 2018 @ 4:15 GMT