NNPC Moves to Sell Refineries After Private Sector Success

As the Dangote Refinery rolls out refined petroleum, NNPC recognises the potential of private sector efficiency and moves to sell two of its four refineries.

For many years, Nigeria grappled with inefficiencies in managing its oil facilities, leading to a heavy reliance on imported refined petroleum products. Amidst recurring fuel scarcity, the Nigerian National Petroleum Commission (NNPC) has recently announced plans to hand over two of its major oil refineries to private entities, a move that could mark a turning point in the nation’s energy sector.

The success of the Dangote Refinery in rolling out refined petroleum products highlights the potential of the private sector in addressing the country’s energy needs. This realisation seems to have finally dawned on NNPC, which has decided to sever ties with two refineries that have remained dormant for years.

Once a leading oil producer and exporter, Nigeria has fallen from the ranks of the top ten oil-producing countries, now becoming a major importer of refined oil. The decline, as highlighted by a 2023 Globe Newswire report, is attributed to non-functional refineries, underinvestment, rampant oil theft, and poor maintenance.

For five years, Nigeria spent N23.5 trillion on oil imports, according to the financial news website Nairametrics. This heavy spending is particularly baffling for a country that boasts the 11th largest oil reserves in the world. Wale Edun, Nigeria’s Minister of Finance, attributed part of the high import costs to Nigeria’s backdoor delivery of petroleum products to its neighbours.

“We are buying not just for Nigeria; we are buying for countries to the east, almost as far as Central Africa. We are buying for countries to the north, and we are buying for countries to the west,” he explained, pointing out that Nigeria lacks precise data on its internal consumption.

While Edun blames the high import costs on neighbouring countries benefiting from Nigeria’s oil wealth, former NNPC boss Funso Kupolokun argues that Nigeria imports fuel vastly because of its limited and defunct refineries.

According to Statista, Nigeria imported goods worth $45.95 trillion in 2023, with oil and gas, the country’s primary revenue sources, playing a significant role. The Global Edge reports that the energy sector accounts for 95 percent of Nigeria’s foreign exchange earnings and 80 percent of its budgetary revenues. Yet, despite these substantial reserves, Nigeria spent approximately N12.3 trillion on petroleum product imports in 2023, according to the National Bureau of Statistics. Wale Edun further revealed that the country spends $600 million monthly on fuel importation.

Though all that is about to stop now with the Dangote refinery in play, the economic toll of Nigeria’s inability to manage its oil facilities effectively has been severe, making the nation heavily dependent on costly imports. Nigeria’s four major refineries—located in Kaduna, Warri, and Port-Harcourt—have been non-operational for years. Tony Elumelu, a prominent Nigerian businessman, believes that the private sector is largely responsible for the development of Nigeria and Africa. 

In May 2023, Dangote Group launched its refinery, promising to bring much-needed efficiency to Nigeria’s oil and gas sector. Aliko Dangote, the billionaire behind the mega project, emphasised that it would not only boost local oil production but also support other sectors, including labour. The refinery is expected to alleviate the burden of import costs, potentially saving up to 30 percent of the foreign exchange currently spent on importing goods.

Many Nigerians are optimistic that Dangote’s success will inspire other private entities to venture into the oil industry, fostering competition and driving down prices. In line with this sentiment, the NNPC announced plans on its official X account to privatise two of its four oil facilities: the Kaduna and Warri refineries. These refineries have a combined capacity of producing 235,000 barrels per day, distributed between Kaduna and Warri with a capacity of 110,000 and 125,000 respectively.

Petroleum marketers in Port-Harcourt have also advocated for the privatisation of the Port-Harcourt refinery following its reconstruction. They argue that privatisation would encourage competition, drive innovation, address fuel scarcity, and ultimately lead to lower fuel prices.

Experts believe that if executed effectively, the privatisation of these refineries could stimulate economic growth. Oil expert Mike Osatuyi says privatising oil and gas facilities will enhance self-sufficiency and reduce operational costs. “It could revive Nigeria’s energy sector, paving the way for greater economic stability and self-sufficiency,” Osatuyi opined.

The successful privatisation of the Warri and Kaduna refineries—potentially followed by Port-Harcourt—and the operationalisation of the Dangote Refinery could herald a new era for Nigeria’s energy sector, promising a brighter and more stable economic future.

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