March 11, 2012:

The second mistake was the way Yar'Adua abandoned the power projects as his associates sought to take them over and bring in their own men. Former President Olusegun Obasanjo had hurriedly awarded the contracts in 2006, obviously just in time to create some slush funds for the 2007 elections, but that was not a good enough justification to abandon the projects altogether given the dire situation of power supply in the country. Yar'Adua refused to pay the contractors for two years. Instead, he went about saying $10 billion had been spent by Obasanjo without any results. If Yar'Adua had not stopped the projects, the power situation in Nigeria would be nearing a solution now. Two solid years were lost to the poor decision.

The third mistake-and that happens to be the focus of my thoughts today-is the refineries. Obasanjo had sold the Kaduna and Port Harcourt refineries to BlueStar oil consortium owned by Aliko Dangote and Femi Otedola for $721 million. The labour unions kicked against it and threatened to go on strike-obviously on the prompting of some insiders who were benefiting from the hopeless turn around maintenance (TAM) contracts. The Nigeria National Petroleum Corporation (NNPC) went to Yar'Adua and whispered into his ears that if he gave them a few billions of naira, the refineries would start working at optimal capacity by January 2008. Quickly, Yar'Adua handed the loot to NNPC. Five years later, with more billions pumped into those refineries, we are still waiting for them to produce at "optimal capacity".

If Yar'Adua felt the privatised refineries were undervalued, I believe there was a way a review could have been carried out without cancelling the sale. The labour unions and critics of the deal must ask themselves today: so what have we benefited from the reversal? Has it made life better for us? How much damage has the reversal done to the economy? If Yar'Adua had not taken that regressive decision, I am so sure that the refineries would be working very well today. In fact, I dare say more investors would have been encouraged to build refineries based on the fact that Nigerian private investors were already on the ground and making progress.

If President Goodluck Jonathan does not want to repeat the mistakes of his predecessors, he has to set in motion the process of selling the refineries now. We have had enough scandals in our hands with these TAM contracts, perpetually designed to milk the treasury. Every day, we are told stories of how one refinery is producing at 90 per cent. The following day it is another story of how one component has gone bad. We are a shameless group of people. Any decent human being who has taken time to study official reports on the state of the refineries in the last 20 years will have nothing but resentment for these guys.

The current fuel queues are a pointer to the fact that our problems in the downstream sector are far from over. Ask marketers and they will tell you that because of the Senate probe into the N1.7 trillion subsidy payments and the uncertainty over the deregulation policy of the Federal Government, banks were no longer granting credit for fuel import. The NNPC blames it on Navy and Customs. The corporation says many product-laden vessels which ought to have discharged were detained at the Apapa Port by the security agencies. The Nigeria Labour Congress (NLC) says the government is deliberately creating the scarcity in order to justify further increase in petrol price "under the guise of deregulation". And so on and so forth.

Whoever we choose to believe does not matter. My own worry is that we are in for a long-drawn battle that may last for five years or more if care is not taken. All said and done, the fact remains that as long as we rely on fuel import, we will never get out of this trouble. There would be abundance today and scarcity tomorrow, depending on the dynamics at play. What is the way out then? Government says deregulation. If we deregulate the pricing of petrol and the true market prices are charged, there would be no need for subsidy, no need for PPPRA import licences and no need for government involvement. The market will take care of itself.

But then, the key word remains "import". We still need to rely heavily on import to meet domestic needs. And for as long as we rely on import, the pressure will continue to pile on forex demand. With sustained pressure on forex, we either deplete our foreign reverses to prevent the naira from crashing or we allow the naira to find its level and probably exchange for N200 to a dollar. It's Catch 22, as they say. No economy can make meaningful progress that way.

Government says not to worry. If we deregulate, private refineries will spring up all over Nigeria. The main reason we don't have investment in new refineries, according to this argument, is that the downstream sector is regulated. The investors would like to recoup their investment and this they cannot do under a subsidy regime. They want the pricing freed so that they can charge market prices for their products. And for as long as we continue to subsidise the price of petrol, nobody will build refinery. So the problem remains. The only way out, then, is to continue to rely on fuel import.

Let's now look at the other side of the argument. Government says deregulation will bring in new investors. They would invest in new refineries. In a few years to come, we would have developed enough capacity to meet local needs and even begin to export petroleum products. All that the investors want to be sure of is that the pricing regime would be devoid of government control. But, pardon my scepticism, are we really sure the main reason investors are shunning building refineries is because of deregulation or lack of it? We make assumptions sometimes based on economic theories but perhaps we have oversimplified the problem along the line.

I will explain myself. Today, in Nigeria, only two petroleum products are regulated (to the best of my knowledge). These are petrol and kerosene. Diesel, Jet A and other fuels are sold at market prices. Please follow my argument closely. If I set up Kolawole Refineries Ltd, it means I will get market prices for all my products except kerosene and petrol. And because of the subsidy regime, it means if it costs me N150 to produce petrol and government asks me to sell as N92 litre, I will get paid the difference by PPPRA. (The same will apply to kerosene.) So, fellow Nigerians, what exactly am I losing? Why should I not set up a refinery when the prices of petrol and diesel are already guaranteed by government through subsidy payments?

I think there is more to this failure to invest in new refineries than we are ready to countenance. I say, with every sense of responsibility, that the policymakers need to do more research on this problem before arriving at a conclusion. We should stop making assumptions. This is because we may discover at the end of the exercise that deregulation or no deregulation, nobody will build refineries, no matter the promises and concessions. The Koreans and Chinese have been making promises for ages and we are still in the middle of nowhere. I suspect that the real problem is lack of interest. You make your money faster importing fuel than sinking your capital into a refinery that will take you a dozen years to recoup. So you choose the easy way out-except there is some really encouraging development to goad you on.

That is why I believe that if government privatises the refineries and investors see some real progress, they could be encouraged to move in and build refineries. It would be like jumpstarting the process. That way, deregulation could produce results. A few decades ago, nobody was ready to build hotels in Abuja. It was not attractive for investors. But government took the bull by the horn by building Sheraton and Hilton hotels. Today, hotel business is the biggest industry in Abuja. Hilton and Sheraton have now been sold by government. By pioneering the business, government opened the way. By selling the hotels, government is no longer involved in the management. In my opinion, this is one of the few models that actually work in Nigeria. Would it work for the refineries? I hope so.

And Four Other Things...

What Went Wrong?

The deaths of two foreign nationals in Sokoto during a failed rescue mission last Thursday has set me thinking. Gunmen had seized Chris McManus (a Briton) and Franco Lamolinara (an Italian) in Birnin Kebbi, Kebbi State, in May last year while they were working on a project for the Central Bank of Nigeria (CBN). Their captors released a video of their victims, al Qaeda-style, last year, perhaps before moving them to the neighbouring state. Acting on information that the men might be killed last week, a special Nigerian force with the support of UK's elite Special Boat Service moved in to rescue them, but the men died in the process. Were they killed by their captors? Or were they killed by the rescuers in an exchange of gunfire? This gory story remains a mystery to be solved. And since Boko Haram has claimed it was not involved in the kidnap (Boko Haram has not been kidnapping, at least so far), could it be that another dangerous group has sprung up in the North?

South Africa Stumbles

The cold war between Nigeria and South Africa blew open last week with the deportation of 125 Nigerians by South African authorities for possession of allegedly fake yellow fever vaccination cards. Nigeria responded in kind, deporting all manner of South Africans. I believe South Africa erred in the saga: one, the same cards were accepted by their high commission in Nigeria before the visas were issued; two, they could have quarantined the travellers and inoculated them; and three, they should have informed the Nigerian high commission in Pretoria before such a mass deportation. The deportation is typical of the contempt with which South Africans treat Nigerians. I like Nigeria's tit-for-tat response; finally, we have stood up to aggression from a country that stands to lose more if Nigeria decides to hit its businesses. It is good that we have kissed and made up. South Africa's unreserved apology, to me, is enough. The good thing now, I hope, is that our yellow cards will now become genuine. The fraudsters at councils and the airport must be rounded up and jailed.

Pension Scam

Are you following the probe of the Chairman, Pension Reform Task Team (PRTT), Mr. Abdulrasheed Maina, by the Senate? Of all the unbelievable stories coming forth, the one I cannot take my mind away from is that the man spent N240 million to conduct of the biometric exercise of the retirees in the Diaspora. How many of them? Less than 20 retirees! Now, is anybody still wondering why Nigeria is like this? But then, has anything ever come out of National Assembly probes in the past? So then I'm not expecting any direct outcome...

The YGL Honour

This is to say a big thank you to friends and well-wishers who sent me messages of congratulation over my nomination as Young Global Leader 2012 by the World Economic Forum. To be honest, I did not expect the flood of emails, SMS, calls and BB messages. I was simply overwhelmed. I tried as much as possible to reply every message (I think I scored 99 per cent in that). This recognition offers me a good opportunity to interact with other YGLs from multiracial and multicultural backgrounds across the world-many of them captains of industry. It is not just about the networking; the privilege of interacting with, and learning from, some of the best brains in the world is invaluable. Nigerians who have been part of the YGL community told me about it.

By Allafrica.com