Printer-friendly versionSend by emailPDF version

The debate surrounding privatization of public enterprises is a popular and on-going concern of scholars, public administrators and concerned citizens the world over. In privatizing Nigeria’s refineries many issues need to be considered and carefully implemented in order to ensure that the privatization benefits Nigerians

In a candid admission of the nation’s inability to independently and strategically channel its enormous resources towards advancement, the government of Nigeria announced the decision to privatize the country’s near-comatose refineries by 2014. The announcement, made through the Minister of Petroleum Resources, was intended to bring a cessation to the age-long wringing of hands in confused helplessness, that has characterized conversations about the said refineries. In the past, under some well-meaning regimes, unsuccessful attempts were made to revive the refineries. For the most part however, the refineries have been maintained as grand repositories of corruption for any government in power, in connivance with willing citizens and fraudulent foreigners.

The present administration has taken the decision to privatize the refineries. The first question this begs is, “is privatization the answer?” Perhaps yes, perhaps no. The debate surrounding privatization of public enterprises is a popular and on-going concern of scholars, public administrators and concerned citizens the world over. Globally, over 130 countries have privatized tens of thousands of firms between 1990 and 2010. Large infrastructure and energy firms have been successfully privatized in Bolivia, Brazil, Chile, Colombia, India and in many other nations. Other countries such as Argentina, Mexico and countries of East and Central Europe and Central Asia have, in addition, privatized ports, airlines, postal services, banking, insurance, tourism, railroad, etc. In fact, very few countries such as Cuba and North Korea are known to be staunchly anti-privatization. However, the popularity of privatization does not change the fact that it is not without much criticisms, which include loss of employment and higher prices for citizens. Supporters of the process insist that privatization leads to improved firm performance and therefore increased economic welfare.


At the core is the general agreement that beyond a yes or no response as to the advantages and disadvantages of privatization, it is the method or process through which the exercise is carried out that determines how much benefit accrues to the state and the citizens. Nobel laureate Joseph Stiglitz, a strong critic of World Bank and IMF mandated privatization exercise across Africa concedes as much, when he noted that the success or failure of privatization is very much dependent on the presence of the necessary governmental infrastructure to oversee the entire process from pre-privatization to post-privatization.

In fundamental issue is that the failure of Nigeria’s four refineries embodies the core of the challenges facing the Nigerian state and the Nigerian people. These are foundational structural and social-psychological challenges for which the mere transfer of the nation‘s infrastructure to private hands will not in any way pretend to address.

On the part of the Nigerian state, the failure of the refineries displays a subterranean lack of political will to drive national and economic transformation. The truth is that the absence of the political will to effectively manage Nigeria’s refineries could ultimately translate in the inability to oversee the sale of the enterprises in a corrupt-free manner. Post-sale, it could lead to poor regulation of the privatized enterprise leading to the nation being deprived of the expected benefits. According to the architect and chief promoter of privatization in Africa, the World Bank, "many privatization efforts have been racked by corruption, undermining confidence in both the government and the market economy.”
On the part of the Nigerian people, failure of the refineries to function optimally shows the dearth of altruism and attendant disbelief in the collective destiny of all Nigerians, which plague the populace. This lack of commitment to the national cause, and the overwhelming propensity to seek personal interests could definitely undermine the entire privatization process. Citizens could be easily swayed to align with management of privatized enterprises to short-change government in the area of tax payments, domestic sale and distribution of petroleum products, job creation, and in every other area the nation would have benefitted as a collectivity from the privatization exercise.

However, in the absence of a national outcry against the privatization announcement, it is taken that Nigerians, themselves weary about the state of the refineries, have acquiesced to the decision. Therefore, the question that should be answered is, in light of emerging global realities, how can structures be put in place to ensure that the route of privatization will be of immense benefit to the Nigerian state and citizens?


When the government of Tanzania decided in 1998 to sell off 26% of the shares it held in Tanzania breweries Ltd, it was carried out through the newly established Dar es Salaam Stock Exchange. Likewise in neighbouring Ghana, several public enterprises were put up for sale through shares offered on the country’s stock exchange. Indeed, Ghana’s stock market grew by about 75 percent in 1998 as a result of the former public enterprises which were sold. In Cote d’Ivoire, the World Bank mandated privatization exercise which the government embarked upon since 1993 was to a large extent carried out through the Abidjan Stock Exchange (BVA). The former state owned enterprises, now private firms, constitute the major source of new addition to the Cote d’Ivoire’s stock exchange in recent times. In the case of Kenya, 53% of the sale of formerly state owned enterprises was carried out through the stock market. Recently in 2013, the British government decided to privatize the country’s postal services. The privatization of the Royal Mail will be in the form of an Initial Public Offering (IPO) valued at over 5 billion GBP. The initial public offering will be the largest privatization in the UK since the British rail was privatized in the 1990s.

What lessons can Nigeria learn from the world, especially her African neighbours? First, it should be a matter of serious concern to the Ministry of Petroleum Resources, that Nigeria is a country where the number of indigenous firms with sufficient financial muscle to exercise over the infrastructure on sale can be counted on one hand. By way of technical capacity, it is doubtful if there is any indigenous company that can operate the refineries unaided. While the country might have to rely on external technical firms to run the refineries, it does not have to depend 100 percent on external financing. Nigerians can be and should be allowed to buy into the four refineries. The firm(s) bringing in the technical capacity can own 40 percent or so of the shares while Nigerians should be given the opportunity to own the rest.

Certain studies have shown that firms sold through share issues or IPOs tend to yield higher positive outcomes pre and post-privatization. Going to the stock market will minimize corruption in the process of sale, and ensure, in some capacity, that post-sale, the foreign companies are held accountable at all times. Foreign direct investment of such magnitude and sensitivity, in the absence of strong domestic competition and government regulation, almost always results in citizen exploitation and cheating the government of its dues. Going the IPO route in privatizing Nigeria’s refineries will give the Nigerian shareholders some measure of control over the foreign entities and managers of the refineries. Also, Nigeria’s capital market will be given a much needed boost and more citizens will be financially empowered.


The hardest part of the privatization process, for the Ministry of Petroleum resources, is most like to be sourcing the right kind of personnel to lead the process. It is important to note that caution must be exercised in hiring so-called “international consultants” to oversee the privatization of Nigeria’s refineries. The advice of the aforementioned could be sought, but experience from other developing countries, especially in Africa, have shown that for the most part, these consultants, lacking in in-depth understanding of the African environment, are more focused on the quantitative analysis of the privatization process. Euro-American checklists that do not liberally apply to the African setting, are almost exclusively applied in mapping out strategies and proffering counsel in Africa.

In an empirical study report titled “The International Experience with Privatization” and published in 2012 by School of Public Policy of the University of Calgary, John Nellis writes that the application of “privatization strategies used in infrastructure in developed economies could not and did not produce the same outcomes in low-income, institutionally weak states.” In essence, privatization approaches that worked successfully in Germany will be almost impossible to replicate with the same results in Nigeria. These consultants, often of the extreme neo-liberal persuasion, when recruited to lead privatization exercises in Africa have often trivialized the very important qualitative aspect of the exercise, which directly determine how a country and its citizens actually fare post privatization.
It is not enough for the Ministry of Petroleum Resources to recruit an international consulting firm such as PWC to handle the recruitment of personnel for the privatization process. Neither is it a question of calling on the global neo-liberal watch-dogs, the World Bank and IMF to handle the privatization process. The process of recruiting consultants must be a deeply meditative exercise, requiring widespread consultations, and where the orientation of individuals, their past projects in Africa and their overall intellectual leanings are seriously weighed against the task ahead.


Beyond the sale of the refineries, it is crucial for the government to establish structures and systems to provide post-privatization monitoring. The finances and operations of these newly privatized refineries must be closely watched for some years to ensure that a solid foundation is laid in terms of policy compliance, adherence to agreed principles of privatization, and where necessary, adjustments shall be made to ensure citizen welfare.
Prior to drafting the sale agreement, government of Nigeria must make certain points clear as to the sale of the petroleum products to be refined. In South Africa, a country dependent on coal for the generation of about 90 percent of its electricity supply, the private coal mining companies operate an export-first policy. What this means is that as a result of lack of coal supply, ESKOM, the South African electricity company might be unable to generate enough megawatts for the country during a given period, leading to several days of blackout, while the coal mining companies export coal to China and other nations.

Another regulatory loophole that plague Nigeria’s upstream sector is in the area of workforce retention. Qualified and experienced Nigerians ,that is, the petroleum, mechanical, electrical engineers and others in related fields are either practicing in the diaspora, or are in the country working in banks, communication firms, are privately employed or struggling to make ends meet. Not many are employed in the oil and gas sector within the country. It is a well-known fact that foreign companies operating in Nigeria’s upstream oil and gas sector are daily flouting the local content agreement as far as worker recruitment is concerned. Expatriate rig welders, crane operators, instrument technicians, safety engineers, project managers, environmental advisors and other lower, middle and senior level workforce for which Nigerian equivalents abound fill the staff registers of Shell, Chevron, etc. In the face of the failure of existing legislation to address this very important issue, how does the Ministry of Petroleum intend to correct this anomaly and ensure that the privatization of Nigeria’s refineries truly benefit Nigerians?
Again, if Nigerians own majority shares in the refineries these regulatory issues could be more easily dealt with under a citizen watch arrangement, than when a government agency is burdened solely with this responsibility. In addition, despite its aversion to an organized labor force, government must encourage unionism in the private refineries as they will serve as watchdogs for reporting of factual situations in these firms. An ombudsman, similar to the National Communications Commissions might also be necessary for the privatized refineries.


The contemplations expressed herein are far from an exhaustive list of what Nigerian government ought to consider in its decisions to privatize the nation’s refineries. For the necessary foundation to be laid for a beneficial privatization exercise there is need for an intense investment of time, effort and intellect. The 2014 self-imposed deadline appear to be insufficient time to diligently explore and deliberate issues of pre-sale logistics, policy, regulations and post-sale monitoring. There is no hurry to privatize these refineries. The focal point should be to ensure that Nigerians maximally benefit in the short, medium and long term. Nigeria’s economy is at the centre of Africa’s predicted growth and transformation. It will amount to dimming the growing light of the continent, if the country should allow itself to enter into a fresh era of economic slavery, through the privatization of its refineries.

*Chika Ezeanya (Dr) on [email protected]



* Please do not take Pambazuka for granted! Become a Friend of Pambazuka and make a donation NOW to help keep Pambazuka FREE and INDEPENDENT!

* Please send comments to editor[at]pambazuka[dot]org or comment online at Pambazuka News.