News Insight: Nigeria’s petrol scarcity mess, how to get it out

News Insight: Nigeria’s petrol scarcity mess, how to get it out

Sunday, April 3, 2016 11:54 am

Nigeria remains a leading exporter of crude oil in the world. But in an ironic twist, its citizens  have been battling with acute fuel scarcity for the past two decades as mind-boggling corruption stymie the development of the downstream sector of the country’s oil sector. The seemingly unending queues across the country is the messy outcome of the perfidy

Mock NNPC Mega Station: This is what Nigeria has become

Mock NNPC Mega Station: This is what Nigeria has become


If Ibe Kachikwu, the Minister of State for Petroleum Resources and the Group Managing Director of Nigeria National Petroleum Corporation is to be believed, Nigerians would have by next Thursday, 7 April come off the agony inflicted on their socio-economic life by the latest round of acute shortage of Premium Motor Spirit, popularly known as petrol across the country. Going by recent experience, there may be little to cheer over the promise though.

The Minister’s previous assurances that the fuel scarcity which has resulted in long, windy queues at the few filling stations lucky enough to be allocated products for sale to the public have ended at the level of promises.

Instead, what the promises have bred is the  creation of emergency road side marketers who sell at over 250 per cent the normal price at street corners.

Indeed, the promise to end the grinding scarcity made last Tuesday when he appeared before the Senate Committee on Petroleum Resources (Downstream) came on the heels of earlier assertions by Kachikwu that it may take NNPC two months to completely eliminate fuel queues across the country. The Minister spoke on Wednesday, 23 March after he led executives of the two main unions in the oil industry, Nigeria Union of Petroleum and Natural Gas Workers, NUPENG and the Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN to a meeting with President Muhammadu Buhari.

“One of the trainings I did not receive is that of a magician, but I am working hard to ensure that some of these issues go away,” the Minister had said in reaction to questions from journalists at Aso Rock presidential villa on when the now seeming luxury of driving to retail outlets to buy petrol and driving out all within five minutes will return.

Dr Ibe Kachikwu: the worst fuel scarcity in history

Dr Ibe Kachikwu: the worst fuel scarcity in history

“I don’t want to put a time frame, but I will expect that over the next two months, we should see quite frankly a complete elimination of this,” he added.

The statement, widely described as impolitic and insensitive to the plight of motorists who have had to on many occasions, keep vigil at petrol stations to fill their tanks spike fresh panic across the country within hours of the report going viral. The fuel queues became longer  as motorists storm retail outlets to stock up for the weeks of scarcity ahead while unscrupulous marketers became even more vicious in their bid to take advantage of the situation with diversion of the product to the black market. Prices of petrol hit the roof across the country as most outlets became dry while black marketers, the only available source of supply in most areas were selling at over 300 per cent the regulated price.

No petrol in many stations

No petrol in many stations

Many who had planned to travel taking advantage of the long Easter Holiday spent the work free days searching for where to fill their tanks. Panicky firefighting attempts by the NNPC Corporate Affairs Department to rein in the backlash of Kachikwu’s statement failed to stem the tide of the panicky response.

Thus, many Nigerians supported Bola Ahmed Tinubu, former Governor of Lagos State when he asserted in a statement that Kachikwu’s statement  on the fuel scarcity is not just an insult on Nigerians, his employers, but contributed to worsening the fuel scarcity situation.

“Perhaps, the statement by Kachikwu was made in a moment of unguarded frustration or was an awkward attempt at a joke. Whatever the motive, it was untimely off-putting. The remark did not sit well with Nigerian people; they were right to feel insulted as the Minister was wrong to have said such a thing,” Tinubu said in the statement titled Kachikwu Needs to Know That Respect and Good Governance Will Do What Magic Cannot Do.

Generator owners bring them to stations to fill: but no fuel

Generator owners bring them to stations to fill: but no fuel

The former Lagos State Governor advised the NNPC GMD, that rather than give up,  to devise a way of working with Nigerians “with the knowledge that he is working to resolve this matter as fast as he can and as permanently as possible; that he is dedicated to the position that once these current lines are gone, never again shall they reappear as long as he has any influence in the matter.”

In obvious reaction to the statement, NNPC last week apologised to Nigerians and announced  plans to end the fuel scarcity. In a statement by Garba Deen Mohammed, its Group General Manager, Public Affairs Division, NNPC assured Nigerians that it is focused and committed to bring the “endemic” issue of fuel scarcity to an end in the next few days. The Corporation noted that it inherited a huge catalogue of issues and problems in the downstream sector of the market which include arrears of subsidy payment due to marketers, corruption and inefficiency in the supply and distribution chain, incessant vandalism of pipelines and poor performance of refineries among others.

The combination of these factors, it said led to major marketers pulling out of importation of petroleum products with NNPC now left to shoulder the burden of importing 100 per cent of the nation’s fuel requirement.

The Minister of State for Petroleum Resources further elucidated on the problems that have constituted clogs in the desire of the corporation to make petrol available for Nigerians during his appearance at the National Assembly the next day.

A contrite Kachikwu told the lawmakers that the problem of acute fuel scarcity has persisted in spite of his efforts since he resumed work at NNPC last year.

“I share the pains of Nigerians. I feel that pain every day. I walk the streets and those who are following my trajectories since I resumed office would see that even on Christmas day, I was at the refineries. On Easter Day, I was in Lagos monitoring fuel distribution at the depots. I have given 24/7 attention to the problems in this industry, which are unbelievable. I have continued to work with one sole purpose in mind, which is that every problem will have a solution,” said the NNPC GMD.

Emergency petrol merchants

Emergency petrol merchants

Apologies over, the Minister listed the factors that have been responsible for inability of the NNPC to keep retail outlets wet with petrol nationwide to include refusal by the major oil marketers to import, diversion of the product by marketers, pipeline vandalism, panic buying and non-computerisation of the distribution network to monitor trucks.

According to him, the marketers had since the payment of the N600 billion subsidy arrears inherited from the administration of former President Goodluck Jonathan,  stopped participating in the importation of fuel. The NNPC has thus become the sole importer of petrol into the country; a situation which  is over-stretching the Corporation’s capacity, human resources and facilities.

“Progressively, over a period of eight months, prior to my coming on board, people had been staying away from importation, not at a heavy level, but by about 10 to 15 per cent of allocations were not being met. There was hope that ultimately, if the subsidy regime continued, they would get paid; so, some people continued to import, but by the time we came in, people had reached a breaking point and most of the companies didn’t have the liquidity even to go to the banks and open letters of credit, and that became a major issue.” Kachikwu noted.

Petrol scarcity: bites harder

Petrol scarcity: bites harder. This is Ilorin

Thus, he added that even if the marketers wanted to import petroleum, they needed letters of credit and adequate foreign exchange cover which were not available to them. He also added that it has become obvious that the country cannot continue with payment of petroleum subsidy with her dwindling revenue and monumental frauds that have characterized the arrangement. According to him, as at January 1 this year, the nation was no longer paying subsidy, saving the nation a cumulative amount of over N1trillion in one year.

As part of his long-term solution, Kachikwu announced that for the first time, the nation was setting up  strategic reserves of about two million tonnes to ensure that there is a stock of product to fall back on in case of hiccups in supply. The reserves, he said, would be operational as from May and would contain between five and seven cargos of fuel per reserve.

“The refineries will be working and the volumes they will be producing will be sent to the strategic reserves to address difficult times. In April, we are expected to get 150 per cent of the volumes that will be needed. A lot of that will go to storage tanks. Hopefully, that should sort out the problem,” said Kachikwu.

“Once we do that, we should be away from the incessant fuel crisis that we have. We expect that between now and about the 6th to the 7th of April, the fuel queues will disappear, the DSDP will begin and the foreign exchange allocation will see us smoothly through the track.”

TokunboKorodo, South-West Chairman, NUPENG confirmed last Wednesday that the NNPC has begun massive pumping of petrol to its depot in Lagos while trucks were being loaded for distribution of petrol to retail outlets nationwide.

“If NNPC can keep the tempo of the loading till weekend, more filling stations will have petrol and the queue of motorists at filling stations will reduce.

The corporation should ensure that it keeps on pumping petrol to both major and independent marketers’ depots to reduce the scarcity,” the zonal chairman of NUPENG said.

The impact of the massive loading and trucking out of products is not being felt in most parts of the country as at the time of writing of this story last week. In Abuja and Lagos, Ibadan and other parts of the country, the queues were still very much present in the few retail outlets that have the product to dispense to motorists. States such as Adamawa and Taraba said there was no supply to their stations.

Just like Tinubu, Kachikwu and others, analysts have projected that it will take more than the usual knee jerk responses if the administration of APC will, in tune with its “change mantra” eliminate the pain of intermittent scarcity of petrol which has been a permanent feature of the country since the 90s. The problems and the mess will likely continue  until the country is able to successfully wean itself off reliance on imported petrol.

petrol scarcity: A woman goes to try her luck

petrol scarcity: A woman goes to try her luck

To service its petroleum products needs, Nigeria has over the years invested in its refineries. NNPC has four refineries, two in Port Harcourt (PHRC), and one each in Kaduna (KRPC) and Warri (WRPC) with a combined installed capacity of 445,000 bpd. The refineries are complemented by a comprehensive network of pipelines and depots strategically located throughout Nigeria links. But the over three decade-old refineries have  suffered neglect over the years and now work fitfully, if they work at all. The combined average capacity utilisation of the four refineries was 25.95 per cent in December 2013 which itself was a significant improvement from the 6.46 per cent average capacity utilisation of the refineries in November 2013, and a slight decline from the 30.87 per cent utilisation year on year to December 2012.

The refineries have also become a source of barefaced stealing from the national treasury in the guise of Turn Around Maintenance, TAM. One company that has been associated with executing TAM in the refineries over the years is  Chrome Oil Services. Late dictator, General Sani Abacha awarded the company the contract to do the TAM on the 210,000barrel per day Port Harcourt Refinery which the company executed 1999/2000. Bombey Adigbara, Project Manager, Chrome told journalists in August 2015 that Chrome had remained at PHRC since the 2000 TAM to offer intervention services and that in 2015 alone, the company carried out over 50 jobs in the refinery to keep it running.

Many believed that the company had not lived up to expectations despite the billions of naira it has collected to carry out TAM on the Port Harcourt refinery especially as it did not have the capacity to do the job.   “…What I met were refineries that were not working, refineries that were given to an amateur for repairs, for maintenance, what they call turn around maintenance to the company of Emeka Offor – Chrome Group. Where has Emeka Offor maintained refineries before? Where has he? That’s what we met. So the refineries were not working,” former President Olusegun Obasanjo had said of the impression of the work done by Chrome Services on the refineries when he took over power in 1999.

Ex-President Olusegun Obasanjo: compounded the problem

Ex-President Olusegun Obasanjo: sold the refineries

The former President who lamented that he could not recover the funds paid to Chrome for the repairs lamented that Offor had continued to be given jobs because he was successful in ingratiating himself to the governments that succeeded him. For example, the administration of former President Goodluck Jonathan had in 2012 earmarked $1.6bn for TAM of the four refineries, to be carried out by the original builders of the facilities. But the Corporation later changed mind about three years later as it claimed the Original Refinery Builder (ORB) of each of the refineries were unwilling to do the work for various reasons.

The management of NNPC told the Senate Committee on Petroleum Resources on 5, March 2015 that with the failure to get the ORB to perform the task, NNPC has begun to use its in-house resources to carry out the job at the cost of $550m. “The exercise which started in October last year is for a period of 18 months and it will be completed in the first quarter of next year. The expenditure of $16million a month had been reduced to an average of $10million a month per a refinery. By the first quarter of next year, all the refineries will be functioning optimally and we would be able to refine an average of 400,000 barrels of crude oil per day for local consumption,” Dr. Tim Okon, the then Coordinator, Corporate Planning, and Strategy of the NNPC told the Senate Committee on Petroleum Resources (Downstream). What he failed to tell Nigerians then was that part of the contract was again awarded to Chrome Oil Services.

President Buhari: needs to scratch the industry skin deep

President Buhari: needs to scratch the industry skin deep

However following the election of Buhari and probably spurred by the then rumours of probe of the oil sector by the new President, Offor was forced to come out that he was awarded the contract for the Port Harcourt Refinery. He told  journalists in August 2015 that Chrome Oil Services Company is the major contractors handling key rehabilitation of the Port Harcourt refinery. He said  the critical constituent of the refinery; the Fluid Catalytic Cracking Unit (FCCU) would become functional within a week. “The company is among other contractors carrying out overhaul of the facility as government takes giant steps to revamp the country’s four refineries in a bid to address the lingering fuel scarcity,’’ he said. “The FCCU is about 98 per cent completed and we are hopeful that by next week it will be completed, and it will reduce 40 per cent on Federal Government importation of refined products,” Offor added. The predicted 40 per cent working capacity was definitely not what Kachikwu met on ground when he embarked on the inspection of the refineries shortly after his appointment.

Consequently, Kachikwu  ordered  the management of the four refineries to ensure that they become fully functional within next three months to guarantee uninterrupted fuel supply in the country.

“We must make all the FCCUs and the fuel sections to work efficiently in the next three months so that Nigerians will continue to enjoy uninterrupted supply of petroleum products,” Kachikwu said during his inspection of the Kaduna Refinery on 10 September. At an interactive session with journalists in Lagos on 25, August, he said  any of the refineries that fail to work optimally by the expiration of the 90-day ultimatum would be sold off.

His Chrome Oil does the TAM for the refineries

His Chrome Oil does the TAM for the refineries

” We are losing N2.2 trillion monthly to refinery inefficiency. As at today, the average refining performance is 30 per cent,” he said.

This stern warning has not improved the fortunes of the refineries as monthly records  of NNPC now also being made public on the order of Kachikwu have repeatedly shown. The September 2015 report of the Nigeria National Petroleum Corporation, NNPC for example put the total crude processed by the three refineries in September at 261,371.14 bbls (35,648 MT) translating to a combined capacity utilisation of 1.96 per cent. In monetary value, the report indicated that the combined value of output by the refineries amounted to N9.9 billion for crude processed in September. However, the associated crude plus freight cost stood at N6.3 billion, representing a loss of N8.8 billion after an overhead cost of N12.4 billion.

The September 2015 report of the Nigeria National Petroleum Corporation, NNPC for example put the total crude processed by the three refineries in September at 261,371.14 bbls (35,648 MT) translating to a combined capacity utilisation of 1.96 per cent. In monetary value, the report indicated that the combined value of output by the refineries amounted to N9.9 billion for crude processed in September. However, the associated crude plus freight cost stood at N6.3 billion, representing a loss of N8.8 billion after an overhead cost of N12.4 billion.


Also, in the month of October, the country’s refineries lost a combined sum of N7.06bn  while refineries also recorded zero capacity utilisation for the month.

The reports of for the other months have not been different.

“The reality is that for over 10-15 years, no serious maintenance has been done on the plants. If you ride a car for 10 years and you don’t maintain it, nobody needs to tell you what will happen to it,” Kachikwu, said while commenting on why the Warri refinery was shut down in late August, a couple of weeks after it resumed operation.

“I think corruption is a reality in every sphere, from the truck driver having to pay extra to lift fuel from the refineries to the frequency of fire incidences due to installation of poor safety controls and other reasons,” he added.

With the neglect of refineries, importation of refined petroleum products became the biggest area of activity for the NNPC. Indeed, sources in the industry told this magazine that to ensure  this, executives of NNPC encouraged massive investments by the Obasanjo regime  and his successors in facilities that will facilitate the fraud ridden, multi billion dollars business of importation of petroleum products.


With the neglect of refineries, importation of refined petroleum products became the biggest area of activity for the NNPC. Indeed, sources in the industry told this magazine that to ensure  this, executives of NNPC encouraged massive investments by the Obasanjo regime  and his successors in facilities that will facilitate the fraud ridden, multi billion dollars business of importation of petroleum products.


One of such investments is the massive funds pumped into expansion of the Atlas Cove Jetty, a major delivery and redistribution points for refined petroleum products located in Apapa, Lagos. The jetty owned by NNPC, but managed by PPMC is a storage farm/facility that channels refined products from System 2B pipelines that supplies petroleum products to the entire Western States, including Kwara and Edo States. The facility which was built in 1979 was arguably the first major project of the then new Obasanjo administration when it awarded the contract for its massive upgrade and expansion to Julius Berger in 2000.

Analysts argued that such investments and others undertaken at the behest of top guns of the state oil company could have been made on improving the country’s ability to refine its products needs. The Obasanjo regime completed its surrender to importation rather than local refining when it set up the Petroleum Product Pricing Regulatory Agency (PPPRA) in 2003. During the inauguration of the first governing board of PPPRA headed by Chief Rasheeed Gbadamosi, the former President had said the aim of the body is to help the federal government achieve a petroleum products supply and distribution system that is self-financing and sustainable.


The Obasanjo regime completed its surrender to importation rather than local refining when it set up the Petroleum Product Pricing Regulatory Agency (PPPRA) in 2003. During the inauguration of the first governing board of PPPRA headed by Chief Rasheeed Gbadamosi, the former President had said the aim of the body is to help the federal government achieve a petroleum products supply and distribution system that is self-financing and sustainable.




According to him, the “self-financing and sustainable” system should be characterised by the absence of monopoly and the freedom of several competing marketers to import and export products, while ensuring ownership of refineries. Obasanjo listed the mandate of PPPRA to include liberalising the downstream sector of the petroleum industry, privatising the refineries, deregulating  and liberalising the imports of petroleum products and, generally, making  the products available at reasonable prices.”

But the Agency conveniently jettisoned the aspect of its mandate on the development of the local refining capacity. Instead, it concentrated on the importation of petroleum products and fixing of the prices of their prices, in the process, earning the country the unenviable distinction of a major exporter of crude oil and a major  importer of refined petroleum products.

Also, because of dependence on imports and consequently, exposure to volatility of the spikes in the international price and exchange rate, the Agency could not achieve its mandate of full deregulation of the oil industry. Rather, the Agency was engaged in constant adjustment of prices of petroleum products upwards in reaction to increase in cost of importation which itself was due to ballooning cost of crude oil. Of course, it had the labour movement to contend with each time it attempted such increases.

When he was departing as the Chairman in December 2009, Gbadamosi identified the problems that constrained PPPRA from achieving its mandates to include low contribution by the domestic refineries, inadequate imports reception/discharge facilities which he said constituted a major bottleneck to products supply in the country, as well as high volatility of oil price in 2007 and 2008, which led to a very high level of subsidy for products procurement under the Petroleum Support Fund (PSF). In 2006, subsidy cost on petrol was N151.9 billion, N188 billion in 2007, N256.3 billion in 2008 (from January to July) while N421.5 billion was spent for subsidy in 2009.

“For the three years consecutively, the subsidy funding was higher than the nation’s budget for capital expenditure,” Gbadamosi said while handing over to Ahmadu Ali.

And while the refineries remained comatose for much of the tenure of President Jonathan, the PPPRA became a major source of free funds to children and relatives of chieftains of the ruling party with the increase in the number of approved importers from about a dozen to over 128 in 2011 with subsidy payments of over N2.19 trillion.

Gbadamosi: once headed PPPRA

Gbadamosi: once headed PPPRA

Following public outcry over the humongous subsidy payment, the Jonathan administration was forced in 2012 to set up the Presidential Committee on Fuel Subsidy Payments led by a banker, Aigboje Aig-Imoukhuede. The Committee was saddled with the task of investigating companies that have corruptly taken advantage of the process of the subsidy payment. At the end of its work, the Committee recommended that some of the oil marketing companies had creamed off about N422 billion as subsidy payments through various fraudulent means.

The Committee discovered for instance that some of the marketers received subsidy payments even when the vessels they claimed to have used were nowhere near the country as at the time they claimed to have brought the products in while in some instances, the vessels have long been decommissioned. In the same vein, some of the marketers, the Committee discovered received subsidy payments for the PPPRA even when there is no evidence to show where there is no shipping documents or evidence of payment for the products in foreign exchange among others.

 Diezani Allison-Madueke : continued importation of fuel

Diezani Allison-Madueke : continued importation of fuel

Another probe by the House of Representatives put the amount stolen through the fuel regime at about N1.7 trillion at the period. Ironically while PPPRA has not been able to get investors to carry out investments in the new refineries, it has encouraged massive investments in storage facilities for imported products in a way that suggest that the Agency did not anticipate that the arrangement is a temporary one. PPPRA encouragement of importation rather than local refining has been vividly demonstrated in its abandonment of the over 4,000 kilometres of NNPC pipelines and depots for storage facilities of members of Depot Petroleum Products Marketers Association and Independent Marketers Company NIPCO.

This is in addition to being the major source of patronage for the massive investors in the haulage of petroleum products. With this, overtime, a sort of “import cabal” has been forged between workers of government agencies involved in verification of imports and the investors/owners of facilities being used for the storage of products. This cabal, regularly engages in round tripping in which the importers bring in particular amount of product which it declared to relevant government agencies’ representatives- staffs of DPR, PPPRA, Petroleum Equalisation Fund, PEF at the Atlas Cove jetty for verification. After the verification, and calculation of subsidy application, the entire or significant portion of the product is then diverted to neighbouring West African states for sale. Also, officials of NNPC, as investigations have shown, overtime prefer using the crude allocation for local refining for “swap arrangement” a deal in which a certain quantity of crude oil that would have been refined locally is transferred to oil traders, who then sold it in the international market and use the proceeds to import petroleum products, on behalf of the NNPC for domestic consumption.

Then, there is also the Offshore Processing Agreements, OPA, an arrangement in which a contractor which can be a refiner or trading company, receive certain amount of crude from the NNPC, refine it abroad, and transfer the end product to Nigeria for domestic consumption.

Thus, one of the first sets of actions taken by Kachikwu on assumption of office was to terminate the OPA entered into in January 2015 with three companies, namely- Duke Oil Company Inc., Aiteo Energy Resources Limited and Sahara Energy Resources (Nig) Ltd. Under the agreement NNPC allocates a total of 210, 000 barrels of crude oil per day for refining at offshore locations in exchange for petroleum products at pre-agreed yield pattern.

“However after detailed appraisal of the operation and its terms of agreement, the NNPC is convinced that the current OPA is skewed in favour of the companies such that the value of product delivered is significantly lower than the equivalent crude oil allocated for the programme,’’ the Corporation said as reasons for the termination of the agreement.

“The NNPC also observed that the structure of the agreement does not guarantee unimpeded supply of petroleum products as delivery terms were not optimal,” it added.

The Corporation had since commenced the process of establishing alternative OPA based on optimum yield pattern with tender processing fees. It however noted that the status of the Crude for product exchange agreement (SWAP) reportedly entered into by the NNPC and some oil traders lapsed in December, 2014 and was never renewed.

Aside the opaque arrangements, frequent vandalism of pipelines and theft of crude from the pipelines are the other factors that have combined to  keeping the refineries idle. In a recent report titled “Report on Improving Local Refining Capacity in Nigeria”, Managing Director, Matwims Consult Limited, Mark Tubotein warned that NNPC may not be able to put its refineries into operation unless it tackles the problem of pipeline vandalism. The report noted that despite spending N103.4 billion for pipeline repairs and management between January and December 2015, data from the NNPC shows that the Federal Government actually recorded crude oil and product losses of N57.71 billion to pipeline vandalism. NNPC had in 2011 signed pipeline protection contracts worth at least $39.5 million a year with some Niger Delta militants.

But statistics from the Corporation has repeatedly shown that this has not succeeded in stemming the tide of the vandalism. Offor, whose firm has benefitted the most on TAM contracts, blamed lack of crude supply due to the SWAP, OPA and pipeline breakages for non-manifestation of the work his company had carried out on the refineries.

“The issue with the refinery is not only TAM but lack of feedstock to sustain their operations. The cost of TAM is very high and if you finish TAM and no feedstock then it is not economical,” he said while adding that “Federal Government and NNPC must ensure adequate supervision of the pipelines to reduce vandalism to the barest levels.”

In tune with its prodigal nature, the Jonathan administration entered into a backdoor contract to transport crude using vessels belonging to PPP Fluid Mechanics Limited (PPPFM), a company owned by Idahosa Okunbor and Tunde Ayeni, associates of Diezani Alison Madueke, former Minister of Petroleum Resources to transport five million barrels of crude oil, monthly, from  Escravos to Warri Refinery, and Bonny Island to Port Harcourt refinery in 2011. Under the initiative designed to overcome the problems of pipeline vandalism, reports indicated that the company was transporting the crude oil at the cost of N3, 063.00 ($15.4 USD) per barrel of crude, which is several times higher than transporting crude oil through pipelines at N5.97 per barrel. But the company itself claimed that the contract was awarded to it at the cost of $3.87 per barrel.

Kachikwu considered the transportation contract highly uneconomical and wasted no time in cancelling it on assumption of office.  The immediate casualty of this action was the  shut down of the Warri Refinery.

With such situation, the country has had to spend the bulk of the money it made when the price of oil was $100 and above on importation of refined products, noted Dolapo Oni, an Energy Research Analyst at Ecobank Capital.

A report by the National Bureau of Statistics in January indicated that the nation spent N15.97 trillion to import petroleum products between January 2010 and September 2015.

And according to Oni, the refineries which even at their highest capacity can only meet 50 per cent of Nigeria’s product requirement operated at an average of 20 per cent while imports also increased, with petrol consumption soaring from 13.5 million litres a day in 2012 to 43 million litres in 2013.

“We spent a lot of money that should have gone into repairing the refineries on subsidies. We lost an opportunity to domesticate our downstream segment and depend on local refined products sold entirely in naira. These could have reduced the pressures we are currently feeling on the naira,” said Oni.

Godwin Emefiele, the Governor of Central Bank of Nigeria said the nation spent almost 38 per cent of its foreign exchange on importation of petroleum products annually. The over 50 per cent drop in the price of crude oil through which the country earned over 80 per cent of its foreign exchange has had a negative effect on the stock of foreign currencies available to fund such huge demand. As such, the CBN had since last year embarked on rationing of its foreign reserves. Thus, marketers who could have joined the NNPC to bring petroleum products into the country have not been able to do so. The banks, it was learnt have been insisting that to get Letters of Credit, the importers must provide guaranteed source of foreign exchange as Kachikwu explained to members of the National Assembly.

This magazine also learnt that what many considered as double speak from the Kachikwu  in terms of removal or non removal of subsidy has made the option of allowing the NNPC to do all the importation a wise one for now.

“With price modulation, government is still involved in fixing prices and going out of the official sources to get forex at a higher exchange rate will mean that the landing cost of the product will be higher. With Kachikwu’s modulation, you cannot do that without getting your finger burnt,” said a marketer who recalled that getting government to pay exchange rate differential under the more liberal government of President Jonathan was even a problem.

Diezani, right presenting a report to Goodluck Jonathan in 2012: both never fixed the refineries

Diezani, right presenting a report to Goodluck Jonathan in 2012: both never fixed the refineries

The NNPC GMD said to cover the gaps left by the refusal of marketers to participate in importation, the Corporation had encouraged some of the traders to have products located in Nigerian and West African environment to make it easy to bring some cargoes into the country. “But the sheer amount of work that is involved when you do this,  sometimes as much as 4000 trucks moving around the whole of Nigeria is a massive, massive operation which nobody can even imagine,” said Kachikwu. The Minister had also told journalists during the unveiling of his restructuring plans for the NNPC about three weeks ago that though most of the refineries have undergone some sort of minimal TAM and are ready to go into operation, the Corporation has not been able to pipe crude to them. “We are aggressively trying to recover most of our pipelines, we got the system 2B now pumping all the way to Ilorin, we got the Aba to Port Harcourt area, we were 90 per cent done on the work on the Escravos and there was a bomb blast and that blew it,” Kachikwu said.

The effect, he said was that NNPC couldn’t pump crude into Warri   and Kaduna refineries.

“So, once you don’t have stock in Warri, you can’t push it up from the pipeline to Kaduna. So that totally imperils those two refineries.”

He added that NNPC had in the interim resorted back to use vessels to move crude cargo into Warri, at least for one month, though it is an expensive venture which does not make any financial sense. NNPC, he said has been able to get  the Brass- Port Harcourt pipeline back  into operation after six years and has started pumping crude to Port Harcourt refinery which he said resumed production.

In addition, Kachikwu said the NNPC is working with the Central Bank of Nigeria to facilitate allocation of foreign exchange for importation of PMS to the major marketers.   As a long-term measure, the NNPC has said it is targeting to bring the Refineries to run at a minimum 70 per cent capacity utilisation within the next eight to nine months.

According to Kachikwu, the nation’s four refineries are presently configured on the basis of 50 per cent PMS and 50 per cent other products: “So, if you are producing even at 100 per cent basis which we are no where producing right now,the  total capacity from the four refineries for PMS would be less than 20 million litres. Our consumption is closer to 40 than to 20, so you still have 50 per cent gap. Most modern refineries are configured in such a way that your stock of PMS is a lot higher- 70/80 per cent.”

Thus, NNPC said it will encourage investments in domestic refineries through co-locating smaller but cost efficient modular refineries within the existing refineries premises within a time frame of 12-24 months. The Corporation actually opened the bid for the refineries last Thursday.

The NNPC also said to tackle the problems of storage and logistics challenges, it  was already fashioning out a joint partnership with technically and financially capable investors to ensure that petroleum products transportation and storage facilities were efficiently operated on an open-access common-carrier user-tariff basis.

NNPC headquarters in Abuja

NNPC headquarters in Abuja

“Some of these depots will be nominated as strategic reserves while we take possession of a strategic reserve vessel in the next three months. Tangible results will be delivered within the next three – six months. Changes usually take time, effort and a lot of focus. We understand the plight of Nigerians and the impact on the overall economy,” the Corporation said in a statement by Muhammed last week.

Analysts believe that the NNPC and the Federal Government can shake the trouble off its neck by privatising the refineries and ending its double speak on subsidy removal. This, they contended, will allow private investments to come into the sector even as those the government claimed it is protecting by regulating prices hardly get the product at the stipulated rate.

Kachikwu himself had indicated this approach to ending the regime of intermittent fuel scarcity and the attendant humongous fraudulent dealings when he took over as the NNPC GMD. But he backtracked as his senior Minister, President Muhammadu Buhari and the unions whose members have been collecting salaries, even when the refineries they were supposed to be operating had been out of operations for months.

President Obasanjo had sold off the refineries at the tail  of his tenure in 2007. But the unions forced his successor, the late Umaru Yar’Adua to reverse the sale.

Now, the refineries are older and as the Minister himself told journalists, massive investments will be needed for a massive upgrade that will take efficiency levels of the refineries to around 90 per cent as obtained in refineries in other parts of the world.

*Trigger of Current Crisis: Petrol Shortage looms

Join The Conversation

What do you think?

This site uses Akismet to reduce spam. Learn how your comment data is processed.