On Fuel Price Hike - and Why We Are Where We Are
By
Mobolaji E. Aluko, Ph.D.
Burtonsville, MD, USA
alukome@aol.com
July 2, 2003
INTRODUCTION
I have just returned from Nigeria after a
one-month stay. This write-up, however, is not a travelogue.
In Ibadan, I visited an elderly relative in
her home last week. There was no electricity in the home during my entire
visit. NEPA had “taken light”, but during the course of my stay, she
showed me a wrong bill from NEPA – for N227,000 – even though she lives in
a modest home (not a factory), and in any case she was away in Lagos for
that very month of the bill. If she did not have a strong heart, she
would have fainted, she said, because her monthly bill was usually in the
N1,000 per month range. Computer error, it was called, although her
electricity was cut for a few days as a result of it. One of her other
relatives is currently fighting the ridiculous bill with NEPA Ibadan.
Even though I was not really hungry, my
relative insisted on me having a meal – and she proceeded to heat up her
sweet-smelling “obe” and use not the electric cooking range that she had,
but her small kerosene cooker. As she labored with it, I shook my head
that in 2003 she could still be using a kerosene stove right in the middle
of Ibadan – and that in another week, I would be returning to the comfort
of the USA thousands of miles away.
NIGERIA’S OIL PRODUCTION AND REFINED
PRODUCTS PROFILE
The kerosene reference provides an
appropriate segue into this section.
Nigeria produces roughly 2 million barrels
of crude oil per day. With Nigeria’s Forcados crude at roughly 7.22 metric
tons per barrel and Bonny Light at 7.49 metric tons per barrel, that
translates to roughly 14.5-15 million metric tons per day.
Nigeria’s total consumption need, on a daily
basis, is about 0.4 million barrels per day of crude, which translates
roughly to 38 million liters of refined products [petrol or gasoline
(PMS), kerosene (DPK Dual purpose kerosene) and diesel (AGO)], of which 14
million liters is PMS. This means that the total installed national
refining capacity of 0.445 million barrels per day of our four refineries
[Kaduna (0.110 mmbpd capacity), Warri (0.125 million mmbpd) and two in
Port Harcourt (.060 mmbpd, 0.150 mmbpd)] would have fully satisfied our
domestic needs, and still leave a 10% surplus. It should be noted that
other figures put these as Nigeria’s domestic demand of 25 million litres
per day, with the four refineries having a combined capacity of 30-35
million litres per day.
The most important back-of-the-envelope
figure to remember here is that 1 barrel of crude oil yields roughly 100
liters of refined products, and that depending on the actual cost of crude
per barrel and the dollar/naira exchange rate, the MINIMUM NO-PROFIT
domestic cost of a liter of would vary. For example an $Z/barrel crude
oil cost would roughly translate upon refining to YZ Naira per liter
minimum cost for a $1/(N100Y) exchange rate. If we use the easy $1/N100
exchange rate, then the dollar cost of a barrel directly translates in its
figure to the naira cost per liter of refined products, ie a $25 per
barrel crude has a minimum no-profit cost should be N25 per liter of
refined product. If the cost (maybe due to local production) is as low as
$10 per barrel, then that minimum cost should be N10 per liter.
However, due to technical inefficiencies,
political incompetence and leadership failures over the years, all the
refineries have only been able to perform, even at peak form, at 40-60% of
total installed capacity, or at 0% (total shut-down) at other times, like
back in March 2003 when both Port Harcourt refineries suddenly had to shut
down completely, or even now when both Warri and Kaduna had to be shut
down because of vandalization of pipes in the Niger-Delta.
THE RECENT PRICE HIKE
As I write, a biting workers’ strike is
taking hold in Nigeria, with probably as many as ten Nigerians already
dead from security forces’ misbehavior. The strike is a bitter reaction
to the most recent hike in retail prices of petroleum products, the
eleventh one since uniform pricing was introduced by the Gowon regime on
October 1, 1973. (See Table 1). While in the latest move petrol suffered
a sudden 54% increase to N40, kerosene was exposed to a 58% increase to
N38 per liter, and diesel by 46% to N38 per liter. Since 1973, petrol
has experienced a 42,000% increase in Naira terms, while kerosene, the
“poor-persons’ fuel” has suffered a whopping 47,400% increase!
Why these increases? The usual reason has
been the reduction or removal of subsidies, in order to move the price of
gasoline to more economic values and to discourage rent seeking. For
example, according to a recent report, President Obasanjo is quoted as
follows:
QUOTE
“Subsidising fuel to the tune of N12 per
litre is a wasteful way of spending our money", noting that the N250
billion subsidy per annum could be saved and used in providing education,
health, water supply, roads, security and food.
President Obasanjo explained that the age of
the four refineries in the country and their lack of maintenance in the
past, made them to produce only 13 million litres per day, below the
national consumption rate of 30 million litres per day.
Government's continued importation of the
shortfall of N17 million litres per day, he noted, is not only too costly,
but also benefiting only a few rich individuals and neighbouring countries
through smuggling.
UNQUOTE
The president’s figure puts the total
capacity of our refineries at 43%, closer to 40% than the 60% often
quoted. A quick calculation using his subsidy numbers puts the annual
subsidy at N74.5 billion (N12 per liter times 17 million liters per day
times 365 days per annum) and not N250 billion – unless we are missing
something like overheads and the inevitable additional corruption of
government bureaucracy. The new price of N40 per liter also means that at
a daily consumption of 30 million liters per day, the Nigerian people will
soon be spending N1.2 billion per day on fuel alone – or N438 billion per
annum – or about 3% of our GDP (PPP purchasing power parity) .
Next, according to statement credited to
Rasheed Gbadamosi, Chairman of the Petroleum Product Pricing Regulatory
Committee (PPPRC), and more recently of the PPPRA (the committee is now an
agency, though not yet backed by a signed law), we have:
QUOTE
"The parameters that have been brought to bear in the price
restructuring exercise are clear and verifiable," said Gbadamosi. He
listed these as:
* Landing cost of PMS (petrol), Free
on Board - N28.54 per litre;
* Demurrage and Financing - N1.50 per
litre;
* Distribution margin - N7.33 per
litre; and
* Highway Maintenance - N1.50 a litre.
“
UNQUOTE
That amounts to N38.87 – rounded up
obviously to N40 for petrol.
The reader is free to ask: why we are we
talking about “landing costs” (from abroad) and “demurrage and
financing”? It is simply because we are importing as much as 60% of our
refined needs from outside of the country. The real questions that we
must ask ourselves are therefore the following:
(1)
what really is the daily refined product demand of Nigeria? It has
variously been put at 25 million liters, 30 million liters and 38 million
liters. Until we have a handle on that, the true amount of subsidy is
clearly undecipherable.
(2)
what is the actual cost of producing refined products in Nigeria
so that we can have what we might call our own “domestic landing cost” –
local cost of crude + refiners margin - before we start adding in other
“margins.”
(3)
if more and more of our products were refined INSIDE Nigeria rather
than IMPORTED, what would be the benefit to Nigerians at the gas pump?
Why has so much money spent on our refineries in the past four years
(reportedly as much as $700 million) not resulted in increased domestic
refining capacity?
To respond to some of these questions, I
have below used Gbadamosi’s “clear and verifiable” figures above, which
in fact would be most appropriate if all the oil we use were 100%
imported, as well as several official government documents.
For example, we know that the “domestic
landing cost” that I referred to above should be between the minimum
no-additions cost of crude and the import landing cost of N28.54.
Consequently, I have in Table 2 done a sensitivity analysis using a range
of costs. Also, another sensitivity analysis involved assuming various
domestic production percentage ranges, from 100% (full domestic
satisfaction of local demand) to down to 40%.
The table shows that for domestic landing
costs of N10 to 28.54 per liter, full satisfaction (100%) of our domestic
needs by domestic refining would cut the cost of refined petrol to the
range of N14.59 to N38.87 per liter, the higher figure being due only to
the unrealistic assumption of a domestic landing cost equal to an imported
products landing cost. If the domestic production falls to 60%, that
price range rises to N24.30 to N38.87. Finally, a domestic production
rate of 40% leads to a price range of N29.16 to N38.87.
A further reduction by half of the
demurrage, distribution margins and highway maintenance charges would
shave off anywhere from N2 to N5 from the top and bottom values of the
above ranges.
WHY WE ARE WHERE WE ARE
The two government agencies responsible for
getting fuel to the Nigerian citizenry are the NNPC (Nigerian National
Petroleum Company), which owns all the four refineries in Kaduna, Warri
and two in Port Harcourt, and the PPMC (the Petroleum Products Marketing
Company) which distributes the products. From government reports, we find
that the problems facing our nation are both internal to these companies
as well as external; both technical and financial; and both production-
and distribution-related.
It is best to let the actors themselves
speak, as revealed to the National Economic Intelligence Committee (NEIC)
teams that visited various refineries and fuel depots extensively in
August 1998, excerpts of which reports are presented in Appendices I – II.
To fix dates, Abacha died June 1998,
Abdusalam Abubakar took over immediately afterwards, and MKO Abiola died
July 1998. Obasanjo became a candidate for the presidency October 1998,
and became president May 1999. Those reports were presented to president
Obasanjo, on good authority.
As you read the reports excerpts of which
are presented in Appendix I – II below, and as you look more closely at
the associated tables 1 – 3, the question to ask is whether things have
changed with respect to NNPC and PPMC since 1998 – and why not.
The actors may be different – but is the
play different?
AND WHAT SHALL WE DO?
The reports in the Appendices show that
government knows PRECISELY what ails the petroleum sector. Consequently,
the Nigerian citizenry should NOT be punished through arbitrary price
increases for to the inefficiencies in government and outright
corruption. In fact, Government might actually NOT need to subsidize at
all if the outrageous activities pointed out in the reports were removed.
Certainly the cost of fuel would be greatly reduced if more of the product
were refined in the country and efficiently distributed to the consumers.
Until Government convinces us CLEARLY about
what it has done about past reports about this important petroleum sector,
why monies spent in the last four years have not resulted in improved
refining capacity in our refineries, who has been punished if our
condition is a result of sabotage, etc., one should takes its present
pleadings about removal of subsidies with a pinch of salt. Furthermore,
Oshiomole and co. should not agree to a penny more in terms of fuel
increase on our behalf.
Ultimately, our petroleum sector must be
fully liberalized to allow private players full access. It is crucial
however that such private players must include stand-alone companies
floated by state governments and other civic-minded groups of citizens
where the ordinary people will have controlling shares, so that a safety
net might be placed under those who might otherwise be squeezed out by
those who have only profit-maximizing motives.
Let us watch and pray.
MONDAY
QUARTERBACKING: On Fuel Scarcity, Politics and NNPC
http://www.gamji.com/aluko48.htm
Mobolaji E.
Aluko
Monday, March
10, 2003
MID-WEEK
ESSAY: On the Resource Control Battle: From Dichotomy to Quartonomy, From
Isopatials to Isobaths
http://www.gamji.com/amviews62.htm
Mobolaji E.
Aluko
February 19,
2003
http://www.ngex.com/nigeria/govt/president/obasanjoonoil.htm
FUEL SUBSIDY MUST
GO
Mr.
Presidents Address to the Nation - June 15, 2000
Insert Tables 1, 2 and 3 here
APPENDIX I
Excerpts of “Report of the Neic
Monitoring of Capital Projects in the States and Federal Capital
Territory, Abuja; 3rd – 29th August, 1998. Volume
Two. Federal and State Agencies and Parastatals. August 1998”
(111 pages)
Note: NEIC Teams visited NNPC Depots in Abia,
Adamawa, Benue, Borno (including an NNPC substation), Cross-River, Edo,
Enugu, Gombe, Kano, Lagos, Niger, Ogun, Ondo, Oyo, and Zamfara. It also
visited Warri Refinery and Petrochemical Company Ltd. (WRPC), Kaduna
Refinery and Petro-Chemical Company (KRPC), EPCL (Eleme Petrochemicals
Company Limited) and Port Harcourt Refining Company (PHRC), among several
other government state agencies and parastatals.
Page 25 ff
Warri Refinery and Petrochemical Company
Ltd. (WRPC)
The visit by the NEIC Team in August 1998
was a follow-up to the NEIC visit of December 1996. The team was briefed
by Dr. E.A. Dennar, the Managing Director, that the refinery receives
crude from PPMC for processing. THE PPPMC, it was also reported, decides
on the distribution of refined producst as well as the mod of pumping
through the pipeline network of lifting from the refinery by tankers. He
intimated the Team that the refinery was working at 75 per cent capacity
because the FCC unit had developed a fault which would not be fully
repaired until the middle of September 1998. He explained that because of
this fault in the FCC unit the storage tank of the refinery was fully
loaded with High Pour Fuel Oil. He explained that the refinery which was
expected to have its Turn Around Maintenance (TAM) bi-enially had the last
TAM in 1994.
On the TAM, the NEIC Team expressed the hope
that the Company which would be selected for the job of TAM and
Rehabilitation of the Refinery would do a satisfactory job. The Team
suggested the need to obtain a guarantee from the company that would
undertake the TAM and Rehabilitation, and to reach agreement with it on
participatory management of the refinery over a reasonable time period,
following immediately after the completion of the TAM.
The cumulative indebtedness of the refiner
as at June 1998 was N635 million. The debts were in respect f spare
parts, chemicals, minor contract services and consumables. Yet, the
subvention per month to the refinery was between N30 million and N40
million. The management of the refinery suggested that there was a need
to decentralize decision making and the purchasing of inputs. The example
was given of an officer of the refinery who had remained in Abuja for
three weeks in order to obtain approvals for vital purchases.
Petroleum Products Marketing Company (PPMC)
Fuel Depot Warri
The NEIC Team visited the PPMC Head Office
in Warri on 20th August, 1998, and had extensive discussions
with the Area Manager and his Senior Officials. The Team also visited the
Warri NNPC Jetty and the Warri Depot.
In reply to several questions by the NEIC
Team, the Area Manager explained that the objective of the PPMC was to
supply crude to the refineries and to distribute petroleum projects. He
discussed the pipeline network which he said was flexible. He reported
that the bulk of the refined products in Warri Refinery was being pumped
to Suleja. No fuel was being pumped to Benin and Ore Depots because he
was acting on directives to pump to Kaduna Depot. However 30 per cent of
the refined products was recently being pumped to Benin and Auchi Depots,
following the intervention of the Military Administrator of Edo State.
The Area Manager explained that the failure
to adequately monitor the fuel distribution system was largely responsible
for the persistent fuel shortage. The Directorate of Petroleum Resources
(DPR) which was responsible for monitoring the system was virtually
moribund. It needed to be revived as the various Task Forces which were
expected to alleviate the shortage had themselves become a nuisance. He
expressed preference for the use of the pipeline network instead of
lifting by trucks because the refineries were not built to handle as many
trucks as now patronized it. Though the objective was to load two million
liters of fuel daily, there was no accurate statistics of the destination
of the Premium Motor Spirit (PMS) being loaded daily from the Depot.
There was also no accurate statistics of daily demand for PMS and the
other fuels.
The PPMC intimated that the depot, the
network of pipelines and the jetty were being maintained not by the PPMC
but by the refinery. He informed the NEIC team that while there were 32
loading arms in the Deport only 15 were in good working condition. The
depot it was observed was not fenced thus touts had easy access to the
depot and the insecurity of the product, life and property posed a serious
problem. The wall fencing was however being contemplated. The Area
Manager pleaded that the PPMC should be allowed to be in charge of the
maintenance of the depot, pipelines and Jetty instead of the NNPC.
However, because of poor funding the PPMC was not able to repair even its
limited facilities. In fact, the financial situation was so bad that
officials reportedly used their own money to travel on official duties
since money was being made available on a pro-rata basis.
The PPMC suggested that the pipelines should
also have TAM and that because of the age of the equipment at the depot,
the pipeline network and the jetty, there was a need to seriously address
the growing difficulty of obtaining spare parts to replace obsolete
equipment.
The NNPC Jetty
The NEIC Team also visited the NNPC Jetty in
Warri. The jetty was dilapidated. Some sections and the NPA platform had
collapsed. The jetty had no communications equipment, all the meters for
recording either outflow and inflow of products were not functioning, and
all the equipment in the control room were also out of order. There was
no instrumentation whatsoever, so all monitoring activity were manually
done.
The PPMC was incurring a lot of demurrage
because the ocean liner platform for the Arab Light Crude was not in use
and because the pumps on the ocean liners were not sufficiently
powerful. Cases of tampering with the pipelines at the jetty were
rampant. Yet, every arm of Government reportedly wanted to maintain a
presence at the jetty and was daily pressuring the PPMC to provide office
accommodation for it…………
Page 101 ff
Port Harcourt Refining Company (PHRC)
The NEC Monitoring team was at the PHRC on
Thursday 13th August, 1998
The NEIC Monitoring team met with the
Managing Director with all the Management Staff in Attendance.
The Managing Director was particularly happy
with the NEIC for its support to keep the industry alive. He said that
NEIC was one Government Agency that had tirelessly championed support for
the industry. He informed the Monitoring team that all was being done to
ensure that TAM commenced sometime in October 1998 as the process for
approval was in advanced stage.
The problems of the company included
inadequate funding, staffing (lack of professional staff), vehicles,
indebtedness to the tune of N1.3 billion. Another serious problem was
lack of good access road to the refinery.
The leader of NEIC Monitoring team
acknowledged the major problem of funding which Government was already
addressing. For a long-term solution to the problems, the Committee has
advocated autonomy for NNPC subsidiaries and an urgent improvement of
existing operating systems.
The Monitoring Team undertook a tour of the
Company’s plant and facilities taking critical note of their state of
disrepair.
At the time of the visit, on the Crude
Distillation Unit was operating. [NOTE: IN ADDITION TO THE CDU, THE VDU,
NHU, CRU, KHU, FFCU, DIM and HFA should have been working.] The Power
Plant was reported to require rehabilitation for effective operation.
There was also an on-going plan to expand the capacity of the Fuel
Catalytic Cracking Unit (FCCU) to reduce supply deficit in the production
capacity of the plant.
The Turn Around Maintenance of both the old
and the new Port Harcourt Refineries were due in 996, but were not
implemented as a result of funds limitation. A mini-TAM for the old Port
Harcourt Refinery was anticipated for the last quarter of 1998 to reduce
massive importation of petroleum products.
[A Table] shows the relative contributions
of the different components of the total cost of production in both the
approved budget and actual expenditure for the years 1995, 1996 and 1998.
In 1995, about 50% of the approved budget was released to PHRC to fund its
operation. On the other hand, about 64% of the approved budget in 1998
had been committed by the end of July 1998. The relative contribution of
Plant Maintenance in the actual cost of production increased steadily from
23.3% in 1995 to 43.9% in 1998. This might be attributed, perhaps, to the
non-implementation of the Turn Around Maintenance.
Recommendations
The access road from the Aba Expressway to
PHRC was found to be in a deplorable state considering the contribution of
the refinery along with NAFCON (Nation Fertilizer Company of Nigeria) and
EPCL (Eleme Petrochemicals Company Limited) to the GDP. We recommend
urgent rehabilitation of this important road network.
We recommend that the maintenance management
system at the PHRC be overhauled for effectiveness. There is need for the
establishment and implementation of an integrated computerized maintenance
management system that would enhance a positive change from reactive to
planned preventive maintenance and with improved funding of operations.
The present functions of maintenance planning (even TAM) needs to be
integrated with inventory (spare parts) materials management, procurement,
personnel management and accounts.
Bonny Export Terminal Project
The Monitoring Team was taken round for a
tour of the Bonny Export Terminal Porject by the Project Officials.
The Bonny Export Terminal project was
designed to provide facilities for effective and efficient marine
evacuation of a maximum of five million metric tones per annum of
petroleum products from the PHRC using 50,000 – 80,000 DWT Tankers which
could not berth at Okrika Jetty because of draft limitations.
The scope of work consisted of the
engineering, procurement, construction, commissioning and start-up of the
facilities, for
a.
Tank farm/Pump Station (PPMC Terminal) within PHRC premises
b.
Export Sea Inland loading facility located at the Confluence of the
Hughes Channel and Bonny River about 30 km from PHRC.
c.
4. nos. products pipelines (2 x 16” for PMS/AGO and 2 x 18” for
LPFO/HPFO Low and High Pour Fuel Oil) from PPMC terminal through swamps
and riverbed to the sea island location.
Although the facilities for the project
appeared to have been fully installed and were on a punch-list status, the
project was experiencing delay in start-up and performance test-run
arising from:
a.
delay in the arrival of the representative of IPCO (Nigeria)
Limited and the Equipment Manufacturers/Vendors.
b.
Product availability from PHRC and PPMC
c.
No gas supply to BET gas reception facilities by NGC;
d.
Delay in getting power from PHRC.
We noticed some corrosion on the electrical
cable panel and the air conditioning duct which were installed on the
Export Sea Island load facility (BET Platform). There is need to protect
the structures with additional stainless steel coatings. (eg STEEL IT.)
Page 41 ff.
Kaduna Refinery and Petro-Chemical
Company (KRPC)
The Managing Director of Kaduna Refinery and
Petrochemical Company, Sir Tamuno, warmly welcomed the NEIC Team. He gave
a detailed briefing on the history of KRPC, tracing the existence of the
Company from the date of commissioning in 1980 with an initial capacity of
refining 100,000 barrels per day (bpd). He said the Complex was mad up of
Fuels, Lubes and Lab Plants. There was also Tin and Drum Manufacturing
Plant and a Wax Packaging Unit. He told the Committee that the major
products and the annual production capacities from the Plant were as
follows:
PMS
- 3,857 metric tons per day
Kerosine
- 1,686 “
AGO
- 3,000 “
Asphalt
- 1,796 “
LUBE
- 91 “
Base Oils
- 657 “
In explaining the timing of the Turn Around
Maintenance (TAM) of the KRPC, the Managing Director said that statutory
regulation required that a Hydrocarbon processing industry such as KRPC
should undergo extensive inspection and repair works to enhance
Plant/Personnel safety, environmental protection and Plant Reliability
every 18 – 24 months.
Since the Commissioning in 1980, Sir Tamuno
explained, TAM of KRPC was only carried out viz:
Year
Duration
1982
45 days
1983
45 days
1986
45 days
1989
45 days
1992
More than 90 days
Sir Tamuno regretted that due to fund
constraints, TAM of KRPC had continued to be shifted after 1992 until
1998. He further regretted that lack of TAM execution between 1992 and
1997 resulted in equipment unreliability, plant unavailability, unsafe and
epileptic operations which finally culminated in the emergency shut-down
of the plant on 25th July, 1997 as a result of hydrogen leak
into the Cooling Water Circuit.
TAM and Rehabilitation by Total Nig. PLC
IN explaining the latest development of TAM
and Rehabilitation of the KRPC, the MD stated that the idea was mooted in
November 1995, when the Total Nig. PLC submitted a proposal to the Hon.
Minister of Petroleum Resources. He expantiated on the series of meetings
and negotiations since then, and the intervention and effort of the
National Economic Intelligence Committee that led to the award of the
Contract to Total Nigeria Plc in early 1998.
He confirmed that the Contract Agreement on
the 6th TAM and Rehabilitation of the KRPC was signed between
NNPC/Total Nigeria Plc on March 5th, 1998 on the agreed
Contract sum of $214.979 million.
He further confirmed that the Escrow Account
was opened on the 25th April, 1998, while effective date of
commencement of the Contract was 28th April, 1998. The MD also
said that the first Milestone payment was not made until 17th
June 1998, which was seven (7) weeks delay outside the contract term,
which he explained resulted in the delay in the mobilization of equipment
by the Contractor.
The MD further informed the NEIC Team that
in order to achieve the successful completion of both TAM and
Rehabilitation of the KRPC, the Total Nigeria PLC had sub-contracted parts
of the project to the following companies:
1.
DBN
Fuels Plant - $7,599,456.00
Fluid Catalytic Cracking Unit -
$6,583,216.00
Power Plant Utilities & Offisite -
$4,276,872.00
2.
CAMESCO
Lubes Plant - $11,987,488.00
3.
DSD
Lab Plant - $5,784,948.00
The MD assured the Team that both Camesco
and DSD would complete their projects on 2nd November and 20th
November, 1998 respectively. He gave a breakdown of progress of work on
Fuels, FCCU and PPU & Offsite as at 9th July, 1998….
The representative of Total Nigeria Plc,
Mr.J.P. Janin, in his contribution, corroborated the presentation of the
MD, KRPC. He presented a Bar Chart, showing the dates of Contract
signature, payment of first milestone, Mobilisation, Stages of Units
10….with achievable projection completion date of 24th August,
1998.
Mr. Janin told the Team that contract on
Fuels Plant was to have been completed by 15th August, 1998,
and Turbo Generators by 7th August, 1998 and that by the tend
of August, 1998, fuels should be available from the Fuels Plant, if other
things had been equal. On resumptions of production, the Refinery should
have been capable of supplying about 70% of total fuel needs of the
Northern States.
He further guaranteed the NNPC/KRPC a good
quality work with expert finishing within the budget. He expressed the
satisfaction of Total Nigeria Plc. On the method of payment through the
Escrow Account…….
The MD, KRPC, told the NEIC Team that at the
completion of the TAM and Rehabilitation of the Refinery, the Plant would
need the assistance of government in the area of:
i.
Provision of Chemicals and spare parts
ii.
Settlement of about N1.4 billion debts owed by the KRPC
iii.
Motivation of staff (remarking that there had been no pay rise in
KRPC for workers in the past 10 years)
iv.
Provision of vehicles
v.
Adequate and regular funding of KRPC
vi.
Maintenance Agreement of KRPC with foreign partners.
Answering a question on pumping and bridging
of petroleum products, the MD said that KRPC has facility to pump
petroleum products from Kaduna to all parts of the North. He agreed that
Warri Refinery could also pump from Warri to Kaduna. He futher agreed
that bridging would still be in place to give added services in the supply
of the petroleum products. He however noted that the inhibiting factors
of bridging were lack of adequate vehicles and congestion on roads by
trucks. He added further that about fifteen (15) Trucks of fuel were
supplied to Abuja daily, but wondered why only about five (5) trucks
reached the Federal Capital Territory. What happened to the other trucks
could not be explained.
Sir Tamuna informed the NEIC team that the
National Insurance Corporation of Nigeria (NICON) paid a sum of $8 million
for the fire incidence in 1995 at the Lubes Plant.
The MD told the Team that since the closure
of the Refinery, some of the production staff were sent on training; some
were absorbed by Total Nig. PLC sub-contractors and about 700 workers were
involved in the TAM project.
Recommendations by NEIC
After being properly briefed on the state of
affairs of KRPC, the NEIC Team makes the following recommendations:
a.
Each of the four Refineries in the country should be run as a
Limited Liability Company (PLC), independent and self-sustaining.
b.
In inviting foreign partners to the KRPC, a certain percentage of
the shareholding should be allocated to the staff of the Refinery.
c.
Immediate measures should be taken to commence the Turn Around
Maintenance and Rehabilitation of the Port-Harcourt and Warri Refineries
to complement Kaduna Refinery……
Appendix II
Report of the Activities of the National
Economic Intelligence Committee 1994 – 1999
May 1999
(72 pages)
Page 44 ff.
The Petroleum Sector
Intermediate products in the nation’s
refineries, especially Naphtaha, was being allocated to individuals for
export. Even bitumen which was being produced by the Kaduna refinery was
bought by individuals at a ridiculously low price and sold to road
construction companies at the current higher world price. The practice
persisted until the Government revised the price upward at the instance of
the NEIC. Aviation fuel was, however, being sold to airline operators at
a price which was higher than the stipulated price of N9.0 per liter,
while fuel oil which is the main source of energy in the industrial sector
was being exported, thus giving rise to acute shortages at home and
consequent black marketeering.
The NEIC also talked to the oil companies on
the need to help to reduce the huge disparity in the standard of living of
the staff of the oil companies vis-à-vis those of the dwellers in the oil
producing areas. This they could do by providing more social and physical
infrastructures in the oil producing communities and by encouraging
greater community participation in these projects in order to ensure their
sustainability.
Even though there is the belief in certain
quarters that the NNPC subsidiaries are inefficient, it is the view of the
NEIC that they are no less efficient than some private companies and,
therefore, should not be excluded from the contract to import and export
petroleum products.
The major marketers appear favoured over
independent marketers. The major marketers who are mainly expatriate
companies buy petroleum products from NNPC on credit while the independent
marketers who are entirely Nigerian companies pay case in advance of
purchase. NEIC did not support this discriminatory policy of the NNPC but
it has continued unabated.
One of the major problems of OMPADEC was
that it awarded too many contracts whose value far exceeded its revenue.
In consequence, quite a number of contractors were not paid. Following
NEIC reports, the OMPADEC was not only reformed, but part of OMPADEC debts
verified by NEIC were paid beginning from March 1999. The balance of
N3.70 billion was to be made available by the Federal Government in order
to settle fully the debt to the contractors. However, NEIC recommended
that the sum of N1.60 billion should be recovered from OMPADEC contractors
who obtained mobilization but did not perform at all.
On the increase in allocation of crude oil
to the refineries from 250,000 bpd to 300,00 bpd, the Committee noted that
even when 250,000 bpd were allocated for domestic refining, only 182,000
bpd could be processed while the balance was swapped by the NNPC without
Government’s approval……
