Life on earth as we know is often paradoxical, exemplified in the aphorism the rich getting richer and the poor getting poorer. This can be confirmed in virtually all aspect of lives, individually and collectively. And it explains why a prominent OPEC member, who in the world is within the first digit in bracket of world largest oil producers, cannot manage her oil and gas resources. We have not been able to accumulate either the capital or entrepreneurial resources since oil exploration started over 50 years ago.
Let me share with you part of my draft work;
Nigerian National Petroleum Corporation (NNPC)
NNPC, on behalf of Federal Government of Nigeria (FGN), is the owner of the entire oil acreages in Nigeria, the holding company of all oil and gas activities in Nigeria, operator, the policy maker, supervisor and regulator of oil and gas business in Nigeria. NNPC will be discussed throughout this book as comprising
(a) FGN
(b) Ministry of Petroleum Resources
(c) 11(or 10) subsidiaries of NNPC, and
(d) Department of Petroleum Resources (DPR)
NNPC has not been able to, on its own, explore, develop and produce oil and/or gas since 1956, when we were told oil business commercially started in Nigeria, beyond the 70,000/125,000 barrels per day (bpd) largely due from already producing oil blocks, transferred to Nigeria Petroleum Development Company (NPDC) by NNPC, which are largely operated by other oil companies (mainly I0Cs). Neither has NNPC been able to refine the crude oil produced for Nigeria by the I0Cs, despite Nigeria’s status in OPEC (Oil Producing and Exporting Countries) and the ostensibly single-digit-highest world oil producer. NNPC is also at an unbearable pain to even distribute throughout Nigeria the refined petroleum products we wastefully import.
The above accolades make Nigeria morally and experientially incapacitated to develop, adopt, adapt and implement healthy and sustainable benchmarks in oil and gas business. And that is why we hear from otherwise well-informed public officials allege that the IOCs are “cheating� Nigeria. NNPC neither drives (set up and implement inspiring agenda) nor really monitors the sector. This trend informed the private initiative engagement under the platform of Extractive Industry Transparency Initiative (EITI), called Nigerian Extractive Industries Transparency Initiative (NEITI).
NNPC does not only falter in the upstream, but also in the downstream sector. The first refinery in Africa was built in 1954 in an OPEC member country, Algeria, and non-OPEC member country, – South Africa (Durban). Incidentally, other non-OPEC African countries that had refineries before Nigeria include Luanda (1958), Kenya, Ghana and Senegal (1963). It is also interesting to note that later in the 1960s Nigeria had to share having refineries in her shore with Cote d’ Ivoire, Gabon and Tanzania as well as Congo and Cameroon. In capacity, the Nigeria’s Port Harcourt refinery of 210mbpd (million barrel per day), ranks with Ras Lanuf’s Libya refinery of 220mbpd and Algeria’s skikda refinery of 300mbpd in Africa.
Out of the nine refineries in Egypt, in which eight are operated by Egyptian General Petroleum Corp (EGPC) only two are not at top performance in the early 21st Century, Libya and Algeria have all their refineries in top performance range. Unfortunately, the three, nay, four NNPC refineries with a total name-plate installed (between 1965 and 1979, when they were all installed) capacity of 445mbpd are below 50% when they are not shutdown totally as has been the case since March 2011 till now (May 2011). In this state together with other paradoxical anomalies we shall explore, the faint attempt by NNPC to sell about 51% out of its 100% ownership in these refineries and to encourage private investors (who have been licensed) to build refineries, may become another Ajaokuta Steel Project, nay, NITEL, no I mean Nigeria National Shipping Line. Neither does the petroleum Minister’s (Mrs. Diezani Allison-Madueke, now erstwhile minister) 11th hour (20th May 2011) assertion to the effect that NNPC will go commercial next week (pay dividend to shareholders, etc) anything to go-by. Commercialization of government parastatal as big as NNPC is not press briefing activity, it is a thoroughly thought out plan, engagements and execution. South Africa is an example as to how government owned giant electricity organization – ESKOM was commercialized.
Paradoxically we have Nigerians (Private investors, friends of NNPC) heavily involved in oil refineries in other African Countries, but not in Nigeria. How then does NNPC expect Shell, Exxon-Mobil, Total, Chevron, and Agip to build / invest in refineries in Nigeria? Is it through force or blackmail?
Nigeria hence rely heavily on importation of refined petroleum products, depends on PPPRA (Petroleum Products Price Regulatory Agency /Authority) to determine appropriate pricing and hope on fight/ blackmail between labour unions and politicians to sort out the oil and gas subsidy politics.
Nigeria (Local) content Act is a good pointer to our stumbling blocks, both as a country and as individuals. The lack of institutional transparency in the country as a whole and in oil and gas sector particularly has given way to personal greed clothed in a debilitating or hemorrhaging ethnic nationality and religious manipulation and scheming in NNPC. The top decision makers in NNPC is controlled and channeled to the sustenance of the political structure that has kept Nigeria polity Kidnapped, and Nigeria pays daily ransom in order to remain “governable�.
Oil bunkering, oil block licensing and the spending of the petro-dollar rents all flow through the same channel to keep Nigeria kidnapped. Senior and Middle management of NNPC are controlled (empires) by different ethnic nationalities that also use these differences to hide their driving personal greed. This scenario of course ensured that both cabotage and Nigeria Local Content Acts died on arrival.
To enhance the understanding of Nigeria’s oil and gas operational environment, we shall name most of the NNPC subsidiaries (departments) as they exist prior to the major repackaging of NNPC through the stale Petroleum Industry Bill, which Northern National legislator has fiercely fought to stalemate.
They are as follows:
1. Hyson Nigeria Limited and Calson Bermuda Limited.
- Established in August 1988
- As a JV between NNPC and VITOL Energy (Bermuda) Ltd (VEBL)
- NNPC had 51% in Hyson and Chevron 49%
- NNPC had 60% in Calson and Chevron 40%
- In January 1994, Chevron divested and handed her interests to VEBL.
- Calson Ltd is the marketer of Nigeria’s Petroleum Products and Crude oil.
- Hyson is a service (Logistics) provider to Calson.
2. Integrated Data Services Limited (IDSL)
- Established in 1988
- Took over from National Hydro Carbon Reserve Evaluation Centre (HCREC), Seismic Data Processing
Outfit (DPO) and 2 – D Seismic Acquisition Crews or Seismic Party Y.
- IDSL is an upstream oil service provider
- IDSL offers geophysical and petroleum engineering services.
It is expected therefore that IDSL will be in the pack of Schlumberger and Haliburton.
3. Kaduna Refinery and Petrochemical Company (KRPC)
- Commissioned in 1980
- Debottle – necking of the fuel section in December 1985
- Receives local crude Forcados and Escravos Terminals through the Chanomi Creek Pipelines. However, the imported “Sour� crude from Saudi Arabia and Venezuela go through Escravos terminal to Warri crude oil facility and finally to KRPC.
- In March 1988, Linear Alky Benzene (LAB) Petrochemical Plant was operationally added to Kaduna Refinery was incorporated as a limited liability with the name Kaduna Refining and Petrochemical Company Limited.
4. National Engineering and Technical Company Limited (NETCO)
- Establish in 1989 as a JV company between NNPC and Bechel Incorporated
- NETCO was set up to acquire engineering technology through involvement in all aspect of engineering in the oil and gas industry such as:
· Basic / Detailed Engineering
· Procurement
· Project Management
· Environmental Consulting and Training
Why not construction works itself instead of construction supervision? Why not production instead of just procurement?
- Bechel Incorporation withdrew from the JV in 1996
5. Nigeria Gas Company Limited (NGC)
- Established in 1988
- Its objectives since 1988 include:
· Develop efficient gas industry to meet Nigeria’s energy and feedstock needs
· Develop integrated gas pipeline network
· Export natural gas and its derivatives
· Efficiently gather and treat natural gas.
This role has been removed from NGC, so that it can concentrate on Transmission, Distribution and Marketing of natural gas.
Some of the existing pipelines operated by NGC are:
i. Ajaokuta – Geregu pipeline system (supplies gas to the Geregu PHCN power plant).
ii. Ajaokuta – Obajana Gas pipeline system (supplies gas to Obajana Cement Plc).
iii. Aladja Gas pipeline system (supplies gas to Delta Steel Company).
iv. Alakiri – Onne Gas pipeline system (supplies gas to the NAFCON, now Notore chemical).
v. Alakiri – Obigbo North – Ikot Abasi system (supplies gas to ALSCON, Rural Industries).
vi. Escravos – Lagos pipeline (ELP) (supplies gas to egbin power plant, ikorodu, Lagos).
vii. Ibafo – Ikeja Gas supply pipeline (supplies gas to Ikeja City Gate from where Gaslink ltd distributes to Lagos Industrial Area (LIA)).
viii. Ikeja – Ilupeju – Apapa Gas pipeline (supplies gas to Greater Lagos Industrial Area (GLIA)).
ix. Imo River – Aba pipeline (supplies International glass Industry Ltd, PZ plc, Aba Textile mills and Aba Equitable Industry).
x. Oben – Ajaokuta – Geregu pipeline (supplies gas to Ajaokuta Steel Company, Obajana Cement PLC and Geregu PHCN power Plant).
xi. Obigbo North – Afam pipeline (supplies gas to Afam power plant).
xii. Sapele gas supply system (supplies the Ogorode power plant).
Most of the 10Cs have independent pipelines, which are often more efficient, effective and economical, but often a closed system.
6. National Petroleum Investment Management Services (NAPIMS)
- NAPIMS was established to enforce cost control and supervision of JV and RSC of NNPC in oil and gas
Sector in Nigeria.
- Few of the objectives of NAPIMS are:
· Eliminate gas flaring by 2008 /2010
· Attain and sustain oil production level of 4.5mbd by 2010
· Attain and maintain 40 billion barrel reserve from gas as from oil by 2010
· Achieve 70% in local content in oil and gas by 2010 and many more.
The only dominant thread althrough the NAPIMS objectives is that none has been achieved.
7. Nigeria Petroleum Development Company (NPDC)
- NPDC is headquartered in Benin, Edo State.
- Established in 1988 for petroleum exploration and production. Its operations therefore span all
Upstream oil and gas business from exploration to abandonment.
- The following concessions have been assigned to NPDC by NNPC:
· OML 64} Swamp acreage under development in partnership with SINOPEC
OML 66}
· OPL 244 Deepwater block. Nigeria Agip Exploration Ltd (NAE) has signed PSC with NNPC
NPDC has only 10% interest.
· OML 119 Okono / Okpoho, offshore field in partnership with Agip Energy and Natural
Resources (AENR) since 2001.
· OML65 Abura field (Onshore).
The total crude output in January 2009 stood at 74,655bpd, mainly from OML 119 (Okono/Okpoho), which accounted for 63,688 bpd. Hence, NNPC /NPDC Exploration and Production (EP) activities are actually carried out mainly by Agip and marginally by other 10Cs, such as SPDC in Egbema.
Just look at NPDC’s deepwater concessions;
| Concession | NPDC interest % | Operating Partners |
| OPL 214 | 15 | Exxon Mobil |
| OPL 223 | 10 | Elf |
| OPL 242 | 25 | Devon Energy |
| OPL 244 | 10 | Agip |
| OPL 251 | 15 | Ashbert / NPDC |
| OPL 256 | 5 | Devon Energy |
| OPL 318 | 20 | ConocoPhillips |
| OPL 325 | 20 | Ashbert INPDC |
| OPL 332 | 10 | BG Nigeria |
8. Pipelines And Products Marketing Company Ltd (PPMC)
NNPC sends crude oil through PPMC to the local refineries. PPMC fulfils its functions through a network of petroleum products pipelines, storage depots and jetties.
When local refineries refine crude oil, they supply it to PPMC through refinery depots. However, if the refined products are imported they will go through the jetties. Either from the refinery depots or export / import jetties, the refined petroleum products are distributed by PPMC through its network of pipelines to its depots located all over the country. It is from these depots that petroleum tankers (and hopefully, railway trains) lift the products to retail outlets filling/gasoline stations.
Today most of the refinery depots are kept wet by imported products. Besides poor maintenance and poor location (in the thick forest, far from easy surveillance) of PPMC’s pipelines leading to constant leaking and vandalization, Nigeria’s refineries are permanently on working “Strike�.
Below are PPMC Depots network and Jetties.
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Marine vessels are also used instead of pipelines in the coastal areas of South – South and South – West Nigeria, such as in Port Harcourt, Warri, Lagos and Calabar. In fact, Calabar depot can only be reached through marine vessels. Marine vessels are used in evacuating refined petroleum products from the three refineries in Niger Delta (Port Harcourt and Warri). These coastal vessels supply Atlas cove terminal with products for pumping into the Area depot, Mosimi in Shagamu, Ogun state.
| IOC |
| Local oil company |
UPSTREAM
Terminals
NNPC
PPMC Crude passing through each arrows
Refineries /Export MIDSTREAM
PPMC
Export / Import
Area Depots & Jetties
Jetties
Depots DOWNSTREAM
Marketers / Tankers / Marine vessels
Filling / Stations
Motorists / Aircrafts and other Consumers
1. WARRI REFINING & PETROCHEMICAL COMPANY LTD (WRPC)
Incorporated in November 1988 resulting from the merger of Warri Refinery and Ekpan petrochemical plants. Warri refinery was actually established in 1978, nine years later it was debottlenecked raising its capacity from 100,000bpd to 125,000bpd.
Thus on paper NNPC as defined in this book (FGN, Ministry of Petroleum Resources, DPR and all NNPC subsidiaries) is vastly and adequately equipped to transform Nigeria into a first world country. NNPC is the policy maker in Nigeria’s oil and gas industry; NNPC is the regulator, NNPC is a direct operator through NPDC; indirect operator through being the senior partner in JVs with all the I0Cs operating in Nigeria; NNPC is the principal through her Production Sharing Contracts (PSC) with the I0Cs; NNPC owns, advertises and allocates oil fields; NNPC owns all the refineries in Nigeria as at May 2011; NNPC imports or licenses others to import all refined petroleum products into Nigeria; NNPC exports the crude and refined petroleum products. Yet NNPC is “broke�, she does not have adequate and reliable statistics to show the actual oil and gas production, import and export and revenue thereto in Nigeria.
Between 1985 and 1989, General Ibrahim Babangida unbundled NNPC creating all eleven NNPC subsidiaries specifically in 1988 and 1989. NNPC has eleven/ten subsidiaries, today PHCN also in its unbundling gimmick has eleven distribution companies, coincidence of numbers you may say. After over two decades of NNPC, the entire four refineries have packed up, more PPMC depots are empty, their pipelines, old, ill-repaired, poorly monitored and of course vandalized by greedy ones, not by unemployed. The unemployed only take advantage of already vandalized or leaking pipes. To really vandalize petroleum product pipelines, like oil bunkering is a business beyond the reach of the poor.
On December 19, 2009; Obi O. Akwani quoted the former petroleum minister, Odien Ajumogobia, as admitting “the oil and gas industry is in bad shape and that it suffers from, aging infrastructures and diminished production�.
In Feburary2009, Senator Ahmed Lawan, Chair of the Senate Committee on Public Accounts, decried a reported “discovery� by his committee that the reason Nigerian refineries were not working was because the “NNPC is getting paid for not refining� and the Corporation (NNPC) is collaborating with “others to make sure the refineries are not working�.
Engineer Abubakar Yar’ Adua promised to fix and run the refineries profitably by December 2007, of course, this never happened even though the sale of controlling interest in Nigeria’s Port Harcourt refineries by Obasanjo-led regime was rescinded according to the former NNPC Group Managing Director’s argument to the senate during his screening.
To demonstrate Nigeria’s “incompetence� in oil and gas sector, the FGN at a time looked up to Hungary, Romania and Senegal to either refine oil for Nigeria or have Nigeria commission refineries in their countries to refine oil for Nigeria.
When Obasanjo sold controlling interests in Nigeria’s refineries to Blue Star consortium of Alhaji Aliko Dangote’s Equity Energy Resources, Femi Otedola’s Zenon oil and Transnational Corporation, a deluge of outcry poured out. This transaction was cancelled. One is reminded that since Dangote took over cement (and sugar) cement prices have been on the increase, yet the other side of the coin is that Dangote has high cost of operation ranging from generating his own electricity, water and housing infrastructure, thereby making Dangote’s cost of production quite high. Moreover, Dangote cement/Obajana cement provides more jobs to Nigerians than importation of cheap cement, assuming Nigeria is focused on employment generation. This selling or not selling Nigeria refineries to private investors is not a solution.
Nigerian Extractive Industries Transparency Initiative (NEITI)
NEITI is local (national) subset of the global Extractive Industries Transparency International (Initiative) (EITI). This Initiative is meant to engender due process and transparency in payments by Extractive Industry (EI) companies to governments and government-linked entities.
NEITI Act 2007 assented to on May 28, 2007 made Nigeria the first EITI-implementing country to have a national statute backing its existence and operations.
As we review Nigeria’s oil and gas industry from NEITI eyes note the following:
· Information about oil and gas industry is generally not available, particularly to the public
· Incongruence of statistics about the industry across different stakeholders.
· NEITI is an outsider to oil and gas operation in Nigeria.
To complete the introduction to this section, we will quote Business day of 3rd March 2011, as it quotes Reuters under the headline “NNPC� has poorest transparency, says TI, RWI
“The Nigerian National Petroleum Corporation (NNPC) had the poorest transparency record of 44 national and international energy companies evaluated in a report published by international watchdogs this week.
“Transparency International (TI) and Revenue Watch Institute (RNI) rated a list of oil and gas companies which represents 60 percent of global output, on how they reported revenues and disclosed information on anti – corruption programmes.
“The report, released on Tuesday and based on research carried out in 2010, showed that publicly listed companies score better than non – listed firms, while international oil companies fare better than national oil companies.
“The NNPC was the only company to score zero on organizational information disclosure which included provision of details of deals agreed with governments and partners on energy projects. The average score was 65 percent.
“NNPC was among eight companies, including Angolan State firm, Sonangol, and Russia’s gas export monopoly – Gazprom, to score zero percent on reporting anti-corruption programmes.
“Officials at NNPC could not be reached for comment
“A separate report last month showed NNPC was using its position as both buyer and agent for the Nigerian government to make profit that should have gone into state coffers.
“By disclosing anti-corruption measures and key organizational and financial data… companies demonstrate their commitments to stopping the misappropriation of revenue�, the TI and RWI report said.
“In particular, detailed publication of fiscal payments allows citizens to hold governments to account�.
“Problems of inefficiency and corruption within NNPC have been acknowledged by the Nigerian government which has ordered a comprehensive audit. Many of the issues are supposed to be addressed by wide-ranging reforms contained within the Petroleum Industry Bill currently before the parliament. “Nigeria, which produces more than 2 million Barrels per day (bpd) of crude oil, is ranked by transparency watchdogs as one of the most corrupt countries in the world�.2
Earlier on February 5, 2011 Vanguard newspaper under the headline “Lack of accountability in oil & gas sector, quoted professor Assisi Asobie, the chairman of the National Stakeholders’ Working Group of NEITI, with respect to 2006 - 2008 NEITI report as follows:
“The Nigerian Extractive Industries Transparency Initiative (NEITI) has called for a major technological revamp of the nation’s oil and gas industry in order to improve transparency in extraction of crude as well as in the receipts and payments among operators in the industry.
“The Chairman of the National Stakeholders’ Working Group of NEITI, professor Assisi Asobie, who stated this in an interview with our correspondent, noted that poor accounting and measurement of oil and gas production was a major challenge to the Initiative.
“He said, “We have been having problems with knowing exactly how much is produced, so we have commissioned a consultant to help us know the international best practices with regard to production accounting.
“It is so important because if you do not determine how much is lost, those companies that are producing benefit, and Nigeria is cheated. It is in the interest of producers that the status quo is maintained and that the nation never knows how much is lost and who is stealing the product.
“You know wherever there is anarchy, some people take advantage of the situation, and the way Nigeria’s oil and gas industry is structured today has given so much room for stealing and corruption to go on�.
“Asobie was speaking against the backdrop of the latest reconciliatory report released by NEITI, which covered 2006 to 2008 and publicized on the website of the extractive industries watchdog that disclosed several discrepancies in the operations of the conglomerate, especially with regard to its crude liftings and payments made into the Federation Account by the Nigerian National Petroleum Corporation (NNPC).
“According to the report, there is a “conflict of interest� in the buying and selling of crude by the corporation on behalf of Federal Government, and the concomitant financial corruption in the process, and called for a review of the system.
“It stated, “NNPC should not both buy Federation Crude oil and sell the same crude on behalf of the Federation. NNPC obtains a financial benefit by delaying sales documentation until it can choose an advantageous pricing option and make additional profit with the benefit of hindsight.
“This is contrary to the spirit of decision taken in 2002 that NNPC should pay the market price for crude. Restructuring of NNPC should ensure arm’s length dealing between the federation & NNPC in relation to the sale of crude.�
“It added that the corporation should pay for domestic crude in accordance with correct credit period.
“Export crude is marketed on behalf of Federation by the NNPC Crude Oil Marketing Division (COMD) while domestic crude is sold by the federation to NNPC.
“According to the report, the accounting system used by NNPC for equity crude is still largely not automated “with consequent reconciliation and fund sweeping interface difficulties.� It added that “As recommended in previous years, COMD should maintain a timely sales ledger account for the sale of federation crude. This is, especially important as regards domestic crude where NNPC fails to make timely payment & the federation lacks the record to understand how (what) is payable by NNPC at any time.
“The report further stressed that “the COMD lacks a system to manage & follow up on debts for crude sold, particularly to NNPC itself. The transaction system manages the single most significant source of income to the federation. The system should be urgently upgraded to best practices.�
“According to Asobie, there is need, therefore to use the latest electronic technology that can detect where these pipelines are sabotaged and the capture the images, so that the perpetrators can be apprehended and made to face the wrath of the law.
“He said, “oftentimes, the Department of Petroleum Resources (DPR), has complained to us that they cannot do it (effective monitoring and measurement) that is why we got someone from abroad to help us identify these technologies that use sonic systems and then use cameras to capture those behind the theft.
“We know that there are bigger personalities behind all these pipeline sabotage than the so called militants, so it is important that we begin to do things differently to ensure that a few people do not benefit from the wealth that belongs to everyone.�
“He added, “What we do in NEITI is to find out how much oil and gas are being produced in Nigeria, and, therefore, how much royalty & taxes also accrue to the country.
“Part of our responsibility is also to find out the deficiencies in the regulatory agencies like DPR, and help to remedy those deficiencies; we want to know what challenges they face in determining how much oil is produced and exported from the country.�
“The NEITI report also raised some issues worth the production sharing contract, which is managed by NNPC. It is noted that there were unresolved accounting issues in the area of PSC tax & royalty oil.
“There is a long running dispute between NNPC & PSC operators as to the interpretation of the calculation of cost oil under PSC; this has the effect that the parties cannot agree on the amounts being lifted by NNPC.
“Amounts reported for this reconciliation revealed different interpretations of the same lifting transactions; the issue should be resolved speedily.
“In 2007, a new system of bank a/cs was introduced to reflect the provisions. That system did not work well in the period under review. The method for accounting for tax and royalty PSC oil should be systematized�, it noted.
“It also noted that volumes reported by NNPC for crude oil liftings differed from those reported by companies operating the terminals.
“Companies report higher liftings than govt has accounted for. The differences between NNPC liftings, according to the records of NNPC and according to the information reported by companies, have not been explained,� the report noted.
“On signature bonuses, the report noted that “the Department of Petroleum Resources, DPR, provided incorrect information to the Reconciler, resulting in the issue of templates to companies being significantly delayed because the entities liable to pay signature bonuses and contract details for these entities were not known.
“As a result, not all these additional companies have returned their templates on signature bonus paid�.3
With the above lengthy quotes we end the introductory part.
Hence, our colleagues in NNPC as well as in International Oil Companies (IOCs) and even NEITI are in dilemma. However you and I can, if we are determined to make Nigeria’s oil and gas to go to the world top quartile.
Regards,
Nnadi Uc,
17897.
