Oil Spill

About 11,000 fishermen and others from Bodo community, Gokana Local Government Area of Rivers, who lost incomes when a pipeline belonging to shell burst in 2008 have rejected a £30 million (about N7.5 billion) or around £1,100 compensation offer for each person affected by the oil spill.

Martyn Day, a partner with the UK law firm Leigh Day who represented the Bodo people during the negotiation, told British newspaper, The Guardian that Shell's offer was rejected unanimously at a large public meeting in Bodo.

"The amount offered for most claimants equated to two to three years' net lost earnings whereas the Bodo creek has already been out of action for five years and it may well be another 20-25 before it is up and running properly again. I was not at all surprised to see the community walked out of the talks once they heard what Shell were offering."

Day said Bodo people unanimously rejected the compensation calling it "an insult", "cruel" and "derisory".
With the rejection of the compensation offer, a London court is now likely to decide how much the giant Anglo-Dutch company should pay 11,000 fishermen and others from the Bodo community who lost their income when the 50-year-old Shell-operated Trans Niger pipeline burst twice within a few months in 2008-09.

Shell, which took a top London negotiating team including a barrister, a QC and other legal experts to the negotiations, had indicated that it wanted to be fair, saying: "We have an interest in sensible and fair compensation being paid quickly to those who have been genuinely impacted by these highly regrettable spills."

A spokesman said: "We took part in this week's settlement negotiations with two objectives – to make a generous offer of compensation to those who have suffered hardship as a result of the two highly regrettable operational spills in 2008, and to make progress in relation to clean-up."

The company said it was disappointing that no agreement had been reached on compensation, but progress had been made in discussions about the clean-up process. Shell, which works in a partnership with the Nigerian government, had maintained that it had not been able to clean up the spills because the affected Ogoniland communities had insisted on getting compensation first and would not allow it access to the affected areas.

The spokesman told The Guardian: "Of course, the success of any interim measures and final remediation depends on the cessation of oil theft and illegal refining in the area, which re-impacts the environment and remains the cause of most oil pollution in the Niger delta."

Philip Mshelbila, Shell Nigeria’s head of communications, said: "One positive from the talks is that the Bodo community has indicated that the clean-up needs to start as soon as possible. I understand that an offer was put. We are very willing to take part in talks about the clean-up."

"Shell continues to treat the people of Bodo with the same contempt as they did from the start when they tried in 2009 to buy us off by offering the community the total sum of £4,000 to settle the claims," said Chief Kogbara, chairman of the Bodo council .

"We told them in 2009 the people of Bodo are a proud and fiercely determined community. Our habitat and income have been destroyed by Shell oil. The claim against Shell will not resolve until they recognise this and pay us fully and fairly for what they have done," Kogbara added.

Chief Tal Kottee, Bodo elected regent, said: "We had been expecting a good settlement from Shell. Our livelihoods here have been totally destroyed. It's an outrage that it has taken so long for a clean-up and to get compensation."

Chief Patrick Porobunu, leader of a Bodo fishing community, said: "Shell is cruel, very wicked. It has given us nothing again. People here are very angry. All we have is poverty because of Shell. We have no electricity, no health. Our suffering goes on."

International and regional groups condemned Shell, which is the largest company on the London stock exchange with a market capitalisation of £140.9bn, for what they called its "meanness".
Groups accused Shell of financial racism and applying different standards to clean-ups in Nigeria compared with the rest of the world.

"Is it because we are Nigerian and poor that they offer so little for the damage they have caused?" said one fisherman at the Bodo meeting. "This would be different in the US or London."

"Crude oil is the same in every country. Does the black man not also have red blood?" said another.

"It is a big shame on Shell that they are unwilling to pay a fraction of their profit as compensation after subjecting the people and the environment to such unthinkable harm they would not dare allow in their home country," said the Nigerian environmentalist and chair of Oilwatch International, Nnimmo Bassey.
- Thisday

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Aliko Dangote, CEO, Dangote Group of Companies

When Shell Petroleum Development Company’s (SPDC) executive director, Malcolm Brinded said recently that building a refinery in Nigeria did not make good business sense, he apparently had not reckoned with Aliko Dangote.

Africa’s richest man, Dangote has a history of being a disrupter of most industries he chooses to play in, like cement, sugar, and flour, and his foray into the oil sector with plans for a new 400,000-barrel-a-day (b/d) refinery has the prospect of shaking up Nigeria’s stagnant oil and gas industry.

The immediate area where Dangote’s refinery investment may push the government into reforming is in the elimination of fuel subsidy, say analysts.

“We are encouraged by recent plans announced by Aliko Dangote to build a new local refinery with a 400kb/d capacity, which should improve pricing terms for local producers,” said Renaissance Capital oil and gas analyst Lldar Davletshin.

“If a local refinery buys crude at world price it will then have to sell refined product with a mark-up, which would mean much higher domestic prices if no subsidy is provided,” Davletshin said.

Nigeria’s gross domestic product (GDP) grew steadily at about 7 percent per annum over the past 10 years with a population of 167 million.

Analysts say the country’s energy thirst is rapidly increasing (from the currently extremely low 300kb/d level), which should make the current fuel subsidy regime unsustainable in about three years, just as Dangote’s new refinery is coming on stream.

Refining “is an excellent business to get into,” Dangote said in an interview in May, suggesting it will be in a position to make a profit, by selling at international rates to fuel marketers.

The refinery would also shake up the entrenched international oil companies (IOCs) in Nigeria, as well as the notoriously opaque national oil company – NNPC, which has the poorest transparency record out of 44 national and international energy companies, according to Transparency International and Revenue Watch Institute.

The NNPC gets an allocation of 445,000bpd of crude oil to refine locally, but it has been selling itself this oil at cut-down prices, a practice that cost Nigeria $5 billion in potential revenue between 2002 – 2011, according to a 146-page report by Nuhu Ribadu, former head of the anti-corruption agency, EFCC.

Dangote’s new refinery would immediately double Nigeria’s refining capacity and reduce dependence on NNPC decrepit refineries as well as cut imports from refiners owned by the IOCs by up to 50 percent.

Its expected 100 percent capacity utilisation may convince the government and prove to sceptics of the need to privatise Nigeria’s four state-owned refineries.

Dangote’s new refinery, fertiliser and petrochemical complex would cost $9 billion. This compares with the NNPC $4.5 billion deal with an unknown ‘Vulcan Group,’ to build six modular refineries with a combined capacity of 180,000b/d, signed since early 2012, which has remained largely on the drawing board.

Nigeria, which is Africa’s top producer of crude oil, relies on fuel imports to meet more than 70 percent of its needs. Four government-owned refineries with a combined capacity of 445,000b/d are operating at a fraction of that because of corruption and poor maintenance.

Nigeria spent over N1 trillion ($8bn) on fuel subsidy payments last year, equivalent to 20 percent of the total federal budget, according to finance ministry data.

“Removing the fuel subsidy would be a major step forward in the reform process in Nigeria,” Samir Gadio, an emerging markets strategist, at Standard Bank, London, said, saying “clearly, this inefficiency is a major constraint on the country’s economic emergence which will eventually have to be addressed.”

President Goodluck Jonathan attempted to remove the subsidy in January 2012, but was forced by a wave of strikes and protests to partially reinstate it, at a reduced price of N97 per barrel. Another attempt by the government at deregulation would only come after the elections in 2015, according to FBN Capital.

The oil and gas industry accounts for 70 percent of the Federal Government budget and 90 percent of the nation’s dollar earnings. The Petroleum Industry Bill aimed at reforming the industry is currently stuck in the National Assembly, although Dangote’s move to establish a refinery may have already set in motion a reform of the industry.
- BusinessDay

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Minister of Power, Prof. Chinedu Nebo

Top officials of the Nigerian Electricity Regulatory Commission and the Bureau of Public Enterprises have met to work out modalities for the transfer of electricity companies carved out of the Power Holding Company of Nigeria to private sector investors.

The Assistant General Manager, Media, NERC, Maryam Abubarkar, confirmed this development in a statement made available to our correspondent in Abuja on Monday.

Present at the meeting, according to the statement, were the Chairman, NERC, Dr. Sam Amadi, and Director-General, BPE, Mr. Benjamin Dikki.

The meeting was held despite disagreements between the Technical Committee of the National Council on Privatisation and the BPE over the extension of time for preferred bidder for the Enugu Electricity Distribution Company, Interstate, to pay the 75 per cent balance of the bid price.

Although details of the decisions reached between the two government agencies could not be ascertained, Abubakar said the issues tabled at the meeting included the application of the Fit and Proper Guidelines and the business plans of the core investors.

Others were the framework for monitoring and enforcement of transaction agreements, and the formalisation of contracts pertaining to transmission, power purchase agreements, vesting contracts and gas supply agreements.

According to the statement, Amadi emphasised the importance of preparing grounds for a successful takeover by the investors.

He maintained that NERC would on its own strengthen the laid down procedures for monitoring and enforcement.

Amadi also stated that a priority of the commission was customer metering, without which, he said the industry could not stand.

The NERC boss said the owners of the new distribution companies would be required to adopt the existing metering scheme put in place by the commission or to provide a better alternative.

Another meeting has been scheduled for next week to review the Fit and Proper Guidelines as well as to agree on the mechanism for dealing with liabilities incurred post-handover, Abubakar said.

Eighteen electricity firms were carved out of the PHCN as part of the process to reform the electricity generation and distribution industry.

These included the Transmission Company of Nigeria, 11 distribution companies based on geographical coverage and six generating companies.

Out of the successor companies, core investors have emerged for 10 distribution companies and five generating companies. The process for the emergence of core investors for Afam Power Plc (a generation company) and Kaduna Electricity Company is currently ongoing.

While the prospective core investors have concluded payment for nine Discos, the payment for the Enugu Electricity Distribution Company has been shrouded in controversy.

The preferred bidder for the company, Interstate, owned by business mogul, Mr. Emeka Offor, failed to meet the August 21 deadline to complete the payment.

However, the privatisation agency has failed to invite the reserve bidder, Eastern Electric, being promoted by a former Minister of Power, Prof. Bath Nnaji, to take the slot as required by the privatisation rule.
- The Punch

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Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke

The Department of Petroleum Resources has said that 76 out of the 77 oil blocks awarded between 2005 and 2007 are largely dormant.

The Director, DPR, Mr. George Osahon, said at a forum on the 2005-2007 licensing round in Lagos on Thursday that the Federal Government awarded a total of 77 oil blocks through three bid rounds in 2005, 2006 and 2007.

He, however, expressed worry that only one of the blocks was currently producing, while less than 30 per cent of the remaining 76 were actively working.

Osahon lamented the fact that majority of the operators were using the delay in the passage of the Petroleum Industry Bill as an excuse not to develop their fields, arguing that this was improper and a ploy to blame the government for their challenges.

He said, “In the last three to four years, nothing has been happening in Nigeria’s exploratory sector, while in the marginal fields sector, only eight fields are currently producing out of the 24 fields awarded to 31 successful companies.

 “Only one block is currently producing, while less than 30 per cent of the blocks are actively working; several Production Sharing Contracts have yet to be signed, bank guarantees yet to be put in place, work obligations not respected and downstream obligations not performed.”

According to the breakdown of the 2005-2007 licensing rounds, 14 of the 44 oil blocks awarded in 2005 are onshore, eight deep offshore and 11 located in the continental shelf, while the remaining 11 are located in the Chad Basin, Benue Basin and Anambra Basin.

Indigenous exploration and production companies got 65 per cent of the oil blocks awarded in 2005, leaving the remaining for foreign firms.

The DPR director further explained that 16 oil blocks were awarded in 2006 with indigenous operators taking 40 per cent.

Eight of the blocks are deep offshore blocks, three onshore, two in the Chad Basin, while the remaining three are located in the continental shelf.

Osahon explained further that another 17 oil blocks were allocated in 2007, nine of which are located onshore, one deep offshore and the remaining eight located in the continental shelf.

Indigenous operators got 85 per cent of all the oil blocks allocated in 2007, leaving the remaining 15 per cent to foreign operators.

Despite that, Osahon expressed regrets that only one of the fields had hit production.

He said that the Federal Government was concerned about the inability of the operators to meet industry targets for reserves and production capacity; limited activities in the oil and gas industry; and the implications for the industry’s vitality and social challenges.

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Mr. Tony Elumelu, Chairman, Heirs Holdings

Heirs Holdings has acquired significant stake in Seadrill Mobil Units (Nigeria) Limited, a West African affiliate of New York listed global offshore drilling company, Seadrill.

As a result, the Chairman of Heirs Holdings, Mr. Tony Elumelu, according to a statement on Thursday, has been appointed as chairman of the board of Seadrill Mobil Units.

The statement added that the investment was a further evidence of Elumelu’s strategy of increasing African business participation across the oil and gas value chain, and complement existing interests in oil and gas production and exploration.

Seadrill, the world’s leading offshore driller, is listed on both the New York and Oslo stock exchanges, and operates the second largest ultra-deepwater fleet and largest premium jackup fleet in the industry with 7,500 employees in 15 countries.

Commenting on the investment, Elumelu was quoted to have said, “Seadrill is a significant player in the oil and gas space, with a strong track record and one of the most respected names in the industry. The partnership makes strong commercial sense, bringing together a major global player and a leading African participant in the oil and gas industry.

“Successful development of Nigeria’s deep water oil and gas fields is of strategic importance to our country. This is an important part of our own approach of creating synergistic added value investment across the energy sector, from extraction to processing, and perhaps most importantly for Nigeria, industrial production and power generation.”

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Diezani Allison-Madueke, Nigeria’s Minister of Petroleum.

The Gulf of Guinea accounts for 27 percent of oil supply to Europe.
The Nigeria government on Wednesday lamented the rising insecurity in the Gulf of Guinea as a result of the activities of kidnappers, pirates and crude oil thieves.
The Minister of Petroleum Resources, Diezani Alison-Madueke, who was speaking at the First Nigerian Navy Offshore Patrol Vessel Africa Conference (OPV) in Lagos, said the development has resulted in many cases of hijacking, unauthorized vessel boarding and kidnapping in the region.
The Gulf of Guinea, which consists of 15 countries with oil production in excess of 5.4 million barrels per day in 2012, accounts for an equivalent of about 27 per cent of oil supply to the European Union and 29 per cent of total petroleum consumption in the United States in 2011.
Mrs. Alison-Madueke, who described the situation as unacceptable, said crude oil theft and illegal oil bunkering in the Gulf has become a major source of concern to the Federal Government, with U.S. Naval Intelligence Report indicating about nine hijacking incidents, 55 unauthorized vessel boarding, several kidnappings and vessels fired upon in the first half of this year.
The Minister, who was represented at the occasion by the Group Managing Director of the Nigerian National Petroleum Corporation, NNPC, Andrew Yakubu, underlined the significance of maritime security to the region, saying that it was necessary to maintain the flow of revenue from oil and gas.
She said that the current high insecurity had negatively impacted the region’s broader economic development, adding that maritime resources such as fish, aquaculture and the ecosystem which directly contribute to the livelihood of many Africans had been affected.
With Nigeria and Angola accounting for 47 and 34 per cent of the total oil supply production in the Gulf respectively, the Minister said it was extremely important that countries in the region and their allies collaborate to police the sea lanes, noting that disruptions in crude oil supplies not only affected countries such as Nigeria but ultimately negatively impacted the global economy.
Mrs. Alison-Madueke called for increased domestic efforts in addressing the menace, pointing out that addressing illegal crude oil bunkering was a multi-dimensional challenge that required a multilateral approach to succeed.
Mrs. Alison-Madueke noted that resurrecting the Gulf’s security protocol as well as collaboration between Nigeria and other countries in the region would go a long way to help address the maritime security issues.
The conference, which had as its theme: Delivering Maritime Security to Africa, was attended by Navy formations from countries in the Gulf with presentations from local and international resource persons.
- Premiumtimes

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Chief Aliko Dangote

The Dangote Group has said it will sign $5.55bn loan deals with financiers on September 4 for the building of a $9bn refinery and petrochemical complex to be located at the Olokola Free Trade Zone, Ondo State.

The group told Reuters on Tuesday it would borrow $3.3bn for the 400,000 barrels a day refinery expected to double the country’s refining capacity by late 2016.

The conglomerate, with business interests in cement, food processing and oil and gas, also said it was seeking another $2.25bn from development funds for the refinery.

When put together, about $5.55bn will be sourced externally from financiers and the group said the loan deals would be signed with the financiers on September 4.

The Chairman, Dangote Group, Alhaji Aliko Dangote, who recently emerged as Africa’s richest man, said he would put $3.5bn down as his own equity.

Dangote had in April said he would put down $4bn of his personal fortune to build the refinery, while international financial institutions would raise the balance.

The Dangote Group spokesman, Mr. Anthony Chiejina, who spoke with Reuters, said, “We are not resting on our oars. The complex, including petrochemical and fertiliser plants, could be the single largest contribution to this government’s economic transformation agenda.”

The 400,000-barrel capacity, experts have said, would almost double Nigeria’s current refining strength.

“This will really help not only Nigeria but sub-Saharan Africa. There has not been a new refinery for a long time in sub-Saharan Africa,” Dangote had told Reuters in a telephone interview.

Nigeria currently has the capacity to produce some 445,000 barrels per day from four refineries, which operate well below that owing to decades of mismanagement and corruption.

The country relies on subsidised imports for 80 per cent of its fuel needs.

Dangote said the country’s ability to import fuel would soon be challenged.

“In five years, when our population is over 200 million, we won’t have the infrastructure to receive the amount of fuel we use. It has to be done,” he said.

Past efforts to build refineries have often been delayed or cancelled, but analysts have said Dangote should be able to build a profitable Nigerian refinery, owing to his past successes in industry and his strong government connections.

Analysts have said previous attempts to get the refineries going were held back by vested interests such as fuel importers profiting from the status quo.

“The people who were supposed to invest in refineries, who understand the market, are benefiting from there being no refineries because of the fuel import business. Some are going to try to interfere,” Dangote said.

He said making a new refinery run at a profit would work even if the government failed to scrap the subsidised fuel price that has deterred others from investing.
- The  Punch

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Aliko Dangote

A major milestone towards the construction of Nigeria’s first private and Africa’s largest petroleum refinery will be reached on September 4, with the signing of a term loan between Dangote Group and a consortium of local and foreign banks for the financing of the project.

Dangote Group is committing an equity of $3.5 billion to the massive project, BusinessDay has learnt. In what could be the single largest contribution to the Nigerian government’s economic transformation agenda, Dangote Group plans to invest $9 billion to build the largest refinery/petrochemical/fertiliser complex in Africa at the Olokola Liquefied Natural Gas (OKLNG) Free Trade Zone.

According to a company official, “we are not resting on our oars as we seek to make possible what could be the single largest contribution to this government’s economic transformation agenda, with our investment of $9 billion in the largest refinery/petrochemical/fertiliser complex in Africa.”

Dangote plans to raise additional $2.25 billion from the DFIs and ECAs to augment its equity contribution of $3.50 billion. The Group reported that due to the vastly improved investor friendly environment in Nigeria, there was a tremendous response by reputable international finance organisations to participate in this syndication.

Dangote Group has in the last five years increased 10-fold to a market capitalisation of $22 billion and today accounts for over 30 percent of the total market capitalisation of the Nigerian Stock Exchange.

The Group said that its massive expansion in the last five years has coincided with the tenure of this administration and have been due mainly to the formulation and implementation of progressive policies of this government, like the cement backward integration policy that has seen Nigeria achieve self-sufficiency in cement production.

A company spokesman said, the “administration has helped create and maintain the enabling environment that has encouraged it to invest over $6 billion in the Nigeria cement manufacturing industry in the last seven years.”

Aliko Dangote, Africa’s richest man, recently unveiled the Group’s plan to invest up to $8 billion to build a Nigerian oil refinery with a capacity of around 400,000 barrels a day and it could come on stream by 2016.

Dangote Group has chosen to walk a path where others have been unable to thread, and analysts said last night they expect the refinery to help cut Nigeria’s oil import volumes significantly while also helping to deal a blow on the opaqueness around the subsidy management system. Nigeria’s installed refined capacity today stands at 415,000 barrels per day, but the government-owned refineries in Port Harcourt, Warri and Kaduna operate at around 30 percent of capacity.
- BusinessDay

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Executive Secretary, NCMDB, Mr. Ernest Nwapa

The Nigeria Content Development and Monitoring Board, NCMDB, said it currently has over US$200 million in its Fund, to promote the execution of projects in the oil and gas sector in areas such as fabrication, manufacturing, and training of local talents.

The Executive Secretary of the Board, Mr. Ernest Nwapa, who disclosed this also, hinted that over N2 billion had been invested in the construction of fabrication yards across the country, noting that it had a zero account when it commenced operations three years ago.

“I will rather say that there have been more opportunities in the industry since the creation of the board. Although as at the time we started, we operated from a zero account but today $200 million fund with us,” he said.

Within three years of enforcing the local content initiative in the oil and gas sector, he explained that it has achieved 90 per cent content in local engineering, 50 per cent in fabrication, and seven per cent in manufacturing.

Nwapa disclosed this while speaking on the theme: “Three years of Nigeria Content: Achievements and Challenges,” at the Annual Conference of the National Association of Energy Correspondent, NAEC, in Lagos last week.

He stressed that over the past three years, the Board had made huge progress in achieving the objectives of the Minister of Petroleum Resources, in relation to marine vessels ownership, local fabrication, job creation and manufacturing.

According to him, “As part of our plans to moving the industry forward we will launch two tanker vessels that will carry Nigerian crude oil. This will be the first in the country.”

He reiterated that the Nigeria content initiative is aimed at bringing back lost jobs to the country, saying, “Nigeria for decade has been buying and importing things that we need in the sector. This has resulted to the loss of opportunity to create jobs for Nigerians.

“America realised the importance of bringing jobs back to America and for Americans. Nigeria should not be left out; we should strive to do the same.

“The Nigeria content aims to do just that which is to bring back lost jobs into the country. But in an attempt to be a robust oil producing country, Nigeria must have the facilities, operators own and manage assets in the industry.

“In addition, the Board is involved in direct training to develop local skills which is a model of training Nigerians and sending them abroad. This has been done in collaboration with PETROFAC and OGTAN,” he said.

Nwapa argued that the NCDMB is becoming a robust entity owing to the growth of more indigenous players in the industry, and haven seen the success of the local content initiative in the petroleum industry, the National Assembly is currently deliberating on laws in spreading the Nigeria content law to all sectors of the economy.

“We can make Nigeria a great oil producing nation, but in doing so, we need the support of the press. The Nigeria content law does not deprive anybody to work in the industry, but encourages everybody to work,” Nwapa said.
- Vanguard

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Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke

Hopes for a harmonized stance on the contentious Petroleum Industry Bill, PIB, between the Federal Government and the oil majors under the auspices of the Oil Producers Trade Section, OPTS, dim further. Both parties maintained their positions at the just concluded conference organized by the National Association of Energy Correspondents.

The PIB Lead Team and Group Executive Director, Exploration and Production, Nigerian National Petroleum Corporation, NNPC, Mr. Abiye Membere, who was represented by Mr. Victor Briggs, maintained that the PIB if passed into law will be beneficial to all stakeholders.

He listed some of the benefits of the bill to include:

•Creating a robust economic environment to attract investments

•Growth of revenue beyond the short term

•Create strong and independent regulators to develop and enforce open, fair and transparent rules in the oil and gas sector

•Liberalize and regulate the downstream and midstream sub sectors of the oil and gas industry

•Create a commercially-oriented national oil company that will compete effectively with its peers

•Foster progress on government transformation agenda especially in the areas of growth, employment creation, power and industrial development.

•Sustain the gains of Nigerian content development and in-country capacity and capability.

Membere said the PIB represents the largest overhaul of the government petroleum revenue system in the last four decades, as it is meant to simplify the collection of revenues and cream off windfall profits in case of high oil prices.

OPTC disagree

However, the Chairman of OPTS and Managing Director, Mobil Producing Nigeria Unlimited, Mr. Mr. Mark Ward, said that if the PIB is passed as it is currently, oil and gas production will decline from 63 percent to about 25 percent.

He said that this will translate to about $185 billion loss in revenues for all stakeholders, as new projects will be stalled.

He argued that the PIB will create one of the world’s harshest production sharing contract, PSC regime, as Nigerian governmentstake (royalties, taxes and NOC profit oil) at 96 percent, is the highest in the world.

He cited other oil producing countries where government take is lower, such as Trinidad and Tobago (58 percent), Angola (62 percent), Nigeria, pre-PIB (70 percent), Equatorial Guinea (75 percent), Egypt (79 percent), Malaysia (85 percent), and Indonesia (89 percent).

According to Ward, “The cumulative effect of this is a combination of higher royalties and taxes with reduced incentives such that: no new deepwater investments are economically viable and they will not go forward, 90% of new JV gas production will not happen, 30% of new JV oil production will not materialize.

“As part of our analysis of the PIB, we also compared the proposed fiscal terms with 20 other countries. What we see across the board is that when a country has relatively high royalties, they balance it with relatively lower taxes or higher taxes with lower royalties with incentives in both cases providing some balance.

“However, the PIB doesn’t have this balance and the result is that Nigeria would have one of the harshest fiscal regimes in the world. This will make it very difficult for Nigeria to attract the required foreign capital to offset decline let alone grow production. And this comes at a time when the global energy landscape is drastically changing.”

Ward cautioned that Nigeria must get it right now especially with the advent of the shale gale and the discovery of oil in other African countries.

“As you know, new technologies are unlocking shale oil and gas in the US with Russia and China expected to follow. Closer to Nigeria, there have recently been significant gas discoveries in East Africa and West Africa is opening new areas with attractive terms up and down the region. On the market side, recent refinery upgrades are reducing the need for light crudes like Nigeria’s Bonny crude putting pressure on crude sales. All these advances are creating direct competition for investments dollars with Nigeria … That is why now, more than ever, it is important that we get PIB right to keep Nigeria competitive for investments,” he said.

As regards gas, the OPTS chairman also expressed the organization’s concerns over non-fiscal issues which he said would further create uncertainty for the industry and impede investments.

He identified some of these non-fiscal impediments to investments to include:

Licenses and leases – Current PIB terms do not provide adequate time for optimal field development and includes aggressive relinquishment requirements and uncertainty about renewals.

Contract sanctity – Sanctity of contracts is critical to promote a conducive business environment and maintaining investor confidence, especially in the oil and gas industry which requires high up-front investments that take many years before the investments hopefully pay back. Thus, there is a difference between changing a law and changing a contract.

Dispute resolution – Access to independent arbitration is a key part of a secure investment environment, and a globally-accepted practice. PIB should seek to do the same as also is provided in the current law. PIB as proposed has government regulators providing the final decision on business disputes.

He therefore advocated for a bill that would result in globally competitive terms and an investor friendly enabling business environment so as to retain the international capital required to materially grow Nigeria’s production.
- Vanguard

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Dr. Sam Amadi, Chairman, NERC

The Chairman of Nigerian Electricity Regulatory Commission, NERC, Dr. Sam Amadi, has assured Nigerians that the challenges faced by Power Holding Company of Nigeria, PHCN, will soon be a thing of the past, as his commission had given licenses to companies that understand the major challenge facing Nigeria in the sector to generate power.
He also spoke of plans to increase power supply in the country to 9,000 megawatts, but he noted that the plans would still not be enough for a country as large as Nigeria.

Speaking during a joint workshop organised by Journalists for Democratic Rights (JODER) and the Nigerian Human Rights Community (NHCR) in Lagos at the weekend, Dr. Sam Amadi, the Chairman of NERC, said the support of Nigerians and civil society organisations was crucial to helping the sector .

While emphasizing on other issues concerning the power sector, he urged the human rights society to get organised and set up a civil society group that would be in a position to represent the communities for public hearing, which should either be funded by the government or organisations.

“This group should create a coalition that would be called ‘consumer advocate’ believing it would affect the lives of the people. Nigerians should come together and partner with NERC through the human right groups in the country to handle the situation and look for a way forward,” he added.

He said the plan was to have 6,000 megawatts in 2012 at N24 per unit cost, adding that everybody was not supposed to pay the same amount because of the state of the very poor people in the society who consume very little energy.

“No one will want to invest on Power Holding Company of Nigeria (PHCN) unless they know how they can get their money back…South Africa for instance, produces 40,000 megawatts with 40 workers while Nigeria produces 4,000 with 40 workers also, which is not rational and people are the ones losing, South Africa has about 42,000 while India is about to add another 100,000,” he said.

Amadi stressed that the N24 cost was changed to N4 per unit and was made possible through subsidy, explaining that low tension and maximum demand have no subsidy because the connection is directly from the transformer.

Also reacting to the increased service charge by PHCN from N500 to N750, he stated that what should bother Nigerians is effectiveness of the service not the charges.

His words: “Although the service charge ordinarily looks much, it is nothing compared to the N180,000 compulsory service charge industrialists pay monthly. What I think we should bother ourselves with now is how effective is the service going to be soon.”

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Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke

Four years after BG Group divested from Olokola LNG project, two other International Oil Companies, IOC, Chevron and Shell, have pulled out, a source has said.

Both companies have a combined shareholding of 39 per cent in the project, having 19.5 per cent stake each in the company.

According to the source, a senior official in the company, the pulling out of the oil majors is due to a number of factors, ranging from the lack of commitment on the part of the Federal Government to pursue the completion of the project and also the non-passage of the Petroleum Industry Bill, PIB

However, efforts to get the comments of the companies regarding the development, proved abortive, as Mr. Precious Okolobo and Mr. Kayode Adeboye, spokespersons for Shell and Chevron, respectively, refused to respond to enquiries put forward to them.

When contacted, both men promised to respond to the issue, but as at the time of going to press, their responses were yet to be received.

BG Group, the United Kingdom’s third-largest natural gas producer, had in August 2009, said it was pulling out from the LNG export project.

The Olokola LNG project was initiated in 2005, with the Nigerian National Petroleum Corporation, NNPC, as the major shareholder, with 46.75 per cent stake, while BG Group, which had earlier withdrawn, has 14.25 per cent.

The source said the project, which is the most cost-effective LNG project in Nigeria, if allowed to come on stream, would have served as a major contributor to Nigeria’s economy development.

According to the source, a number of projects already undertaken at the site, risk being abandoned, such as the pioneer camp among others.

The source said, “The project was going ahead of schedule, all of a sudden, funding ceased.”

The Olokola Liquefied Natural Gas project is located between Ogun and Ondo States. The project was solidified in 2007 with the signing of an MOU between the shareholders. The plan of the project was for gas producers/owners to send natural gas to the facility where it would be converted to LNG for a fee and pumped into owner ships for sale.

The source said the frustration stems from the fact that many years after the memorandum of understanding (MoU) was signed, nothing concrete has been recorded.

According to the source, the MoU and shareholders agreement were signed in 2005 and 2007 respectively, Final Investment Decision was billed for 2007, while production was scheduled to begin in 2009; till date nothing concrete is seen.

“Presently, all the expatriates have left; the only people remaining are NNPC’s staff on secondment to the company and a few contract staff.”
- Vanguard

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Minister of Petroleum Resources,Mrs. Diezani Alison-Madueke

 The Minister of Petroleum Resources,Mrs. Diezani Alison-Madueke, has called on operators and service providers in the oil and gas industry to cooperate with the Nigerian Nuclear Regulatory Authority, NNRA, in its mandate to ensure effective monitoring of nuclear application in the industry.

Delivering a Keynote Address at the Technical Meeting on Regulating Nuclear Application in the Oil and Gas Sector- Challenges and Stakeholders Expectations, organized by the NNRA in Abuja at the weekend, Alison-Madueke noted that as the biggest importer of radio-active materials in the country, petroleum industry operators must conform to basic safety and security standards.

The minister, who is also the Chairperson of the Board of the Nigerian National Petroleum Corporation, NNPC, explained that nuclear applications in the petroleum industry in Nigeria are not new, with some practitioners having about half a century of experience.

She said some companies have close to 200 radioactive sources in some instances noting that these sources are high-risk sources and may cause serious concern if control over them is lost or inadequate.

“It was for concerns such as these that, amongst others, led to the promulgation of the Nuclear Safety and Radiation Protection Act (Act) in 1995, at the behest of the International Atomic Energy Agency (IAEA), and the subsequent establishment of the Nigerian Nuclear Regulatory Authority (NNRA) in 2001. Since its inception, the NNRA has been supervised by – the Ministry of Petroleum Resources,’’ the Minister stated.

While commending the NNRA for organising the technical session, Alison-Madueke noted that the Agency is responsible for Nuclear Safety and Radiological Protection Regulation. And it is also saddled with the mandate of ensuring the protection of life and the environment from the harmful effects of ionizing radiation.

“The need for the NNRA to safely regulate nuclear applications by bringing them effectively under control cannot be overemphasized. This shall also ensure the safety and health of personnel involved with their usage, as well as the safety of other members of the public,’’ She said.

She added that as member of the IAEA, and as a party to a number of binding and non-binding international treaties, conventions and agreements – is under obligation to properly regulate and control nuclear materials and radioactive sources.

“This is not only for the safety of the Nigerian public, but also to prevent these materials from diversion to illicit uses,’’ Alison-Madueke explained.  .

The Minister remarked that since its inception, the NNRA has taken steps to emplace a proper regulatory framework, within the context of its enabling Act, to effectively fulfill its major regulatory functions.

She said the agency is able to achieve this through a system of registration, licensing and inspection of practices involving ionizing radiation and the overall enforcement of compliance with the provisions of the Act.

She identified some of the specific regulations to include

·Nigerian Basic Ionizing Radiation Regulations (2003);

·Nigerian Safety and Security of Radioactive Sources Regulations, 2006;

·Nigerian Transportation of Radioactive Sources Regulations, 2006;

·Nigeria Radiation Safety in Industrial Radiography Regulations (2006);

·Nigeria Radioactive Waste Management Regulations (2006),

·Nigerian Radiation Safety in Nuclear Well Logging Regulations, 2008; and,

·Nigerian Naturally Occurring Radioactive Materials Regulations, 2008.

Vanguard

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    Corporation promises continued support to government to solve Nigeria's power problem
The International Finance Corporation, IFC has announced its plans to support investments that will add 1, 500 megawatts of power generation to the national grid.

Addressing news men in Lagos, IFC Vice President for Sub-Saharan Africa, Latin America and the Caribbean, Jean Philippe Prosper said the corporation has already signed a mandate to mobilize funds for a power generation company and aims to provide similar support for others, adding that IFC also plans to support up to three power generation companies.

“These projects will add 1,500 MW to the national grid and are part of the World Bank Group’s intervention in the sector which is built into the Energy Business Plan. IFC is also considering participation in a gas-to-power project,” he said.

He explained that under the Energy Business Plan, each World Bank group institution will leverage its competencies and products to provide solutions to projects that encourage their viability and contribute to the sustainability of the power sector.

Prosper further noted that, “the federal government has demonstrated strong commitment to successful implementation of the power sector reform so that all the pieces of a sustainable power sector are coming together. The World Bank Group has put together an Energy Business Plan that will allow IFC, the World Bank and MIGA to help address key project structuring issues and boost power supply to Nigerians,” he said.

“IFC and the other institutions of the World Bank Group are committed to supporting Nigeria with targeted interventions in the power sector that facilitate demonstration projects and boost investor confidence and contribute to better living standards,” he added.

It would be recalled that the Federal Government estimates that N1.6 trillion investment is required for infrastructure development in Nigeria to achieve its target of 40, 000 MW generation capacity by 2020.
- Vanguard

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Minister of Finance, Dr. Ngozi Okonjo-Iweala

The Minister of Finance, Dr. Ngozi Okonjo-Iweala, has decried the N232bn ($1.5bn) overpayments made to “fraudulent” oil marketers.

Okonjo-Iweala, who is also the Coordinating Minister for the Economy, made the plan known at the meeting of the National Council of Finance and Economic Development in Minna, Niger State on Thursday.

She said in 2006, the total petroleum subsidies paid to oil marketing firms amounted to N256bn (about $1.6bn) and by 2011, the bill had risen sharply to nearly N2.10tn.

“Even more striking was the increase in the number of oil marketing firms. While most countries have few well-organised fuel importers, Nigeria had a total of 143 such firms as of 2011. The certification process to verify the actual delivery of imported fuel was also very lax, resulting in widespread fraud in the operation of the scheme,” the News Agency of Nigeria quoted Okonjo-Iweala as saying.

The minister said there were cases where some firms submitted payment invoices for fuel deliveries in Nigeria when their stated cargo ships were actually berthed elsewhere in South America on the same dates.

She said the subsidised prices for petroleum products consumed domestically also created arbitrage opportunities and resulted in widespread smuggling to neighbouring countries.

To this effect, she said the Federal Government embarked on a comprehensive reform of the downstream petroleum sector by appointing the Aigboje Aig-Imoukhuede-led committee, which discovered lapses in the payment processes.

Okonjo-Iweala said, “Following the discoveries, the Federal Government put in place a number of remedial measures to combat fraud in the subsidy scheme.

“First, a tighter payment regime was introduced with new auditors and stricter guidelines for disbursement of subsidy payments. The increased scrutiny has slowed down the payment process somewhat, but also greatly reduced the likelihood of fraudulent payments.

“Second, we published the names of fraudulent oil marketing companies in the national press, and are in the process of prosecuting these fraudulent marketers to reclaim the stolen funds.”

To prevent further fraudulent payment claims, she said the government was introducing three electronic payment systems and oversight platforms.

The minister said, “The new Integrated Personnel and Payroll Information Systems will allow direct payment of government workers based on biometrics data. This has so far saved the government over N119bn through the elimination of ‘ghost’ workers.

“Also, a Government Integrated Financial Management Information System electronically links the treasury to other government departments and enables faster and more transparent movement of funds.”

Okonjo-Iweala said all these were the government’s way of providing checks and balances and ensuring the prudent management of public funds.
- The Punch

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Nigeria's Minister of  Petroleum Resources, Mrs. Diezani Alison-Madueke

The operating environment in Nigeria is deteriorating on a daily basis and poses a serious risk for companies in the oil and gas sector, according to, Royal Dutch Shell and Italy’s Eni.

This was contained in the second quarter 2013 financial summary of both oil majors.

A couple of days ago, Shell had declared that challenges in Nigeria eroded its profit for second quarter 2013 by $250 million (N40 billion). The challenges according to the company, was brought about by incessant crude theft and pipeline vandalisation.

Eni, in its interim update and second quarter results, said it lost about 30,000 barrels of oil equivalent per day in the first half of 2013. Using an average crude oil price of $102.62 per barrel, this translates to a loss of $3.08 million (N492.8 million) per day; $92.36 million (N14.77 billion) per month and $554.15 million (N88.7 billion) for the six months period.

The company said the loss was as a result of bunkering activities, sabotage of oil facilities and flooding in Nigeria.

It however stated that excluding the impact in Nigeria and Libya, it expected its Exploration and Production output to grow by more than three per cent for the rest of 2013. According to the company, performance in the second quarter 2013 was affected by force majeure events in Nigeria, and in Libya.

Similarly, Shell said its production volumes were significantly impacted by the deteriorating operating environment in Nigeria.

According to the company, the deteriorating operating environment in Nigeria impacted production volumes by some 100,000 barrels of oil equivalent per day in the second quarter 2013, and by 65,000 barrels of oil equivalent per day compared to second quarter 2012. The company said, “During the first half year 2013 the operating environment in Nigeria deteriorated substantially. An erosion of the business and operating environment in Nigeria is expected to adversely impact Shell’s earnings and cash flow from operations.

“Other than the deteriorating operating environment in Nigeria, there are no material changes in our Risk Factors for the remaining six months of the financial year.”


The operating environment in Nigeria is deteriorating on a daily basis and poses a serious risk for companies in the oil and gas sector, according to, Royal Dutch Shell and Italy’s Eni.

This was contained in the second quarter 2013 financial summary of both oil majors.

A couple of days ago, Shell had declared that challenges in Nigeria eroded its profit for second quarter 2013 by $250 million (N40 billion). The challenges according to the company, was brought about by incessant crude theft and pipeline vandalisation.

Eni, in its interim update and second quarter results, said it lost about 30,000 barrels of oil equivalent per day in the first half of 2013. Using an average crude oil price of $102.62 per barrel, this translates to a loss of $3.08 million (N492.8 million) per day; $92.36 million (N14.77 billion) per month and $554.15 million (N88.7 billion) for the six months period.

The company said the loss was as a result of bunkering activities, sabotage of oil facilities and flooding in Nigeria.

It however stated that excluding the impact in Nigeria and Libya, it expected its Exploration and Production output to grow by more than three per cent for the rest of 2013. According to the company, performance in the second quarter 2013 was affected by force majeure events in Nigeria, and in Libya.

Similarly, Shell said its production volumes were significantly impacted by the deteriorating operating environment in Nigeria.

According to the company, the deteriorating operating environment in Nigeria impacted production volumes by some 100,000 barrels of oil equivalent per day in the second quarter 2013, and by 65,000 barrels of oil equivalent per day compared to second quarter 2012. The company said, “During the first half year 2013 the operating environment in Nigeria deteriorated substantially. An erosion of the business and operating environment in Nigeria is expected to adversely impact Shell’s earnings and cash flow from operations.

“Other than the deteriorating operating environment in Nigeria, there are no material changes in our Risk Factors for the remaining six months of the financial year.”
The Vanguard

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BACKGROUND TO THE ESSAY

Nigeria is the largest producer of Petroleum in Africa and the sixth largest OPEC producer with proved reserves of more than 23 billion barrels. Nigeria's proven oil reserves are estimated by the U.S. United States Energy Information Administration (EIA) at between 16 and 22 billion barrels (3.5×109 m3) but other sources claim there could be as much as 35.3 billion barrels (5.61×109m3). Its reserves make Nigeria the tenth most petroleum-rich nation, and the most affluent in Africa (US E.I.A 1997). However, as oil prospecting continues in the Lake Chad basin and with new discoveries along the Anambra-Kogi basin, Nigeria’s proved and probable reserves are expected to be reviewed upwards. Over the years, the structure of the Nigerian economy had evolved to position the petroleum sector as the mainstay of the economy. The Petroleum industry currently accounts for more than 95% of the country’s foreign export earnings, over 80% of government revenue according to the International Monetary Fund (IMF) (EIA, 2012). The Petroleum sector also contributes well over 20% of the nation’s Gross Domestic Product. Econometric simulations (Iyoha (1995), Orubu (2003)) had established a strong linkage between the value of Nigeria’s oil export earnings and her economic performance. Following this, Scholars including Oriakhi (2003) have argued that oil in the next 20 years or so will continue as an independent variable in the economic growth and development of Nigeria. Not only is petroleum economically relevant, it remains a strategic national product providing the internal energy requirements of the country for both domestic and industrial use.

There are many products as well as by-products of Nigerian Crude including but not limited to the Premium Motor Spirit (PMS) commonly known as petrol, Automotive Gas Oil (AGO) commonly known as diesel fuel, and Dual Purpose Kerosene (DPK) for household and aviation uses (Orubu, 2003).

Minister of Petroleum Resources Diezani Alison Madueke

PETROLEUM PRODUCT PRICING AND ADMINISTRATION IN NIGERIA

Nigeria is a Country with a very high demand for all categories of petroleum products. Although figures vary, official sources show average demands are put at: PMS 30-33million litres per day; AGO  12million/d; Kerosene 10million/d; and ATK (Aviation Turbine Kerosene commonly known as aviation fuel) 1.6million -3million/d depending on the season (Vanguard, January 26, 2011).  Nigeria also consumes a high level of both Automotive Gas Oil (AGO) and the Dual Purpose Kerosene (DPK). The Ministry of Petroleum Resources (MPR) remains the overall coach of the Nigerian Petroleum industry with the Nigerian National Petroleum Corporation (NNPC) under the MPR serving as an industry operator and a direct handler of government interests in the sector. However, the NNPC first existed as the Nigerian National Oil Corporation (NNOC) which was established in 1971 (Orubu, 2003). The NNOC was established to strengthen Nigeria’s control over the petroleum industry (In view of the activities of powerful Oil Multi-National Corporations) and given responsibility for both up-stream and downstream activities in the sector. The NNOC also looked after Government’s participation in the activities of the oil companies. Before 1977, the Ministry of Petroleum Resources (which also had regulatory functions) operated side-by-side with the NNOC. That year, they were merged to form the Nigerian National Petroleum Corporation (NNPC). The NNPC combined the commercial functions of the defunct NNOC (that is, exploration, production, transportation, processing of oil, refining and marketing of crude oil and its refined products) with the regulatory functions formerly exercised by the Ministry of Petroleum Resources (National Bureau of Statistics, 2010). In March 1988, the NNPC was declared a commercial, integrated international oil company whose functions were to explore, develop,produce, process and market crude and refined petroleum, its by-products and derivatives at internationally-competitive prices in Nigeria and abroad.

Today, the NNPC has many subsidiaries but it is the Petroleum Products Pricing and Regulatory Agency (PPPRA) that was established in 2003 to determine the pricing of Petroleum Products and to regulate the supply and distribution of petroleum products (PPPRA 2013). The PPPRA is supposed to work in conjunction with other subsidiaries of NNPC to attain a strong, vibrant downstream sub-sector of the petroleum industry, where refining, supply, and distribution of petroleum products are self-financing and self-sustaining.

 THE WOBBLING STATE OF THE DOWNSTREAM PETROLEUM SUB-SECTOR

After about 56 years of commercial oil exploration and production (E&P), it could be argued that the upstream sub-sector of the Nigerian petroleum industry has been moderately successful owing largely to the massive investment of Oil Multi-National Corporations (OMNCs). Oil exploration and production (E&P) which is the source of crude oil has immensely contributed to Nigeria’s economic growth by serving as a major source of revenue and foreign exchange.

But this is probably where the good news ends for the Nigerian Petroleum industry. The downstream sub-sector of the industry which comprises of Refining (although sometimes placed under the so-called mid-stream sub-sector), Distribution and Marketing could best be described to be in a wobbling state. This is as a result of the high level of inefficiency in the sub-sector in terms of low value addition on crude oil.

The fact that bulk of Nigeria’s crude oil is refined abroad is a pointer to this fact. Although, Nigeria has about four Refineries including the old Port-Harcourt Refinery (1965), the Warri Refinery (1978) , the Kaduna Refinery (1980) and the new Port-Harcourt Refinery (1987) but these Refineries are functioning at sub-optimal capacity and the country continues to spend substantial foreign exchange to import fuels for domestic consumption (Orubu, 2003).

THE RESULTANT IMPORTATION PRICING POLICY

Domestic refining in Nigeria cannot meet up with domestic consumption so Nigeria resorts to importation of refined crude – This is actually the tragedy of the story of the petroleum industry. According to NNPC sources, Nigeria’s four refineries have a combined installed capacity of 445,000 bpd but using less than 30% of their installed capacity (Vanguard, January 23, 2012).  For almost the whole of 2010, the four refineries with a combined capacity in excess of 445,000 barrels per day could only refine a mere 80,757 metric tonnes of petroleum products. These are 19,967 of premium motor spirit, PMS or petrol; 53,223.4 MT of automotive gas oil, AGO or diesel; and 7,567MT of liquefied petroleum gas, LPG or cooking gas.

The rest volume of 8.1 million MT of petroleum products that came into the downstream sector was imported. But for the Federal Government/ Nigeria LNG LPD Domestic Supply Programme, only LPG was not imported (Vanguard, January 26, 2011).  With this low domestic refining capacity, Nigeria has no choice but to depend on importation of refined products to meet domestic energy requirements.

What this means is that Nigeria exports raw crude only to import refined petroleum products. To import these refined products, Nigeria would have to pay at the international price per metric ton plus other costs of landing the products in Nigeria. This explains the concept of importation pricing policy. More succinctly, we can explain the concept of importation pricing policy of petroleum products as the situation where Nigeria imports refined petroleum products (in millions of metric tonnes) at the prevailing international price plus other costs of landing the products in Nigeria as indicated in the PPPRA pricing template. This importation is usually undertaken by both the Nigerian National Petroleum Corporation (NNPC) and independent marketers. Not only do we import refined products, the process of importation is fraught with irregularities with high level of corruption including the inflation of figures of imported products (in order to make high subsidy claims) at huge costs to both the government and the Nigerian citizenry. It is worthy to note that the crude refined in Nigeria is supplied to end users at the same price with the imported products.

To understand how petroleum products are priced in Nigeria, we need to take a cursory look at the pricing template of petroleum products in Nigeria.

THE PETROLEUM PRODUCT PRICING TEMPLATE IN NIGERIA AS PROVIDED BY THE PPPRA

The PPPRA products pricing template (Daily & Monthly) is a pricing information sheet detailing the components used in deriving the PPPRA daily/monthly guiding products prices. It employs Import Parity Principle and this includes:

(i) Landing Cost of Products

(ii) Margins for the Marketers, Dealers, and Transporters

(iii) Jetty-Depot Through-put

(iv) Other charges and Taxes.

The objectives of the pricing template are to ensure transparency, full cost recovery, Fairness and efficiency in the importation process but how far this template has fulfilled these objectives could be called to question because of the secrecy, conservatism and non-disclosure in the practical sense.

DESCRIPTION OF COMPONENTS ON THE PRICING TEMPLATE.

 According to the PPPRA, with effect from February 2009, the components of the petroleum product pricing template include:

1.         PRODUCT COST ($/MT)

This is the monthly moving average cost of products cost as quoted on Platts Oil gram. The reference spot market is North West Europe (NWE).

2.         FREIGHT ($/MT)

This is the average clean tanker freight rate (World Scale (WS) 100) as quoted on Platts. It is the Cost of transporting 30, 000mt (30kt) of product from NWE to West Africa (WAF). Trader’s margin of $10/MT is also factored into the Freight cost.

3.         LIGHTERING EXPENSES ($/MT)

STS/Local Freight charge is the cost incurred on the trans-shipment of imported petroleum products from the mother vessel into daughter vessel to allow for the onward movement of the vessel into the Jetty. This charge includes receipt losses of 0.3% in the process of products movement from the high sea to the Jetty and then to the depot. The mother vessels expenses are based on the allowable 10 days demurrage exposure at the rate of $28,000 per day.

The Lightering Expenses also includes the Shuttle vessel’s chartering rates from Offshore Lagos to Lagos and Port Harcourt which currently stands at N2.00 per litre and N2.50 per litre respectively. Trans-shipment (STS) process is as a result of peculiar draught situation and inadequate berthing facilities at the Ports.

4.         NIGERIA PORT AUTHORITY (NPA) CHARGE ($/MT)

It is the cargo dues (harbour handling charge) charged by the NPA for use of Port facilities. The charge includes VAT and Agency expenses.

Currently, NPA charge attracts $10.50/MT on the pricing template.

5.         FINANCING

It refers to stock finance (cost of fund) for the imported product. It includes the cargo financing based on the International London Inter- bank Offered Rates (LIBOR) rates+5% premium for 30 days (for Annual Libor rate of 2.07%, LIBOR cost would be 7.07%). Also included in the Finance cost is the interest charge on the subsidy element being awaited for an allowable 60 days period at Nigerian Inter Bank Offered Rate (NIBOR) rate of 22%.

6.         JETTY DEPOT THRU PUT

This is the tariff paid for use of facilities at the Jetty by the marketers to move products to the storage depots. The value is currently N0.80/litre.

7.         STORAGE CHARGE

Storage Margin is for depot operations covering storage charges and other services rendered by the depot owners. The charge is currentlyN3.00/litre.

8.         LANDING COST

It is the cost of imported products delivered into the Jetty depots. It is made up of components highlighted above (1, 2, 3, 4, 5, 6 and 7).

9.         DISTRIBUTION MARGINS

These include Retailers (N4.60 per litre), Transporters margins (N2.99 per litre), Dealers margin (N1.75 per litre), Bridging Fund (plus Marine Transport Average) (N6.00 per litre) and Administrative charge (N0.15 per litre). This amounts to N15.49 per litre on the template. The overhead cost and other running costs have been considered in the determination of these margins.

10.       TAXES

These include highway maintenance, government, import and fuel taxes. It has the overall objectives of revenue generation, social infrastructure investment and servicing and efficient fuel usage. Presently, all these attract zero taxes.

11.       RETAIL PRICE

This is the expected pump price of petroleum product at retail outlet. It is made up of landing cost of imported product plus reasonable distribution margins.

THE PRICING TEMPLATE: USING PREMIUM MOTOR SPIRIT (PMS) AS A CASE STUDY.

Given the high usage of Premium Motor Spirit (PMS) commonly known as Petrol in Nigeria, we use it to provide a clue on how petroleum products are priced in Nigeria. Following the description provided above, the pricing template of PMS as provided by the PPPRA is as follows:

PPPRA PRODUCT PRICING TEMPLATE PMS        Based on Average Platts' Prices for the month of DECEMBER, 2012 Average Exchange Rate of the NGN =N= to US$ for the Month of DECEMBER, 2012 PMS $/MT Naira/Litre Cost Element; 1 C + F     1,009.92    119.66 2 Trader's Margin          10.00        1.18 3 Lightering Expenses (SVH)          33.46        3.96 4 NPA             5.25        0.62 5 Financing (SVH)          15.85        1.88 6 Jetty Depot Thru' Put Charge              6.75        0.80 7 Storage Charge          25.32        3.00 8 Landing Cost    1,106.55   131.10 Distribution Margins: 9 Retailers          38.83        4.60 10 Transporters          25.24        2.99 11 Dealers          14.77        1.75 12 Bridging Fund           49.38         5.85 13 Marine Transport Average (MTA)             1.27         0.15 14 Admin Charge             1.27        0.15  Subtotal Margins      130.74     15.49 Foot Note: 15 Total Cost     1,237.29    146.59 16 * Official  Ex-Depot        687.96      81.51 **  Under/Over Recovery  -      418.59    (49.59)  Taxes  17 Highway Maintenance              -   18 Government Tax              -   19 Import Tax              -   20 Fuel Tax              -   Subtotal Taxes              -   21 Retail Price        818.70      97.00 Expected Open Market Price (OMP) (Naira/litre) is Landing cost +Margins      146.59 * C+F price is Offshore Nigeria Conversion Rate (MT to Litres): 1341 Exchange Rate (N to $): 159.76 *  Official Ex Depot is exclusive of Bridging Fund, Marine Transport Average (MTA) & Admin. Charge  * *Ex Depot includes Bridging Fund, Marine Transport Average (MTA) & Admin. Charge  *** Effective Date of New Approved Pricing Template is 1st July 2011 Data is as at 31/12/12 The figures below show the importation of crude oil for the 31 days of the month of December 2012.   PPPRA Daily Products Pricing Template – PMS DECEMBER, 2012 Days C + F Trader's  Lightering NPA Exchange Jetty-Dep Depot  Sub-Total Financing Landing Cost Other Charges Dist. Margin  Expected  (Off. NGN) Margin Expenses Rate Thru'Put Charge OMP $/Mt ($/Mt) Charge (MV) (SVL) (SVH) (MV) (SVL) (SVH) (MV) (SVL) (SVH) ($/Mt.) ($/Mt.) (Naira/$) Naira/Litre Naira/Litre Naira/Litre Naira/Litre Naira/Litre Naira/Litre Naira/Litre Naira/Litre Mother Vessel Shuttle Vessel (SV) (MV) Low High 1 2 3 1016.08 10.00 7.72 29.26 33.48 5.25 158.88 0.80 3.00 126.90 129.45 129.95 1.80 1.89 1.90 128.71 131.34 131.86 6.15 9.34 147.35 4 1005.08 10.00 7.69 29.23 33.45 5.25 158.88 0.80 3.00 125.59 128.15 128.65 1.76 1.84 1.86 127.36 129.99 130.51 6.15 9.34 146.00 5 991.08 10.00 7.64 29.18 33.40 5.25 158.88 0.80 3.00 123.93 126.48 126.98 1.71 1.79 1.81 125.64 128.27 128.79 6.15 9.34 144.28 6 979.08 10.00 7.61 29.15 33.37 5.25 158.88 0.80 3.00 122.50 125.06 125.56 1.66 1.75 1.76 124.17 126.80 127.32 6.15 9.34 142.81 7 968.08 10.00 7.57 29.12 33.34 5.25 158.88 0.80 3.00 121.20 123.75 124.25 1.62 1.70 1.72 122.82 125.45 125.97 6.15 9.34 141.46 8 9 10 984.08 10.00 7.62 29.16 33.38 5.25 158.88 0.80 3.00 123.10 125.65 126.15 1.68 1.76 1.78 124.78 127.41 127.93 6.15 9.34 143.42 11 981.14 10.00 7.61 29.15 33.37 5.25 158.88 0.80 3.00 122.75 125.30 125.80 1.67 1.75 1.77 124.42 127.05 127.57 6.15 9.34 143.06 12 996.08 10.00 7.66 29.20 33.42 5.25 158.89 0.80 3.00 124.53 127.08 127.58 1.73 1.81 1.83 126.26 128.89 129.41 6.15 9.34 144.90 13 1008.97 10.00 7.70 29.24 33.46 5.25 158.89 0.80 3.00 126.06 128.62 129.12 1.78 1.86 1.87 127.84 130.47 130.99 6.15 9.34 146.48 14 1011.97 10.00 7.71 29.25 33.47 5.25 158.89 0.80 3.00 126.42 128.97 129.47 1.79 1.87 1.88 128.21 130.84 131.36 6.15 9.34 146.85 15 16 17 1022.47 10.00 7.74 29.28 33.50 5.25 158.89 0.80 3.00 127.67 130.22 130.72 1.83 1.91 1.92 129.50 132.13 132.65 6.15 9.34 148.14 18 1022.02 10.00 7.74 29.28 33.50 5.25 158.89 0.80 3.00 127.62 130.17 130.67 1.83 1.91 1.92 129.44 132.07 132.59 6.15 9.34 148.08 19 1027.08 10.00 7.75 29.29 33.51 5.25 158.89 0.80 3.00 128.22 130.77 131.27 1.84 1.93 1.94 130.06 132.69 133.21 6.15 9.34 148.70 20 1033.08 10.00 7.77 29.31 33.53 5.25 158.89 0.80 3.00 128.93 131.48 131.98 1.87 1.95 1.96 130.80 133.43 133.95 6.15 9.34 149.44 21 1021.08 10.00 7.73 29.27 33.49 5.25 158.89 0.80 3.00 127.50 130.06 130.56 1.82 1.90 1.92 129.33 131.96 132.47 6.15 9.34 147.96 22 23 24 1017.14 10.00 7.72 29.26 33.48 5.25 158.89 0.80 3.00 127.03 129.59 130.09 1.81 1.89 1.90 128.84 131.48 131.99 6.15 9.34 147.48 25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 26 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 27 1043.64 10.00 7.80 29.34 33.56 5.25 158.89 0.80 3.00 130.18 132.74 133.24 1.91 1.99 2.01 132.09 134.73 135.24 6.15 9.34 150.73 28 1034.19 10.00 7.77 29.31 33.53 5.25 158.89 0.80 3.00 129.06 131.61 132.11 1.87 1.95 1.97 130.93 133.57 134.08 6.15 9.34 149.57 29 30 31 1026.19 10.00 7.75 29.29 33.51 5.25 158.89 0.80 3.00 128.11 130.66 131.16 1.84 1.92 1.94 129.95 132.59 133.10 6.15 9.34 148.59 AVG 1009.92 10.00 7.70 29.24 33.46 5.25 158.88 0.80 3.00 126.17 128.73 129.23 1.78 1.86 1.88 127.95 130.59 131.10 6.15 9.34 146.59 Note: Off. NGN: Offshore Nigeria

Source: PPPRA

A HISTORY OF PETROLEUM PRODUCT PRICING AND FUEL SUBSIDY ADMINISTRATION IN NIGERIA

Over the years, the Nigerian government has intervened in the pricing of petroleum products. The Nigerian government unilaterally determines the pricing of petroleum products through the administration of a subsidy regime under the Petroleum Support Fund (PSF). Of all the essential products, only the Automotive Gas Oil (AGO) commonly known as gas is not being subsidized as it has undergone complete deregulation. The government periodically reviews the subsidy regime (and by implication the price of petroleum products) as determined by government’s fiscal position. Although, the government views the subsidy regime as a huge fiscal burden but attempts to completely remove the subsidy is usually met with very stiff resistance by labour unions and the general public (who see the subsidy as the only thing the masses benefit directly from government) through strikes and mass protests. So, the approach of government has been to increase the prices of these products marginally and then negotiate with labour unions. In January, 2012, President Goodluck Jonathan announced a full ‘deregulation’ of the downstream sector but still pegged the price of PMS at N142 per litre. With the new price tag of N142, many Economists including Professor Milton Iyoha have argued against government’s use of the term ‘deregulation’ as anti-economics since government still fixed the price of the products. He argued that the better term to describe the scenario was a fuel price increase (The Economist magazine, November 2012). Today, as reflected in the PPPRA template above, the official price of PMS is fixed at N97 (although the price varies across the country despite the existence of a Petroleum Equalization Fund (PEF) due to the high level of inefficiency and profiteering in the downstream sector) as against a total cost of N146.59 per litre (landing cost of N131.10 and distribution margins of N15.49) effectively giving a subsidy figure of N49.59 paid by government per litre imported.

Although, the purpose of the subsidy is to reduce the retail price of petroleum products for end users (and thus increase welfare gains) but this is argued against based on the premises that government’s activities in the downstream sub-sector have been largely distortionary. Below is a chronological presentation of petroleum product prices in Nigeria as administered by different political administrations since the 1970s:

Gowon, 1973: 6k to 8.45k (40.8%)

Murtala, 1976: 8.45k to 9k (0.59%)

Obasanjo, October 1, 1978: 9k to 15.3k (70%)

Shagari, April 20, 1982: 15.3k to 20k (30.71%)

Babangida, March 31 1986: 20k to 39.5k (97.5%)

Babangida, April 10 1988: 39.5k to 42k (6.33%)

Babangida, January 1, 1989: 42k to 60k Private vehicles.

Babangida, December 19, 1989: moved to uniform price of 60k (42.86%)

Babangida, March 6, 1991: 60k to 70k (16.67%)

Shonekan, November 8, 1993: 70k to N5 (614%)

Abacha, November 22,1993: petrol price drops from N5 to N3.25k (-35%)

Abacha, October 2,1994: N3.25k to N15 (361.54%)

Abacha, October 4,1994: price drops from N15 to N11(-26.67%)

Abubakar, December, 20, 1998: N11 to N25 (127.27%)

Abubakar, January 6,1999: N25 to N20 (-20%)

Obasanjo, June 1, 2000: N20 to N30 (50%)

Obasanjo, June 8, 2000: Petrol price reduced to N22 (-10%)

Obasanjo, January 1, 2002: N22 to N26 (18.18%)

Obasanjo, June to October, 2003: N26 to N42 (23.08%)

Obasanjo, May 29, 2004: N50 (19.05%)

Obasanjo, August 25, 2004: N65 (30%)

Obasanjo, May 27, 2007: N75 (15.38%)

Yar’Adua, June 2007: N65 (-15.38%)

Jonathan, January 1, 2012: N141 (117%).

January 28, 2012: N97 (-31.20%).

Source: Eme Okechukwu and Onwuka Chukwujekwu (2011)

6.0 WHY NIGERIA PURSUES A POLICY OF IMPORTATION PRICING OF HER PETROLEUM PRODUCTS.

From our analysis so far, it is very obvious that Nigeria pursues a policy of importation pricing of petroleum products essentially because she imports bulk of her products from abroad due to the fact that domestic refining capacity cannot meet up with domestic demand.

There seems to be an age-long conspiracy to ground the refineries or keep them at sub-optimal capacity so that the lucrative business of petroleum product importation will continue to boom. This is a grand conspiracy by past and present political leaders and their stooges in oil agencies (including the NNPC) and rapacious oil magnates to keep feeding fat on oil subsidy at the expense of the development of the downstream sub-sector and the Nigerian project as a whole.

The high level of general inefficiency (and specifically, inefficiency in the management of refineries) and corruption in the sector is mind-boggling. The Petroleum industry is one that is run like an elite secret society leaving the operations of the industry to be shrouded in secrecy ( largely because activities of the Nigerian Extractive Industry Transparency Initiative (NEITI) is inhibited) with lots of non-disclosure and false disclosure. This fact was recognized in a town hall meeting during the heated days of the fuel subsidy crisis by the President of the Trade Union Congress (TUC), Comrade Peter Esele when he described the operations of the NNPC and its subsidiaries as “the more you look, the less you see.”

The argument therefore is that as long as Nigeria’s domestic refining capacity cannot meet up with local demand, Nigeria would always resort to importation pricing of petroleum products. This is not an option for any inward and forward-looking country but that is the situation with Nigeria.   

THE IMPLICATION OF THE IMPORTATION PRICING POLICY: A THEORY OF WELFARE LOSS.

Nigeria’s policy of importation-pricing has wide-ranging national implications. Here, I attempt to capture these implications in a theory of welfare loss. The welfare loss includes losses being incurred by the masses, the private sector, the government and the general economy. These losses are captured below:

`

               i.            By buying petroleum products at imported prices, the Nigerian citizenry incurs a loss in standard of living despite the existence of a subsidy regime. This is because even with the subsidy, Nigerians are still buying petroleum products at a higher price than it would have been if the products are refined internally. When compared with other members of the Organization of Petroleum Exporting Countries (OPEC), we find that Nigeria has the second highest price of PMS per litre at N97 after Iran (N102.05). Yet Iran pays a national minimum wage of N86, 585 while about 18 states of the federation have not complied with the national minimum wage act provision of N18,000.

OPEC Member	PMS Price/Litre	Minimum Wage	Population	Production '000 bPD (2007)
Venezuela	3.61 Nigerian naira	95,639 Nigerian naira	29,105,632	2,340
Kuwait	34.54 Nigerian naira	161,461 Nigerian naira	3,566,437	2,340
Saudi Arabia	25.12 Nigerian naira	99,237 Nigerian naira	27,136,977	9,800
Iran	102.05 Nigerian naira	86,585 Nigerian naira	75,330,000	3,700
Qatar	34.54 Nigerian naira	101,250 Nigerian naira	1,696,563	810
UAE	78.18 Nigerian naira		8,264,070	2,500
Algeria	63.55 Nigerian naira	55,957 Nigerian naira	36,423,000	1,360a
Libya	26.69 Nigerian naira	23,813 Nigerian naira	5,670,688	1,650
Iraq	59.66 Nigerian naira	25,813 Nigerian naira	30,399,572	1,481
Nigeria	140–200 Nigerian naira	18,000 Nigerian naira	167 million	2,250

Source: Wikipedia
As of 28 January 2012, the exchange rate was 1 United States dollar = 160.9561 Nigerian naira

The table above when analyzed lead us to conclude that Nigeria has the lowest standard of living among all OPEC countries as far as petroleum product pricing is concerned.       

            ii. As long as importation and thus importation pricing of petroleum products continue, the country is indirectly exporting jobs and importing unemployment and poverty. The more worrisome is the fact that the products are even imported from non-oil producing countries like Amsterdam, India, Korea, Finland, Singapore, France, Israel, Portugal, Italy, Sweden, Tunisia and many more. Worst still, majority of the products are ex-vessels rather than ex-depots (Vanguard, January 26, 2011). If all of Nigeria’s oil is refined in Nigeria, lots of jobs would have been created in the value chain of the downstream sector and this would alleviated the high level of unemployment and poverty in Nigeria. This is a welfare loss to the Nigerian masses.

         iii. The continuous importation of petroleum products also orchestrates a loss for the private sector. The private sector is losing possible profits it could have recouped by investing in building private refineries. The continuous importation pricing and particularly the regulation of the downstream petroleum sub-sector by government is a dis-incentive for private sector investment in domestic refining. This is a loss to the private sector.

         iv.  The government is also at the losing end as far as the subsidy regime (which is a result of the importation pricing policy of petroleum products) is concerned. The government views the subsidy regime as a fiscal burden and (only as a necessary evil) as huge funds that are supposed to be pumped into development efforts are diverted into a corruption-ridden subsidy regime. Nigeria spends so much on the subsidy regime despite her infrastructural deficit. The sadness of the imports as well as the subsidies that go with them, made a former Minister of National Planning and former PPPRA Board Chairman, Chief Rasheed Gbadamosi, to declare, “Trillions of naira which should have been used to develop other sectors by providing basic infrastructure such as water, roads, schools, hospitals are being wasted, because the downstream allowed monumental laziness.” (Vanguard, January 6, 2011).

Figures from a factsheet presented by the Finance Minister, Dr. Ngozi Okonjo-Iweala (during a parley between government officials and opposition political parties) show that between 2006 and 2011, the country spent N3, 655.17 trillion to subsidise fuel. According to the Minister, the cash is 30 per cent of the total expenditure, 118% of the capital expenditure and 4.18% of the GDP.’ The Minister observed that in 2011 alone, about ‘N1.348 trillion was spent between January and October and it is expected to reach N1.436 trillion by the end of the year.’ Obviously, it is seen that the subsidy on imported petroleum products is a huge constraint on government finance expenditure since much of the funds that should go into infrastructural financing is swallowed up by the callous subsidy.

When Nigeria cannot play the role of a developmental state because of diversion of much-needed funds to a callous subsidy, then it could be argued that both the government and the society are incurring losses.

            v.            As importation and thus, importation pricing of petroleum products continue, the whole society is incurring a loss. With a distortionary subsidy regime, there is no incentive for private sector investment in the downstream sector (particularly in refining). The dearth of such investment denies Nigeria the possible value addition to the larger economy that a buoyant downstream sub-sector could have triggered. This is therefore a loss to the whole Nigerian society.

WAY FORWARD – ALTERNATIVE POLICY ACTIONS TO AVOID THE IMPORTATION PRICING POLICY PETROLEUM PRODUCTS IN NIGERIA.

Given the detrimental implications of the importation pricing policy of petroleum products especially with regards to the huge national welfare losses being incurred, it becomes necessary for Nigeria to seek alternative policy actions to avoid the importation pricing policy of petroleum products. The following alternative policy actions are recommended:

EFFECTING THE TURN AROUND MAINTENANCE (TAM) OF EXISTING REFINERIES

Nigeria’s four refineries have an installed capacity of 445,000 bpd but are currently operating far below capacity. There is need for Nigeria’s existing refineries to be repositioned to function at optimal capacity.

In this regard, Government should ensure that the overall Turn Around Maintenance (TAM) of our refineries as announced by the Minister of Petroleum Resources is properly supervised to allow the refineries function at optimal capacity and augment domestic supply. It is to be noted that the Federal government had announced that it had signed a contractual agreement with the original designers and builders of the existing refineries to effect a turn-around maintenance that will allow the refineries function at 90% capacity. It is important for the government to make true its words in this regard. This will serve at least as a short-run solution to reduce the quantity of imported petroleum products and reduce the imbroglio of importation pricing policy of petroleum products in Nigeria.

BUILDING NEW REFINERIES

It is unfortunate that all of Nigeria’s four refineries were built by the military. It is important for the government to invest in building new refineries especially the so-called green-field refineries.

Many analysts have argued that the way out of the current downstream quagmire is not only to get the four refineries to be truly operational, rather than mere political pronouncements as well as invest more in Greenfield refineries (Vanguard, January 26,2011).

In a lecture delivered during the heated days of the fuel subsidy protests, the Managing Director/Chief Executive Mobil Oil Nigeria Plc, Mr Yemi Oyebanji  argued that what import money can buy based on current value, the $7.6bn used to import petroleum products between January and November 2010, can comfortably build at least 10 green-field refineries  (Vanguard, January 26,2011).

However, there is a caveat here and that is the fact that from the Nigeria’s experience, government and her agencies are bad managers. Therefore, these new refineries should be handed over to the private sector to manage to ensure that they function efficiently. The erection of new refineries would raise local refining capacity and Nigeria would be able to avoid the importation pricing of petroleum products in Nigeria

FULL DEREGULATION OF THE DOWNSTREAM SUB-SECTOR

The dearth of private sector investment in the downstream sub-sector of the petroleum industry has been attributed to government’s regulation of the downstream sub-sector and the administration of a distortionary subsidy regime.

The existence of the oil subsidy has obviously stifled the much-needed private sector investments in the downstream sector of the oil industry. This goes with the attendant loss of potential jobs because of the dearth of investments in the sector. This is particularly disturbing especially in an economy with a very high unemployment rate as ours. Yet, we do know how much unemployment has contributed to the current wave of insecurity across the country. The oil subsidy as currently administered is neither helpful in capacity development nor building industry. Rather, by subsidising imported oil products, Nigeria only creates jobs for the exporting countries. If the subsidy is removed, it will enhance market competition and create the environment for private domestic refining to sustain domestic demand. As much as rudimentary economics tells us, no rational investor will put his investments where Government arbitrarily administers a regulatory price.

The Managing Director/Chief Executive Mobil Oil Nigeria Plc, Mr Yemi Oyebanji, argued at a recent conference in Lagos, “As long as it is easier for people to secure import licenses even when it is difficult to judge their capacities, and as long as we cannot have competitive pricing and better standard for all, the downstream will remain at the development stage (Vanguard, January 26, 2011).

 From the foregoing, it is obvious that the oil subsidy regime has a very gigantic opportunity cost in terms of loss of employment generation, investments and value addition to industry.

The Deregulation policy has globally been embraced by several countries, in order to lessen public sector dominance and for developing a liberalized market while ensuring adequate supply of products. Such is the story in Peru, Argentina, Pakistan, Chilean, Philippines, Thailand, Mexico, Canada, Venezuela, Japan and USA, all of which have systematically dismantled their State-owned oil companies, for a significant turning point in the success story of their oil industry reform efforts. (Loretta, 2004)

SANITIZING THE PETROLEUM SECTOR

  Before embarking on building new refineries and full deregulation, there is need for the petroleum industry particularly the downstream sector to be sanitized. This is because of the high level of corruption and secrecy in the sector.

In this regard, government should adequately implement the reports of the various committees set up by government including the Mallam Nuhu Ribadu-led Petroleum Revenue Special Task Force; the Mr. Dotun Suleiman-led Taskforce on Governance and Control; and the Dr. Kalu Idika Kalu-led National Refineries Special Taskforce.

In the same vein, government should legally and administratively empower the Nigerian Extractive Industries Transparency Initiative (NEITI) to go beyond preparing reports and recommendations to implementing them to ensure sanity of the petroleum industry.

OVERHAULING THE NIGERIAN NATIONAL PETROLEUM CORPORATION (NNPC).

 If the NNPC must still exist after full deregulation, then the Corporation must be ready to play in a competitive industry with no special attention from the government. NNPC must be overhauled to operate in a level-playing ground with other industry operators and not a situation where government’s bias for the corporation has fuelled inefficiency and poor performance making it to be ranked as one of the 10 most failed corporations in the World.

In this regard, the NNPC has a lot to learn from the success stories of the national oil corporations of other developing countries including the Aramco (Saudi Arabia), Petrobras (Brazil) and Petronas (Malaysia) of this World.  

 CONCLUSION

At this stage of our national life, Nigeria should not have any business with the importation pricing of petroleum products but this has become inevitable due to the high level of inefficiency that characterized activities of the petroleum sector (particularly the downstream sub-sector). The huge national welfare loss being incurred is particularly devastating. The way forward for Nigeria is for government to provide the enabling environment for the private sector to build new refineries, ensure full deregulation, sanitize the petroleum sector, overhaul the NNPC and make efforts to diversify the country’s economic base. It is hoped that when these measures are put in place, Nigeria would be able to avoid the importation pricing of her petroleum products and reposition the Nigeria’s petroleum sector for maximum productivity and efficiency. Government must be sincere in efforts to avoid the importation pricing of petroleum products which has become the shame of our nation and a huge national tragedy.

  REFERENCES

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Ayoola, K.A. & Salami, O (2010). The 'War' of Appropriate Pricing of Petroleum Products: The Discourse of Nigeria's Reform Agenda.  http://www.linguistik-online.de/42_10/salamiAyoola.html

Loretta O.(2004). Deregulation Of The Nigerian Downstream Oil Sector Keeping Faith With A Global Trend ww.pppra-nigeria.org/articledetails.asp. Also at www.vanguardngr.com/.../why-oil-sector

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National Bureau of Statistics (2010). Petroleum Statistics .

Ojameruaye, Emmanuel (2011): “The Political Economy of the Removal of Petroleum Products Subsidy in Nigeria: Part 1- The Politics.” Available at http://www.chatafrik.com/articles/economy/itemlist/user/149-emmanuelojameruayephd.html

Oriakhi, D.E (2003). “OPEC and the Development of the Nigerian Petroleum Industry.” In Nigerian Economy: Structure, Growth and Development. Mindex Publishers, Benin-City.

Orubu, C. O (2003). “The Development and Contribution of the Petroleum Industry to the Nigerian Economy.” In Nigerian Economy: Structure, Growth and Development. Mindex Publishers, Benin-City.

PPPRA. 2013. Petroleum Products Pricing Template. Available at http://www.pppra-nigeria.org/index.asp

PPPRA. 2013. Petroleum Products Pricing Template: PMS.

Social Development Integrated Centre (2012). Fuels of Dissent: Politics, Corruption and Protest over Fuel Subsidy in Nigeria. Published by Social action @ www.saction.org.

The Economist Magazine (November 2012). 4^th edition, volume 4. A Publication of the Nigerian Economics Students Association (NESA), Uniben Chapter.

The Energy Information Agency (EIA,), United States: Nigeria .Last updated on October 16, 2012. Available at http://www.eia.gov/countries/analysisbriefs/Nigeria/nigeria.pdf

Vanguard. 2011. “Petroleum Imports: Shame of a Nation.” January 6, 2011.

Uzoigwe, Chimezie Daniel is an Author and Social Commentator. A final year Student at the University of Benin. E-mail: uzoigwechimezie92@yahoo.com. 08179741950

      

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