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NNPC: Dilemma of potential oil bunkering operator

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NNPC: Dilemma of potential oil bunkering operator

The Nigerian National Petroleum Corporation (NNPC), an entity that will legally cease to exist after President Muhammadu Buhari’s assent to Petroleum Industry Governance Bill (PIGB), mulls creation of oil bunkering subsidiary. Adeola Yusuf examines the implications

 

 

Before last Wednesday’s expression of intent by the NNPC to dabble into oil bunkering business, the corporation had remained the sole importer of Premium Motor Spirit (PMS) also known as petrol, an industry it dabbled into in similar manner.
Like what was obtainable in the downstream petrol importation, the bunkering business is dominated by illegal operators. But the corporation last Wednesday adorned the toga of a savior ready to rescue a dying sub-sector through, which the country had, on yearly basis, been losing an estimated $1 billion in the West African bunkering market valued at over $3 billion.
With blatant disregard for various bunkering licences battling for survival, some oil companies operating in the country patronise cheaper petroleum products sourced from illegal bunkering activities to fuel marine vessels and Floating Production Storage Offloading vessels (FPSOs), and this is part of the anomaly the NNPC plans to correct.
So, when the NNPC, a corporation that will legally cease to exist after President Muhammadu Bihari’s assent to Petroleum Industry Governance Bill (PIGB), mulls creation of oil bunkering subsidiary, it, on the surface, signifies, victory for the sector. Beneath the surface, this is a red flag of extinction for many private licence holders in bunkering business.

Bad shape of bunkering business
Bunkering business is not left out of the way most businesses are run in Nigeria. Most leading international and indigenous oil and gas companies, through their procurement process, have continued to patronise illegally refined products and products obtained from vandalised pipelines.
This, according to checks, is aiding and abetting crude oil theft and robbing the country of revenue from genuine bunkering operators.
It was further gathered that as the market shrinks for local licensed bunkers trading companies, they still have to battle with illegal bunkering operators, who have now penetrated the mainstream consumer base by offering very low prices, against the principle of superior product quality and evidence of genuine sourcing.

Bad dimension
Delta State Governor, Ifeanyi Okowa, in a reaction to illegal bunkering stated that illegal oil bunkering, had assumed a frightening dimension on the nation’s economy.
He told the Economic and Financial Crimes Commission, EFCC) when officials of the Benin zonal office of the commission paid him a courtesy visit that the state government would work with the EFCC to tackle the menace of illegal oil bunkering and other forms of corruption in the state.
“Partnering with the EFCC and other security agencies will go a long way in securing the economy of Nigeria,” he said.
Governor Okowa said aside the loss of money by the federal government, the environment also suffers from degradation through constant destruction of oil pipeline, calling on the EFCC to collaborate with other sister agencies to bring those involved in the criminal acts to justice.

The DPR angle
In a swift reaction to the menace of illegal bunkering in the country, a spokesman of the Department of Petroleum Resources (DPR), Mr. Paul Osu, said that the agency was determined to ensure that Nigeria becomes an attractive, legitimate bunkering hub. Officials of some of the oil firms, who spoke off record, also denied their companies’ alleged involvement in off-taking illegally sourced fuel products, saying their procurement processes are in line with best practices.

NNPC to the rescue
The Nigerian National Petroleum Corporation (NNPC), however, declared plans to set up a subsidiary for oil bunkering investments.
Group General Manager, NNPC Shipping, Mrs. Aisha Katagum, who made the disclosure in an interview published in the August edition of NNPC News, the corporation’s in-house journal, maintained that the move by the NNPC is to consolidate its shipping investments to boost profitability.
Speaking on the plan to set up the bunkering subsidiary, the GGM Shipping, according to a statement, said: “Actually, the NNPC Group Managing Director (GMD) is also very keen on that. He has directed the Corporate Planning & Strategy (CP&S) Division to come up with a business model for us to see how it could operate”.
Mrs. Katagum, the statement issued by Group General Manager, Group Public Affairs Division, Ndu Ughamadu read, added that bunkering subsidiary was most likely going to be an incorporated company like Nidas, a subsidiary under NNPC Shipping. She said that the proposed company would likely be domiciled in the NNPC Shipping Division too.
On the prospect of the company, she was quoted to have enthused: “I’m sure it’s going to be a big business because we have so many vessels that come into the West African Coast. This year alone, over 120 vessels have brought imports for us.”
Nikorma and Marine Logistics were two other downstream subsidiaries under the NNPC Shipping Division. While Nikorma engages in shipping and transportation of energy products, Marine Logistics on the other hand, provides logistics services to the crude and petroleum products and gas sub-sector, with a mandate to effect demurrage reduction and ensure safe and efficient coastal distribution of petroleum products.
The full interview entitled, “Why We Prefer Free on-Board Rule for Shipping Oil – Katagum”, was published in the August edition of NNPC News, a monthly publication of the corporation, currently in circulation.
The corporation had, as part of commercialization scheme, earlier declared plan to establish two condensate refineries with a total refining capacity of 200,000 barrels per day at Western Forcados Area and Assah North Ohaji South (ANOH) Areas of Delta and Imo State respectively.
Natural-gas condensate is a low-density mixture of hydrocarbon liquids that are present as gaseous components in the raw natural gas produced from natural gas fields.
NNPC Group Managing Director, Dr. Maikanti Baru, made the disclosure, according to a press statement, at the bid opening for the provision of consultancy services to carry out a feasibility study for the refineries. He said that the establishment of the green refineries was part of the strategies to eliminate importation of petroleum products and guarantee energy security for the country.
The statement by the Group General Manager, Group Public Affairs Division of NNPC, Mr. Ndu Ughamadu, quoted Dr. Baru as saying that the condensate refineries, when fully operational, would increase gas supply to power plants in parts of the country.
The NNPC GMD in the statement noted that the condensate refineries, which would operate along the NLNG model would increase the nation’s revenue base, provide jobs for the people and save for the country a lot of foreign exchange.
He added that the strategic initiative would increase the energy security for the nation and grow the NNPC refining capacity from 445,000 barrels per day to 645,000 barrels per day.
“The condensate refineries are going to be fully on commercial basis and we intend to get partners that would invest. We are willing to get partners and operate in a similar manner with NLNG model where we could just get a majority share but not a controlling share,” Dr. Baru stated.
This model he said, would allow the private sector to have the confidence to drive the plants and ensure that the bureaucracy that is involved in government business is out of it.
He said that when the implementation of the Petroleum Industry Governance Bill (PIGB) becomes fully operational, the National Petroleum Company (NPC) would be steady as it would be governed by the Companies and Allied Matters Act (CAMA).
Dr. Baru affirmed that the initiative was in line with the overall objectives of the Federal Government to grow the economy to 7 per cent of Gross Domestic Product (GDP) by 2020 through the Economic Recovery and Growth Plan (ERGP).

Dilemma of a rescuer
NNPC is actively involved in the fuel imports trade and as at the last check, it declared the loss, in terms of under-recovery, N144.53 billion used in subsidising premium motor spirit, PMS, also known as petrol in 2017, translating to an average of N366 million per day.
In its Monthly Financial and Operations Report for December 2017 released recently, the NNPC stated that the amount spent on subsidy represented 16.85 per cent of the N857.36 billion remitted to the Federation account in the whole of 2017.
However, the NNPC described the subsidy as under recovery, which is a situation whereby it is incurring the cost of the differential between the official pump price of petrol and the actual cost of the commodity, especially as presently, the official price is lower than the actual market price.
The difference with this current system of subsidy payment is the fact that the NNPC is making the payments to itself or deducting the amount as cost from its revenue, and not paying it to other oil marketers as was the case in past subsidy regimes.

Pitfalls and threats
The PIGB presently awaiting assent from President Buhari is a major pitfall for the NNPC’s participation in the bunkering business. The corporation ceases to exist as a legal entity immediately the bill secures the President’s assent. Also, the foot-dragging by the President to sign the bill into law is a major nut the corporation needs to break to succeed in this new venture.
The proposed investments in the oil bunkering business by the corporation is, on one hand, a victory for the corporation’s long period of under-recovery or business losses. On the other hand, it is a huge threat to the existence of even the legal bunkering operators who do not have the financial chest to compete favourably with NNPC.
The template used by the corporation in its participation at the fuel importation is handy to remind private operators of the impending threat ahead of them.

Last line
NNPC has been declaring huge losses due to its status as sole importer of petrol into the country, while private participation in this space has been reduced to zero. The template used on the downstream sector by the NNPC is a failure and that should be totally avoided in its new ventures at the oil bunkering space.
The NNPC’s active participation is needed but what the bunkering sub-sector needs more is thorough monitoring and regulation to weed out illegal operators who have taken over the sector; save licenses of private legal operators and promote healthy competition for the sub-sector to grow.

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