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Petroleum imports: Shame of a Nation

With $7.6bn, about N1.15tn spent on importing an estimated 8.1million metric tons (MT) of petroleum products from around the world in the last eleven months, including non-oil producing countries, even in Africa like the troubled Cóte D’Ivoire, and Togo, Nigeria remains very far from energy sufficiency.

Nigeria's Minister of Petroleum Diezani Allison-Madueke

For a country which enjoys global recognition as the 6th largest crude oil exporter, it’s close to net imports of petroleum products and the comatose state of refining capacity appears a paradox of sorts, an embarrassment and a national shame!

Since the discovery of oil in commercial quantity in the late 50s in Nigeria, every politician has struggled to get a chunk of the oil wealth or petro-dollars, popularly referred to as the “national cake”.

Petroleum products profile 2010

Unfortunately, leaders have come and gone since the country gained political Independence in 1960, without much effort towards the nation’s energy sufficiency and independence.

Ironically, most of the oil and gas facilities in Nigeria, were built during the military eras, the civilian administrations were more interested in selling off the crude oil and getting a hold of the petro-dollars, than ensuring security by adding value through refining.

Indeed, importing has kept Nigeria in the league of developing and third world countries, where its peers, which boost of even lesser natural resources, have moved way ahead, leaving it struggling to catch up and failing successfully.

More importantly, high volume of petroleum imports has led to the near collapse of the nation’s downstream sector, and contributed to the current crisis in the banking sector, now undergoing reforms.

With importing, the four refineries in the country have been left comatose, even when government representatives claim the refineries are working at optimum capacities. But the statistics from the Ministry of Petroleum Resources, contained herein show that, government was merely making these claims for political favours.

The General Elections have been scheduled for April 2011, yet all the contestants speak about economic growth, without giving specifics on how they intend to secure energy sufficiency and reduce dependence on imports.

Volume imported and refined

For almost the whole of 2010, the four refineries with a combined capacity in excess 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 Pgrogamme, only LPG was not imported.

(Attach Grand Total Table)

Broken further statistics show that about 4.32 million PMS was imported into the country between January and November 2010.

Based on the Petroleum Products Pricing Regulatory Agency, PPPRA Pricing Template, the value is estimated at over $4.27bn or N653.6bn at an exchange rate of $1-N152. Petrol is being subsidised by the PPPRA under government’s Petroleum Support Fund, such that retail price is N65/litre against landing cost of N111.11/L

Other products imported during the 11-month period in review include Dual Purpose Kerosene, DPK or kerosene at a value of $1.71bn or N260bn. Kerosene also enjoys subsidy and this puts retail price at N50 against N116.53/L landing cost.

Apart from petrol and kerosene, other products are not subsidised. Accordingly,  about $1.71bn worth of AGO was imported; estimated $404.83mof Aviation Turbine Kerosene, ATK or aviation fuel; and about $40.2bn worth Low Pour Fuel Oil, LPFO or black oil were also imported during the period.

The value of the 57,435MT of Base oil imported during the period could not be determined, as it was not part of the PPPRA pricing template.

Daily National Demand

Like most other data in the petroleum sector, which are mostly based on estimates, Nigeria’s daily national demand for petroleum products vary according to which side of the divide you are speaking.

However, average demands are put at: PMS  30-33million litres per day; AGO  12million/d; Kero  10million/d; and ATK 1.6million -3million/d depending on the season.

Product Importers

The petroleum products were imported by mostly operators, who are mostly made up of marketing companies as well as jetty and depot operators.

The operators are classified as Pipelines and Products Marketing Company, PPMC, the marketing arm of the Nigerian National Petroleum Corporation, NNPC; the Majors, made up of Mobil, Total, Oando, Conoil, AP and MRS Oil Plc.

The bulk of the products were imported by the independents, which number is hard to determine, but include NIPCO, MRS Oil and Gas, Capital Oil, Integrated Oil, Sahara Oil, Zenon and a(Attach Summary of Products)

Many of the Independents are in throughput arrangement with the NNPC/PPMC, due to lack of storage facilities.

NNPC disputes figures

However, only the NNPC disputed the volume figures contained in the Ministries Data, which was computed by the Department of Petroleum Resources, DPR, the regulator of the petroleum industry in Nigeria.

Although there was no official comments, but PPMC sources told Sweetcrude that the volume was higher and produced to provide a counter data from the NNPC Commercial Department, but could not do so as at writing this report.

According to the source, “The refineries produced more than the figures you are quoting. I agree that the refineries did not work for a long time, but after the visit of the members of the National Assembly, they began to work, although they were producing more of LPG, AGO, LPFO.” But data show that all the black oil was imported.

Majors explain low participation

With regard to its low participation in the import of AGO, the Major Oil Marketers Association of Nigeria, MOMAN, in a telephone interview with Swetcrude, blamed the NNPC for the development, saying, “Until recently, the NNPC/PPMC was not selling at international price, so by the time you import the product you come and compete with NNPC’s lower price, you’re already running at a loss.”

The development led to the end of the “diesel war” in which marketers, particularly the independents, tried to outdo themselves with price crashes to win more customers and patronage.

The executive Secretary, MOMAM, Mr Obafemi Olawore, speaking on the low base oil import, said, the majors had to slow down because of the high incidence of adulteration and the use of base oil as engine oil.

“With the help of the DPR, the Standards Organisation of Nigeria, SON, and the PPPRA, government has banned the import of base oil. Only those that are licenced and have their own blending plant are allowed to bring in the product. Already there is a committee on this, and we have embarked on enlightenment campaign on the use of base oil.”

Olawore, however, disagreed on the cause of scarcity of ATK at some point during the year, leading to series of flights cancellations, saying that it was not scarcity per se, but a capping of supply to the aviation sector.

“Based on the huge amount airline operators owed marketers, we decided that we were going to sell only on a cash-and-carry basis. And this we did until upon the intervention of the government, and a resolution was reached among stakeholders.””

But he refused to give details of the agreements and it was gathered that airline operators as at the last count still owed marketers in excess of N6.5bn.

Downstream crisis

For the majority of the independents, the ease with which the banks facilitated the financing, made many became reckless, such that the banks accuse them of expensive lifestyle, using the loans to acquire expensive properties, including private jets, houses abroad, and yachts, among others, rather than using the money to import products.

It is estimated that over N747 bn of the N804 billion huge bank debts of five banks published by the Central Bank of Nigeria, CBN in August 2009, including Union, Intercontinental, Oceanic, Finbank, and Afribank were borrowed by oil marketers.

With the establishment of the Asset Management Company of Nigeria, AMCON, most of the debtor marketers are afraid that their companies would be taken over by AMCON, which has been empowered to go after all the bank debtors.

The fear of AMCON pushed the oil marketers into asking for bailout of about $900bn, which was bluntly rejected by the CBN Governor, Sanusi Lamido Sanusi, who urged them to “go and pay their debts”.

With the support of the oil workers unions, notably, the National Union of Petroleum and Natural Gas Workers, NUPENG; and the Petroleum Tanker Drivers, PTD, an arm of the Independent marketers, Jetties and Petroleum Tank Farm Owners Association, JEPFTON, forced government into negotiating with it on November 30, at the kick-off of a 7-day strike.

Members sought for more time within which to renegotiate their debts to their banks, and the strike, which suspended lifting and supply of petroleum products nationwide was called off after one day.

It is not clear how the Federal Government intend to keep recent agreements entered into with labour and jetty owners, to get them to call off a seven-day warning strike it embarked upon last week Monday.

Parts of the agreement included the restructuring of the bank debts by members of the Jetty and Petroleum Tank Farms Operators of Nigeria, JEPTFON, to a 15-year term at an interest rate of three percent.

Government was equally urged to establish a Downstream Development Fund, through the Bank of Industry, BoI, as well as compelling the Nigerian Ports Authority, NPA, to speedily dredge JEPTFON member jetties.

However, analysts expressed are skeptical over government’s ability to save oil debtors. But JEPTFON spokesman, Peter Akpatason, a former president of NUPENG, told Swetcrude, that his members are hopeful of positive results.

He said, “We had a fruitful discussion with AMCON management at a meeting we held with them recently, we looked at the issues and what the concerns of the operators are.

“We know that AMCON cannot restructure the loans, but to look at the individual banks and individual customers, and it was agreed that most of the debts by the oil marketers are not toxic.”

Akpata further argued that JEPTFON does not really want a bailout, “but a restructuring of the loans, which in itself, is also a form of bailout, so that members can pay back without suffering unduly.”

The CBN governor recently disclosed that about 400billion of the bank debts have so far been recovered.

But what do the banks say

Before AMCON came into being, banks were alleged to have categorised the oil loans, and converted some to medium term loans of between four and five. “We classified the debtors according to those who have assets like tank farms, depots, and who actually invested in tangible things, as opposed to those who used the money to become ‘Big Boys’.”

Specifically, Union Bank told Sweetcrude that it was not part of the loan extension, “Rather, what we have done is to partner with the debtors and structure the loans such that they can be able to pay. In other words, we ri-defined the terms of payment, which could mean the elongation of the period, but each case will be treated on its own merit.”

The bank also gave the assurance that it would not send any customer to AMCON, as they are already paying off.

AfriBank also expressed similar sentiments, saying, “Every loan is being treated on its on a case by case basis. We have discovered that some have peculiarities, some would need extensions which will be based on their positions before the bank, but we may not forward any marketer to AMCON.”

Nonetheless, the bank argues that the ultimate decision to take over any bank debtor rests with the AMCON and the Nigerian Deposit Insurance Corporation, NDIC.

Going forward

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.

The NNPC and some private investors have spoken about many Greenfield refineries, but the DPR say that it has not received any application from the NNPC or the States for the establishment of refineries as required by law.

Efforts by government to compel the major marketers, which include the multinationals such as Mobil and Total, have failed.

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.

Industry analysts continue to harp on government’s folly in the petroleum sector such that a country with crude oil reserves in excess of 35billion barrels, and natural gas of more than 187trillion cubic feet should still be imports almost all of her domestic fuel need.

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.

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.”

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, according to Oyebanji’s calculations.

The refineries would have created thousands of employment, that would have doused youths restiveness, in additional to spurning the development of other industries such as chemicals and manufacturing.

The Mobil boss put the cost of a refinery plant at between $700m and $800m, insisting that no investor would put down such an amount under a regulated pricing regime.

Furthermore, the equivalent of N1.15tn used for the imports could have been used to finance more than 25 percent of government’s N4.07tn National Budget of 2010, if the refineries were working and there would have been no need for budget deficits.

Broken further, the amount could have comfortably funded over 80 percent of the N1.37tn capital expenditure for that year.

Power challenges, which has remained the bane of Nigeria’s economic growth, could have been permanently overcome with the import money, both for the N156.8 billion of 2010 and the N26.1bn of the current year proposal in the 2011 budget or even the whole of the N1,005.99billion for Capital Expenditure.

President Goodluck Ebele Jonathan, during his budget presentation, said, “The purpose of the 2011 Appropriation, as a budget of fiscal consolidation, is to strengthen our macroeconomic environment, and to achieve enhanced employment generation and wealth creation.” But such high level of import may frustrate this ambition.


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