Industry operators are watching with keen interest and enthusiasm the decontamination process in the country’s cash cow industry which had been sinking in the mire of poor fiscal regime which orchestrated exponential lack of openness, transparency and massive stealing.
While organised crude theft widens at operating oil fields through export assets imported white products in particular Premium Motor Spirit (PMS), also known as petrol is smuggled in volume through porous border towns.
So this explains why when on July 19, 2022, the federal government made an official announcement confirming the complete transformation of the Nigerian National Petroleum Corporation (NNPC) into Nigerian National Petroleum Company, NNPC Limited (NNPCL), there were some who believe that the transformation is merely a name change and that there would be no material difference from the old structure especially as the NNPC has operated as a highly institutionalised corporation for the last 45 years.
However, some were optimistic that with the right corporate administration, NNPCL can create an environment that would not only grow the country’s economy but also attract both local and foreign investment thereby making it a major player in the global energy market.
The NNPCL is essentially the brainchild of the Nigerian Petroleum Industry Act (PIA) which was passed into law in August 2021.
The NNPC was a state-owned and controlled corporation licensed to operate in the country’s petroleum industry which utilised the country’s fossil fuel and natural gas reserves by partnering with foreign oil companies.
But the new NNPCL, while still wholly owned by the state, is intended to operate as a fully commercial venture without government funding (besides the initial capitalisation) or control and is expected to be regulated by the Companies and Allied Matters Act 2020.
In addition, NNPCL will now declare dividends to shareholders, while retaining 20 per cent of profits to grow its business whereas the company is expected to sometime in the future invite the public to purchase shares to raise equity capital for the business of the company especially as it would no longer have access to state funds in line with the objective to commercialise the corporation.
It is also expected that NNPCL would eventually achieve trading status on global stock exchange markets like its counterparts, including Saudi Arabia’s Arabian American Oil Company (ARAMCO) Brazil’s Petróleo Brasileiro (Petrobras) and will also no longer be concerned with issues of petrol pricing and subsidy, neither will it continue to remit funds into the Federation Accounts Allocation Committee (FAAC) such that the company funds can be used to further its business rather than issuing national payouts.
The new NNPCL will no longer have recource to budgetry allocation to fund its operation and neither will it be expected to remit monies into the treasury single account or comply with the provisions of public procurement Act or the Fiscal Responsibility Act.
Yet, while the introduction of the NNPCL promises to be advantageous to the country’s energy industry, although realistically speaking, experts see some challenges that need to be promptly and properly addressed for the new NNPCL to function effectively and achieve its objectives.
Signs of transparency however began to emerge a month to its transition to commercial entity, when it successfully executed the Agreement for the Renogotiated Production Sharing Contracts (PCS) with Five Oil Mining Leases (OMLs).
When consummated it’s believed the agreement would unlock over $5billion in revenue to the government from the country’s oil resources.
These renewed (PSCs) would provide several benefits such as improved long-term relationship with contractors, elimination of contractual ambiguities especially gas terms to enable contract renewal among others.
Massive Petrol Theft
Given the volume of smuggling of petrol which no agency of government has been able to provide accurate figure, the Nigerian National Petroleum Company, Limited, NNPCL, says the inducement that has fueled massive theft across borders with neighboring countries will end with subsidy removal.
According group chief executive officer, of the company, Mele Kyari, “What will happen is that there will be no further incentive for cross border smuggling and more than anything even the marketing companies will have no enough resources to go to the depots to buy. And when it comes to the fuel stations, some of you have two cars everybody will park one. This will happen. It is very natural.”
Kyari, while speaking at the PENGASSAN Energy and Labour Summit in Abuja, said, “Then we will come down to the real level of consumption which is that people will only buy what they need. Today we buy what we don’t need and it is very difficult to stop it.”
Kyari said at any point the company reduces evacuation below 60 million litres, the effect was fuel queues.
He said, “Today, our evacuation, let me make it very clear, I’m sure maybe you have heard a lot of things on the media. What we know is that evacuation from the depot is 66 million litres per day any time.
“Anytime you bring down the evacuation to below 60 million litres, you will see scarcity on the streets. So, it is a clear indication that the evacuation from the depot is reflective of our consumption level but not our exact consumption figures.”
Kyari admitted that there are leakages in the process as subsidy incentivises smuggling of petroleum products when sold in neighboring countries.
According to him, it cost N371.3 per litre to import fuel, while the product is being given to oil marketing companies at a subsidised rate of N118 per litre.
He explained, “Are their leakages? Yes, there is no doubt about it. We admit that whenever you have an arbitrage situation, you will have issues. You will have cross boarder issues. You will have internal issues.
“You can’t avoid it. For instance, today, if you are going to the market today to sell petroleum product, you will be at N371.3, we are transferring to oil marketing companies at N118 per litre so that they will be able to sell at N165 or N170 at the pump. There is no other way of doing it.
“That means the difference between N118 and N371 is the burden carried by the state, it is not by the market and a simple number round this will tell you that we need about N6trillion every year minimum to cover this gap at current market condition.
“Of course, this is crude and we all know that it can change and prices can collapse tomorrow. In today’s circumstances, this is what we are dealing with.”
He stated further that the NNPC Ltd is working with security agencies to curb smuggling and other arbitrage in the usage of subsidised fuel.
Kyari said, “Can we control the volume? Yes. Is it something that we can do tomorrow? No. Are their actions taken by the regulators? Absolutely yes, I’m aware there are a number of interventions that are going on to see how we can contain cross border smuggling, internal leakages and number of interventions with government security agencies the EFCC, DSS to help us cut this down.
“Are we in full control? Absolutely not. As we all know, you see fuel stations all across this country. I’m not sure all of them have regular registration.”
He explained that at border towns there are several fueling stations established to carry out smuggling activities.
He further added, “ Most of the border cities that we know every border city has more fuel stations than it requires. No exceptions. Villages or towns that requires just four fueling stations will have 30 to 40 and you can’t stop it because they are by law, they apply to set up business and you can’t stop businesses.
“Nothing stops anyone to come with jerrycan, buy fuel and take it out. So, the only remedy is reducing the arbitrage. And we also recognise in this country that there are stack economic realities. A broad shift in energy supplies can mean a catastrophic distortion. We understand this, every country in the world is making decisions around this, reducing tax rate on petroleum products.”
“Everybody is doing something to ensure they cushion the effect of high prices. But is it something you can continuously do? Absolutely no. That is why we need to have the conversation and have a transition around this so that ultimately, we can reduce the arbitrage. As soon as you are able to reduce the arbitrage, you will see those evacuation will go down.”
The fuel consumption figures in Nigeria will reduce by the time Nigerians start paying the market value of Premium Motor Spirit when fuel subsidy is removed, the Group Chief Executive Officer of the Nigerian National Petroleum Company Limited, Mele Kyari has said.
Breaking The Gruesome Crude Theft Jinx
Nigeria’s economy is heavily dominated by the oil and gas sector and while the sector generates high levels of income for the country, it makes government revenue highly dependent on oil prices.
It is stated that an average of 437,000 barrels of oil is stolen on daily basis by oil thieves in Nigeria.
Data shared by the NNPCL, disclosed that between January and July, the country lost an average of 437,000 barrels of oil a day to criminal entities and individuals who illicitly tap pipelines onshore and offshore in the Niger Delta region.
Group chief executive of NNPCL, Mele Kyari, had blamed a section of Nigerian society for complicity that has led to the loss of thousands of dollars in the oil theft, undermining the country’s oil production.
Nigeria recorded lower production in the first seven months of the year. In January the production stood at 1.4 million barrels per day but as of July, the production went lower to 1.1 million barrels per day.
Pipeline fires are commonplace in Nigeria, in part because of poor maintenance but also because of third party infractions who vandalise pipelines to siphon off petrol and sell it on the black market.
Crude oil is tapped from a web of pipelines owned by major oil companies and refined into products in makeshift tanks.
According to industry sources, Nigeria loses around 200,000 barrels of crude to oil thieves, vandals and illegal refining operators daily.
Most people in the Niger Delta live in abject poverty even though the country is the biggest oil producer on the continent, with an output of around two million barrels per day.
Nigeria has drawn only a small fraction of global petroleum investments to its industry, long troubled by corruption, inefficiency, high production costs and security concerns.
These losses come at a time when Nigeria passed a fuel subsidy in April.
But some have been upset by steps to deregulate and end the costly interventions.
International lenders have long urged Nigeria to ditch them and the authorities came under fresh pressure as they scrambled this year to secure billions in emergency funding to plug the budget.
A notable economist Michael Famoroti said the corruption-riddled subsidy system that allowed some to profit hugely was simply no longer sustainable.
“For a long time, people have been calling on the government to scrap the subsidies and allow petrol stations to charge the actual price of petrol, Famaroti said.
“When the global price of oil crashed and COVID- hit, the Nigerian government was very short on cash. So like a lot of countries, it had to find money to stimulate the economy.”
Determined to disappoint critics who had assumed that the present NNPCL is a square peg in a round hole, came boldly out with a shocking revelation, on how an illegal oil pipeline connecting directly to the high sea was recently discovered.
Kyari said the major oil export terminal that had its products diverted into the sea had been operating undetected for nine years.
The four-kilometre or 2.5-mile connection from the Forcados export terminal, which typically exports around 250,000 barrels per day (bpd) of oil, into the sea was found during a clampdown on theft in the past six weeks.
“Oil theft in the country has been going on for over 22 years but the dimension and rate it assumed in recent times is unprecedented,” Kyari told the lawmakers.
“But in rising up to the highly disturbing challenge, NNPC, has in recent time in collaboration with relevant security agencies clamped down on the economic saboteurs.
“In the course of the clampdown within the last six weeks, 395 illegal refineries have been deactivated, 274 reservoirs destroyed, 1,561 metal tanks destroyed, 49 trucks seized.
“The most striking of all, is the four-kilometre illegal oil connection line from Forcados Terminal into the sea which had been in operation undetected for nine solid years,” he added.
While thieves often tap land-based pipelines to siphon oil undetected, but an illegal line in the ocean is highly unusual and suggests a more sophisticated theft operation.
Forcados is operated by the Shell Petroleum Development Company (SPDC), a local subsidiary of Shell.
Nigeria has been losing potential revenue from some 600,000 bpd of oil, mostly as a result of shut-ins due to vandalism.
Crude oil exports fell to 972,000 bpd in August for the first time since at least 1990 as a result, starving Nigeria of crucial cash.
Activities at the affected terminal have been stopped since a leak was found from a sub-sea hose at the terminal on July 17.
Shell said last week that it expected loadings to resume in the second half of October.
Nigeria recently took a raft of measures to curtail the oil theft menace, which so far appears to have defied all solutions.
A few of the measures include the renewed deployment of security personnel in the Niger Delta and the real-time monitoring of activities around the pipelines by the NNPCL.
In addition, NNPCL, has introduced the whistle-blower strategy as well as the handing over of a N4 billion monthly surveillance contract to ex-militant, Government Ekpemupolo, popularly known as Tompolo.
The federal government has variously blamed massive oil theft, vandalism of major assets, dilapidated infrastructure as well as declining upstream investment for its inability to drill more of the commodity.
Last Tuesday, during a briefing on its audited financial report for 2021, Kyari had said the all-important Trans Niger Pipeline (TNP) which had been down for months would come online in the “next few days”.
Kyari further said that Nigeria was in a ‘calamitous’ situation over oil theft, and pipeline vandalism with its attendant low production.
He explained that the NNPC had been carrying out aerial surveillance of the affected areas and discovered “the economic saboteurs carrying out their activities unchallenged and unperturbed.”
Added to Kyari’s shocking revelation, Government Ekpemupolo, popularly known as Tompolo, again discovered an illegal crude oil pipeline with the capacity to deliver 400,000 barrels per day.
The discovery was made via Tantita Security Services Nigeria Limited, a company owned by the Niger Delta ex-militant which was contracted for oil pipeline surveillance.
The company reportedly discovered more massive illegal crude oil pipelines attached to Trans Forcados Export Trunkline.
The latest discovery comes a few days after an illegal four-kilometre crude oil pipeline belonging to Shell Petroleum Development Company (SPDC) was exposed.
The discovered of the illegal pipeline revealed that the illegal line was connected to the 48-inch Trans Forcados Export Trunkline in Burutu Local Government Area.
The illegally plugged point is directly located behind a military security post and less than a kilometre to the Forcados Export Terminal in Ogulagha community.
From the point of connection, the illegal pipeline was linked to another abandoned pipeline riser located within the vicinity and owned by AGIP Petroleum Company Ltd.
Through the abandoned AGIP facility, the oil thieves have been ferrying condensed crude oil to the sea for loading into thieving ships at midnight for onward movement abroad.
The Forcados Terminal located in Ogulagha, Burutu Local Government Area, is said to have a nameplate capacity to export 400,000 barrels per day.
It receives crude oil from the Forcados Oil Pipeline System, which is the second largest pipeline network in the oil-producing region, after the Bonny Oil Pipeline System in the Eastern Niger Delta.
There is also information that some International Oil Companies and Nigerian independents operating in the western Niger Delta pump oil to the Forcados Oil Terminal for exports.
It will be recalled that Tantita Security Services Limited had only last week apprehended a vessel named MT Deima with International Maritime Organisation with number 7210525, while loading crude oil illegally along the Escravos river in Delta State.
The arrested vessel which was handed over to officials of the Joint Task Force otherwise known as Operation Delta Safe was eventually set ablaze by the military officials 48 hours after the arrest.
Forging Alliance
The Nigerian National Petroleum Company Limited considering the enormity of the crime and its sophistication has entered into alliance with the Petroleum Training Institute, PTI, to install anti-theft integrated monitoring systems on pipelines to monitor the facilities against crude oil theft.
Speaking in Abuja at the Petroleum Training Institute’s 50th Anniversary, the Principal/Chief Executive, PTI, Henry Adimula, said that institute had developed an oil anti-theft integrated monitoring system to effectively monitor pipelines.
Adimula, who said this was one of the recent innovations of the PTI, stated, “We’ve produced an oil anti-theft integrated monitoring system for pipeline monitoring, and an air quality monitoring systems.
“We have Al’s and have developed a corrosion robot for early detection of localised corrosion and prevent loss of integrity of the facilities, among others.”
Reacting to this while delivering his address at the event, the Group Chief Executive Officer, NNPC, Mele Kyari, said the oil company was pleased to hear what the institute had done in terms of pipeline monitoring.
He then told the PTI that NNPC would work with the institute to deploy the technology to further boost the monitoring of NNPC’s pipelines with a view to addressing crude oil theft in Nigeria.
Kyari said, “We need to produce oil and gas. We are trying to address the massive oil theft. We will overcome it, but clearly it is something we also need to work together to resolve.
“That is why I’m happy to hear the PTI coming up with solutions that will be able to monitor pipelines.”
He said the NNPC was collaborating with security agencies of the Federal Government to arrest and deter people from having access to Nigeria’s crude.
Addressing Importation Of White Products
One of the key focus of the new NNPCL is how to end petroleum products importation.
To achieve the milestone Kyari has disclosed that the company owns 20 per cent equity in the Dangote Refinery.
He said that the importation of petroleum products into the country will be stopped by mid-2023 under the new arrangement.
According to him, the combined output of Nigeria’s refineries being revamped and Dangote refinery would be enough to stop importation.
“Even if all the refineries are working today, you will still have a net deficit of Premium Motor Spirit (PMS) to import into this country.
”This is what it means because our population has grown; demand has grown; the middle class has grown.
“ I am sure everybody here owns one or two cars; and as such, the volume of petroleum products we require in this country has grown exponentially.”
Kyari stated that this was because there was clearly an exponential growth in our need for PMS.
Kyari said that aside from owning 20 per cent equity in Dangote Refinery, NNPC Ltd had the right of first refusal to supply crude oil to that plant.
“But, we saw this energy transition challenge coming; we knew that time will come when you will look for people who will buy your crude oil, you will not find.
“And that means we have locked down the ability to sell crude oil for 33,000 barrels minimum by right for the next 20 years.
“By right also, we have access to 20 per cent of the production from that plant,” Kyari said.
He expressed optimism that Dangote Refinery would become operational by the middle of 2023.
According to him, the refinery has a production capacity of 650, 000 barrels per day, with different technology.
Kyari added: `Which means that it can crack the crude in a manner that you can have more gasoline than a typical refinery; that means the refinery has the ability to produce up to 50 million litres of PMS.
“So, the combination of that and our own ability to bring back our refinery will completely eliminate any importation of petroleum products into this country.
“This is very practical; this is possible; as a matter of fact, what we have done with our own refineries and the Dangote Refinery with many other small initiatives we have put in place—small, modular, condensate refineries that we are building.
”If that happens, we are very optimistic it will happen; you will see that this country will now be a net exporter.’’
He said he was looking forward to Nigeria becoming a hub of export of petroleum products, not just to the West African region, but to the rest of the world.
He said he was upbeat as the flow of supply would change by the middle of 2023.
“So, you will not have need for the importation of petroleum products into this country by the middle of next year,’’ he said.
