A Review of the Nigerian Energy Industry

Our expectations from Buhari as Petroleum Minister — Oil chiefs

04 October 2015, Lagos – Operators in the petroleum sector, under the reports, may hold the Petroleum Minister’s portfolio in the soon to be constituted Federal Executive Council (FEC). The operators spoke through MOMAN Executive Secretary, Mr. Femi Olawore.

Femi Olawore

The much awaited ministerial list has been sent to the National Assembly, even as the President said he will be the minister of petroleum. What is your take on this?

I believe that every regime has its own programmes and policies. So, you come in and bring on board people who can carry out such programmes and policies. I think that is what is happening.


What uncommon and unique managerial techniques should we expect from the new petroleum minister?

He should be open to ideas and suggestions. He should engage the stakeholders in the sector from time to time, explaining the policies of government and getting feedback from stakeholders to government’s decision making channel. He should be more focus on problems of the downstream and how to improve the sector and play less politics. He should put the nation’s interest at heart, at all times.


How do you think his position as Petroleum minister will influence the activities of local investors and International Oil Companies (IOCs) doing business in Nigeria?

Most investors want to see efficiency, transparency, enabling environment and full deregulation of the downstream sector for businesses to thrive.


The issue of oil theft was stressed by Buhari at the UN Assembly. Can you give us statistics in Naira and Kobo on losses incurred by government as a result of oil theft?   

There are two aspects of oil theft. First, the crude oil theft running into an estimated monetary value of 400.000 barrels per day, sometime in the past, which in real monetary value was about $50million daily.    Second, local oil thieves in the area of vandals, which must be tackled head-long. Kudos should be given to the Civil Defence officials who are doing their best to curb pipeline vandalism.


What is the solution to oil theft?

The onus is on government using the apparatus of our naval strength to put a stop to this problem. We must play our part well before expecting the International community to assist in arresting ship that slip through the dragnet.

How will you assess the oil sector holistically after 55years of independence?

At independence in 1960, the sector was deregulated and this continued until 1975, when Petroleum Equalisation Fund (PEF) was established. In retrospect, the establishment of PEF was a set back because it was the beginning of the removal of competitive spirit. However, the good thing was that government established pipelines and depots all over the country for seamless distribution of products, but with the current spate of vandalism, this laudable initiative has become a big and intractable problem. There have been various price increases, which are attempts to deregulate but the main challenge has been the political will.    Government policies have always created arbitrage, which encouraged rent seeking opportunists masquerading as business men.


Can you give us a systematic overview of common practices in the sector from 1960 to 2015?

Earlier on, the practice had been a marketer purchasing crude oil and taking it to refine at the only refinery then, and paying a refining fee. The marketer thereafter collected his products in his own chartered vessel to his Disport, distributing from there to various parts of the country.


What is the meaning of Disport?

Discharge port.

What were the merits of such practice?

The beauty of that arrangement was price variation between and among the marketers in the same location. For instance, prices could vary from marketer to marketer in Lagos, and prices of products in Lagos were different from prices in Ibadan. There was also variety of grades of petrol such as Regular, Premium and Five-Star.    The same petrol, but if you were driving Toyota, the petrol you got differed from a person driving a Mercedes Benz.


What have being the challenges facing marketers throughout this period?

The challenges are enormous; some include stagnant margins that have not been improved upon since 2007, despite inflation and devaluation of the Naira. Multiple taxations as well as levies by agents and quasi agents of government, sometimes by outright area-boys. Huge outstandings on subsidy claims.


This is the last quarter where we have a lot of business activities and people travelling across the country. The country is usually prone to scarcity of fuel this period. Do you think Nigeria will experience fuel scarcity this 2015 festive period?

We appeal strongly to government to pay the arrears of subsidy claims.


Can you give us the statistics of outstanding subsidy claims?

The subsidy claims stand currently at a little over N400billion. Payment received will enable operators pay up their indebtedness to banks, to re-ignite the confidence of banks.

This will make banks give us more credit lines to bring in products to complement the efforts of Petroleum Products Marketing Company (PPMC). It is to be recalled also that because of the huge exposures some banks may face financial issues, if money owned them becomes Non-Performing Loans (NPLs). For the sake of repetition, government should pay marketers to enable them pay the banks, to save the banks from financial constrictions.


As a stakeholder in the sector, do you think the reform is coming at the right time?

The reform is even late in coming. It should have come more than Five – six years ago with the passing of the Petroleum Industry Bill (PIB).    This is because the details in the PIB would have brought about these changes that are coming up.  The PIB envisages unbundling of Nigerian National Petroleum Corportion (NNPC) itself, not even PPMC.    The PIB also envisages reforms in PPMC, in the area of refineries either being privatised or commercialised. It also stressed that pipelines and storages be managed by separate organisation for efficiency.

Let me give my candid opinion on some of the things going on. For example, offshore    processing. It is a practice where crude oil is taken away from the country to be refined abroad, and the refined products shipped back to the country, during the time when local refineries are either under-performing or have inadequate refining capacity, or both. Offshore processing sounds good whenever the refineries are unable to work, but it is fraught with accounting problems.

For instance, you can get an equivalent number of litres of refined products from a certain quantity of crude oil, but it is only equivalent and not equal. This implies that, there is no time you can get the exact quantities from a given volume of crude. So, there will always be issues about this being enough and that one not being enough.    There will also be issues of losses even if they are within the limit of internationally agreed operational and transit losses.    The best thing is to have the ability to refine locally.

The challenge has being, what do you do with the local refineries? Some people feel and that is where I belong, that the plants should be sold off or privatised, or at best, be operated under similar structure of Nigerian Liquefied Natural Gas (NLNG).    Government should stop controlling shares in the refineries and give them to the private sector. What we are hearing is the refineries being maintained by local engineers, which is what one has always agreed with, that our engineers have the skills, capability to maintain the refineries but the issue has always been ownership. Of all the refineries in the US, none is controlled by government. Over 120 refineries are privately controlled. It is always funny when people challenge the statement that, government has no business being in business.    A little bid of digression, the first 10 best Universities in US are privately owned. The private sector can make things happen more than government. We must move away from State control of facilities that can best be handled by the private sector.

The ultimate objective of reform should end with ownership of refineries and petrol-chemical plants devolving to the private sector. One thing good about the current reform is that, for the first time government is giving products to the real downstream players. For example, government has started allocating kerosene to the major oil marketers and independent marketers, as opposed to what happened when kerosene was allocated to non-key players in the sector. We must thank government and encourage them in this regard to continue this good work.

As an expert in this sector, do you see the on-going reform tackling recurring scarcity of petroleum products in the country?

One is unable to give a yes or no answer due to paucity of information as regards the content of the reform.    One can only guess and make deduction from what he sees and hears. If the reform entails full deregulation, then scarcity will soon be a thing of the past. Government should fully deregulate the sector to entrench transparent, effective and strong regulatory institutions.


Government seems to be reluctant about selling the refineries despite suggestions from various experts. What will you advise government to do?

Selling the refineries must be through competitive open tender. What we are seeing now that gives the impression of efficiency may not last long. My feeling is that after sometimes, government supervisory role will be relaxed and we shall be back to business as usual. This is talking from my experience.

In conclusion, the country should move away from State control of the downstream and limit itself to only regulation and creating enabling environment.

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