10 April 2016, Abuja – The Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) and Minister of State for Petroleum, Dr Ibe Kachikwu, describes the challenges in the downstream sector of the oil sector as enormous but says “we are getting to the solution”. Kachikwu spoke to the NNPC staff in Abuja.
“This week, we address the fuel subsidy. It’s not by happenstance that you see me with my sleeves all rolled up. And I hope you’re visiting filling stations and helping us work this difficulty.
“This is probably the most challenging issue since I took over as GMD and Minister of Petroleum, and the reality is that a lot of us, even within the company (NNPC), do not know why this is so, and so for those who don’t know, I’ll first go through why you have this situation.
“First, on resumption in August, we had a major problem on our hands, because subsidies of close to N600 billion, had not been paid over a one year period, and so the majors, those who were importing, had began to quietly reduce the levels of importation allotted to them and, though I got the approval of the National Assembly and the President to eventually pay a good portion of that subsidy, sometime in November, by then it was too late.
“Too late because although they got the money, they didn’t have access to foreign exchange, so the main reason we have this supply gap now is that, although NNPC has its own 445,000 barrels allocation of crude and is meeting its own 50% of delivery, the individuals, who should provide the balance of the 40% component, are not bringing in any product.
“So, we’ve had to be very creative over the last 4 to 5 months, until we basically ran out of options and the sort of creativity that we put in place was forward buying, forward purchase, forward crude allocations, and also, just to bring in more product, because we saw NNPC transit from a 45% provider to suddenly 80%, and about this month really to 100% provider of petroleum products in Nigeria. Kachikwu
“That was not sustainable, we didn’t have the capacity, we didn’t have the funding, we didn’t have access to the products, we didn’t have the foreign exchange. So in very many ways, it’s surprising that we’ve even been able to survive this long.
“However, the key element has been, how to find foreign exchange for those who want to participate in the stream, who have been doing this traditionally, to get into the space, buy their products, come in, distribute. That’s something we’ve had to work on.
“Of course, the second problem was incessant pipeline disruptions. Literally, if you look at the statistics of this year, as against last year, we’ve had almost two times the number of pipeline disruptions than we’ve had over the last two, three years, in this year and that for us is very disturbing.
“We have now thrown a couple of ideas on this. The first thing that I have tried to do is, for the first time in this country, is to be able to convince the upstream companies to provide some FX buffer over the next one year for those who are bringing in products.
“So, I’ve tied Total Upstream to Total Downstream, Mobil Upstream to Mobil Downstream, Agip ENI to Oando, Shell to Conoil and things like that. It’s been very innovative, putting 200 million dollars of FX availability out into the space. It’s taken a lot of goodwill, it’s taken a lot of work from me.
“The second thing we’ve done is to box our way through the CBN to get a little allocation; because we provide the bulk of this foreign exchange, we should have a bit of it to help stabilise the situation, because fuel queues, make no mistake about it, it doesn’t matter what we achieve in our transformation agenda, is the single most difficult item, which if not solved can bring down the polity and can create mayhem here. So it is something that we have focused on. So I have been able to get some co-operation from CBN on that.
“Now, I’ve also been able to convince Mr. President to give us access to some, outside the 445,000 barrels from national production. The difficulty with that, of course, is that it goes into the FAC entity, so once you touch any barrel there, you’re going to have governors’, understandably, quarrel with you on this. But these are some of the innovative solutions we’ve done.
“We’ve thrown our creative options on the pipelines, by pointing a set of trial, by contracting contractors to get into the pipelines, and show us that they can deliver if we give them the contract.
“What that has done is that, for the first time in eight years, we’ve been able to capture back system 2B all the way to Ilorin. For the first time in over six years, we were able to pump crude from Escravos into Warri and we were able to pump oil from Brass into Port Harcourt. And we were able to pump from Warri right into Kaduna, with a few skirmishes here and there. This is the first time in over 10 years that we’ve been able to accomplish this. We accomplished this by not spending money, but owing obligations. “Now, we are moving to the stage of contracting, where we are going to advertise this and see how we can put this as permanent features into the system. So a huge amount of work has been going on in this stream.
“Our depots are at the stage right now of looking at policies geared towards advertising and our pipelines for purposes of contracting joint ventures that will put in money, refurbish depots that had been abandoned for upwards of a decade, so that we can have the distributional network that we need to be able to solve this.
“It’s not enough to bring in the cargoes which we are beginning to do, but if you bring the cargoes and they arrive in Lagos, if you have to send 3,000 trucks round the whole country, it will take an average of four to seven days to do that, and the very next day, you’re back to the same place, so the sheer logistical nightmare is not what NNPC was set up to do, so we need to be able to get those pipelines back, get the depots functioning, push a lot of the responsibility to the major oil companies who are basically leaving us to do all the work and picking up the profit at the end of the day.
“So, it’s been a very difficult work, very challenging. We’re getting to the solution, the first few cargoes are beginning to come in and I think, by the second week of April, we should be hopefully out of this queue situation. But that is not a long-term solution.
“The long term solution is that we have to throw private initiatives to the downstream. We’ve got to have a situation where we create enough policy direction, such that people can get in there and do the business. We can take care of our own filling stations, NNPC stations and perhaps some of the affiliates that are going to be with us, but that is a job we’ve done and done well but we can do it better. We can go into growing the affiliate stations even more so that we have a lot more affiliate stations that we use as response to security situations.
“But ultimately, the business must go back to where it belongs, the private sector, not the public sector and until we do that, deal with the issue of pricing, which our price modulation has helped us manage, but not quite completely, we’re not going to solve the problem.
“Now, how do you come in? Get out into the filling stations, BYbe a proud NNPC official, HELP regulate traffic, HELP push product, HELP report scams that are going on in depots, even by our own officials and HELP talk about the change, HELP talk about the problems and BE the spokespeople for your own company, HELP create ideas. HELP suggest ways in which we can find lasting solutions to this. And if we do that, collectively, every one of us a piece, at the end of the process, people will remember the difficulties, but will also remember an NNPC that was united in the solution to this problem.
“At the end of the day, it’s not all about me, it’s actually about you.”