On Fuel Price Hike - and Why We Are Where We Are

By

Mobolaji E. Aluko, Ph.D.

Burtonsville, MD, USA

alukome@aol.com

July 2, 2003

INTRODUCTION

I have just returned from Nigeria after a one-month stay.   This write-up, however, is not a travelogue. 

In Ibadan, I visited an elderly relative in her home last week.  There was no electricity in the home during my entire visit.  NEPA had “taken light”, but during the course of my stay, she showed me a wrong bill from NEPA – for N227,000 – even though she lives in a modest home (not a factory), and in any case she was away in Lagos for that very month of the bill.  If she did not have a strong heart, she would have fainted, she said, because her monthly bill was usually in the N1,000 per month range.    Computer error, it was called, although her electricity was cut for a few days as a result of it.   One of her other relatives is currently fighting the ridiculous bill with NEPA Ibadan.

Even though I was not really hungry, my relative insisted on me having a meal – and she proceeded to heat up her sweet-smelling “obe” and use not the electric cooking range that she had, but her small kerosene cooker.   As she labored with it, I shook my head that in 2003 she could still be using a kerosene stove right in the middle of Ibadan – and that in another week, I would be returning to the comfort of the USA thousands of miles away.

NIGERIA’S OIL PRODUCTION AND REFINED PRODUCTS PROFILE

The kerosene reference provides an appropriate segue into this section.

Nigeria produces roughly 2 million barrels of crude oil per day. With Nigeria’s Forcados crude at roughly 7.22 metric tons per barrel and Bonny Light at 7.49 metric tons per barrel, that translates to roughly 14.5-15 million metric tons per day.

Nigeria’s total consumption need, on a daily basis, is about 0.4 million barrels per day of crude, which translates roughly to 38 million liters of refined products [petrol or gasoline (PMS), kerosene (DPK Dual purpose kerosene) and diesel (AGO)], of which 14 million liters is PMS.   This means that the total installed national refining capacity of 0.445 million barrels per day of our four refineries [Kaduna (0.110 mmbpd capacity), Warri (0.125 million mmbpd) and two in Port Harcourt (.060 mmbpd, 0.150 mmbpd)] would have fully satisfied our domestic needs, and still leave a 10% surplus.   It should be noted that other figures put these as Nigeria’s domestic demand of 25 million litres per day, with the four refineries having a combined capacity of 30-35 million litres per day. 

The most important back-of-the-envelope figure to remember here is that 1 barrel of crude oil yields roughly 100 liters of refined products, and that depending on the actual cost of crude per barrel and the dollar/naira exchange rate, the MINIMUM NO-PROFIT domestic cost of a liter of would vary.  For example an $Z/barrel crude oil cost would roughly translate upon refining to YZ  Naira per liter minimum cost for a $1/(N100Y) exchange rate.  If we use the easy $1/N100 exchange rate, then the dollar cost of a barrel directly translates in its figure to the naira cost per liter of refined products, ie a $25 per barrel crude has a minimum no-profit cost should be N25 per liter of refined product.  If the cost (maybe due to local production) is as low as $10 per barrel, then that minimum cost should be N10 per liter.

However, due to technical inefficiencies, political incompetence and leadership failures over the years, all the refineries have only been able to perform, even at peak form, at 40-60% of total installed capacity, or at 0% (total shut-down) at other times, like back in March 2003 when both Port Harcourt refineries suddenly had to shut down completely, or even now when both Warri and Kaduna had to be shut down because of vandalization of pipes in the Niger-Delta.

THE RECENT PRICE HIKE

As I write, a biting workers’ strike is taking hold in Nigeria, with probably as many as ten Nigerians already dead from security forces’ misbehavior.  The strike is a bitter reaction to the most recent hike in retail prices of petroleum products, the eleventh one since uniform pricing was introduced by the Gowon regime on October 1, 1973.  (See Table 1).  While in the latest move petrol suffered a sudden 54% increase to N40, kerosene was exposed to a 58% increase to N38 per liter, and diesel by 46% to N38 per liter.   Since 1973, petrol has experienced a 42,000% increase in Naira terms, while kerosene, the “poor-persons’ fuel” has suffered a whopping 47,400% increase!

Why these increases? The usual reason has been the reduction or removal of subsidies, in order to move the price of gasoline to more economic values and to discourage rent seeking.  For example, according to a recent report, President Obasanjo is quoted as follows:

QUOTE

“Subsidising fuel to the tune of N12 per litre is a wasteful way of spending our money", noting that the N250 billion subsidy per annum could be saved and used in providing education, health, water supply, roads, security and food.

President Obasanjo explained that the age of the four refineries in the country and their lack of maintenance in the past, made them to produce only 13 million litres per day, below the national consumption rate of 30 million litres per day.

Government's continued importation of the shortfall of N17 million litres per day, he noted, is not only too costly, but also benefiting only a few rich individuals and neighbouring countries through smuggling.

UNQUOTE

The president’s figure puts the total capacity of our refineries at 43%, closer to 40% than the 60% often quoted.   A quick calculation using his subsidy numbers puts the annual subsidy at N74.5 billion (N12 per liter times 17 million liters per day times 365 days per annum) and not N250 billion – unless we are missing something like overheads and the inevitable additional corruption of government bureaucracy.  The new price of N40 per liter also means that at a daily consumption of 30 million liters per day, the Nigerian people will soon be spending N1.2 billion per day on fuel alone – or N438 billion per annum – or about 3% of our GDP (PPP purchasing power parity) .

Next, according to statement credited to Rasheed Gbadamosi, Chairman of the Petroleum Product Pricing Regulatory Committee (PPPRC), and more recently of the PPPRA (the committee is now an agency, though not yet backed by a signed law), we have:

QUOTE

"The parameters that have been brought to bear in the price restructuring exercise are clear and verifiable," said Gbadamosi. He listed these as:

*  Landing cost of PMS (petrol), Free on Board - N28.54 per litre;

*  Demurrage and Financing - N1.50 per litre;

*  Distribution margin - N7.33 per litre; and

*  Highway Maintenance - N1.50 a litre.  “

UNQUOTE

That amounts to N38.87 – rounded up obviously to N40 for petrol.

The reader is free to ask: why we are we talking about “landing costs” (from abroad) and “demurrage and financing”?   It is simply because we are importing as much as 60% of our refined needs from outside of the country.  The real questions that we must ask ourselves are therefore the following:

(1)    what really is the daily refined product demand of Nigeria?  It has variously been put at 25 million liters, 30 million liters and 38 million liters.  Until we have a handle on that, the true amount of subsidy is clearly undecipherable.

(2)    what is the actual cost of producing refined products in Nigeria  so that we can have what we might call our own “domestic landing cost” –  local cost of crude + refiners margin  -  before we start adding in other “margins.”

(3)    if more and more of our products were refined INSIDE Nigeria rather than IMPORTED, what would be the benefit to Nigerians at the gas pump?  Why has so much money spent on our refineries in the past four years (reportedly as much as $700 million) not resulted in increased domestic refining capacity?

To respond to some of these questions, I have below used Gbadamosi’s  “clear and verifiable” figures above, which in fact would be most appropriate if all the oil we use were 100% imported, as well as several official government documents. 

For example, we know that the “domestic landing cost” that I referred to above should be between the minimum no-additions cost of crude and the import landing cost of N28.54. Consequently, I have in Table 2 done a sensitivity analysis using a range of costs.  Also, another sensitivity analysis involved assuming various domestic production percentage ranges, from 100%  (full domestic satisfaction of local demand) to down to 40%.

The table shows that for domestic landing costs of N10 to 28.54 per liter, full satisfaction (100%) of our domestic needs by domestic refining would cut the cost of refined petrol to the range of N14.59 to N38.87 per liter, the higher figure being due only to the unrealistic assumption of a domestic landing cost equal to an imported products landing cost.  If the domestic production falls to 60%, that price range rises to N24.30 to N38.87.  Finally, a domestic production rate of 40% leads to a price range of N29.16 to N38.87.

A further reduction by half of the demurrage, distribution margins and highway maintenance charges would shave off anywhere from N2 to N5 from the top and bottom values of the above ranges.

WHY WE ARE WHERE WE ARE

The two government agencies responsible for getting fuel to the Nigerian citizenry are the NNPC (Nigerian National Petroleum Company), which owns all the four refineries in Kaduna, Warri and two in Port Harcourt, and the PPMC (the Petroleum Products Marketing Company) which distributes the products.  From government reports, we find that the problems facing our nation are both internal to these companies as well as external; both technical and financial; and both production- and distribution-related.

It is best to let the actors themselves speak, as revealed to the National Economic Intelligence Committee (NEIC) teams that visited various refineries and fuel depots extensively in August 1998, excerpts of which reports are presented in Appendices I – II.

To fix dates, Abacha died June 1998, Abdusalam Abubakar took over immediately afterwards, and MKO Abiola died July 1998.  Obasanjo became a candidate for the presidency October 1998, and became president May 1999.  Those reports were presented to president Obasanjo, on good authority. 

As you read the reports excerpts of which are presented in Appendix I – II below, and as you look more closely at the associated tables 1 – 3, the question to ask is whether things have changed with respect to NNPC and PPMC since 1998 – and why not. 

The actors may be different – but is the play different?

AND WHAT SHALL WE DO?

The reports in the Appendices show that government knows PRECISELY what ails the petroleum sector.  Consequently, the Nigerian citizenry should NOT be punished through arbitrary price increases for to the inefficiencies in government and outright corruption.  In fact, Government might actually NOT need to subsidize at all if the outrageous activities pointed out in the reports were removed.  Certainly the cost of fuel would be greatly reduced if more of the product were refined in the country and efficiently distributed to the consumers. 

Until Government convinces us CLEARLY about what it has done about past reports about this important petroleum sector, why monies spent in the last four years have not resulted in improved refining capacity in our refineries, who has been punished if our condition is a result of sabotage, etc., one should takes its present pleadings about removal of subsidies with a pinch of salt.  Furthermore, Oshiomole and co. should not agree to a penny more in terms of fuel increase on our behalf.

Ultimately, our petroleum sector must be fully liberalized to allow private players full access.  It is crucial however that such private players must include stand-alone companies floated by state governments and other civic-minded groups of citizens where the ordinary people will have controlling shares, so that a safety net might be placed under those who might otherwise be squeezed out by those who have only profit-maximizing motives.

Let us watch and pray.

MONDAY QUARTERBACKING:  On Fuel Scarcity, Politics and NNPC

http://www.gamji.com/aluko48.htm

Mobolaji E. Aluko

Monday, March 10, 2003

MID-WEEK ESSAY: On the Resource Control Battle:  From Dichotomy to Quartonomy, From Isopatials to Isobaths

http://www.gamji.com/amviews62.htm

Mobolaji E. Aluko

February 19, 2003

http://www.ngex.com/nigeria/govt/president/obasanjoonoil.htm

FUEL SUBSIDY MUST GO

Insert Tables 1, 2 and 3 here

APPENDIX I

Excerpts of  “Report of the Neic Monitoring of Capital Projects in the States and Federal Capital Territory, Abuja;  3^rd – 29^th August, 1998.  Volume Two.  Federal and State Agencies and Parastatals.  August 1998”

(111 pages)

Note: NEIC Teams visited NNPC Depots in Abia, Adamawa, Benue, Borno (including an NNPC substation), Cross-River, Edo, Enugu, Gombe, Kano, Lagos, Niger, Ogun, Ondo, Oyo, and Zamfara.  It also visited  Warri Refinery and Petrochemical Company Ltd. (WRPC), Kaduna Refinery and Petro-Chemical Company (KRPC),  EPCL (Eleme Petrochemicals Company Limited) and Port Harcourt Refining Company (PHRC), among several other government state agencies and parastatals.

Page 25 ff

Warri Refinery and Petrochemical Company Ltd. (WRPC)

The visit by the NEIC Team in August 1998 was a follow-up to the NEIC visit of December 1996.  The team was briefed by Dr. E.A. Dennar, the Managing Director, that the refinery receives crude from PPMC for processing.  THE PPPMC, it was also reported, decides on the distribution of refined producst as well as the mod of pumping through the pipeline network of lifting from the refinery by tankers.  He intimated the Team that the refinery was working at 75 per cent capacity because the FCC unit had developed a fault which would not be fully repaired until the middle of September 1998.  He explained that because of this fault in the FCC unit the storage tank of the refinery was fully loaded with High Pour Fuel Oil.  He explained that the refinery which was expected to have its Turn Around Maintenance (TAM) bi-enially had the last TAM in 1994.

On the TAM, the NEIC Team expressed the hope that the Company which would be selected for the job of TAM and Rehabilitation of the Refinery would do a satisfactory job.  The Team suggested the need to obtain a guarantee from the company that would undertake the TAM and Rehabilitation, and to reach agreement with it on participatory management of the refinery over a reasonable time period, following immediately after the completion of the TAM.

The cumulative indebtedness of the refiner as at June 1998 was N635 million.  The debts were in respect f spare parts, chemicals, minor contract services and consumables.  Yet, the subvention per month to the refinery was between N30 million and N40 million.  The management of the refinery suggested that there was a need to decentralize decision making and the purchasing of inputs.  The example was given of an officer of the refinery who had remained in Abuja for three weeks in order to obtain approvals for vital purchases.

Petroleum Products Marketing Company (PPMC) Fuel Depot Warri

The NEIC Team visited the PPMC Head Office in Warri on 20^th August, 1998, and had extensive discussions with the Area Manager and his Senior Officials.  The Team also visited the Warri NNPC Jetty and the Warri Depot.

In reply to several questions by the NEIC Team, the Area Manager explained that the objective of the PPMC was to supply crude to the refineries and to distribute petroleum projects.  He discussed the pipeline network which he said was flexible.  He reported that the bulk of the refined products in Warri Refinery was being pumped to Suleja.  No fuel was being pumped to Benin and Ore Depots because he was acting on directives to pump to Kaduna Depot.  However 30 per cent of the refined products was recently being pumped to Benin and Auchi Depots, following the intervention of the Military Administrator of Edo State.

The Area Manager explained that the failure to adequately monitor the fuel distribution system was largely responsible for the persistent fuel shortage.  The Directorate of Petroleum Resources (DPR) which was responsible for monitoring the system was virtually moribund.  It needed to be revived as the various Task Forces which were expected to alleviate the shortage had themselves become a nuisance.  He expressed preference for the use of the pipeline network instead of lifting by trucks because the refineries were not built to handle as many trucks as now patronized it.  Though the objective was to load two million liters of fuel daily, there was no accurate statistics of the destination of the Premium Motor Spirit (PMS) being loaded daily from the Depot.  There was also no accurate statistics of daily demand for PMS and the other fuels.

The PPMC intimated that the depot, the network of pipelines and the jetty were being maintained not by the PPMC but by the refinery.  He informed the NEIC team that while there were 32 loading arms in the Deport only 15 were in good working condition.  The depot it was observed was not fenced thus touts had easy access to the depot and the insecurity of the product, life and property posed a serious problem.  The wall fencing was however being contemplated.  The Area Manager pleaded that the PPMC should be allowed to be in charge of the maintenance of the depot, pipelines and Jetty instead of the NNPC.  However, because of poor funding the PPMC was not able to repair even its limited facilities.  In fact, the financial situation was so bad that officials reportedly used their own money to travel on official duties since money was being made available on a pro-rata basis.

The PPMC suggested that the pipelines should also have TAM and that because of the age of the equipment at the depot, the pipeline network and the jetty, there was a need to seriously address the growing difficulty of obtaining spare parts to replace obsolete equipment.

The NNPC Jetty

The NEIC Team also visited the NNPC Jetty in Warri.  The jetty was dilapidated.  Some sections and the NPA platform had collapsed.  The jetty had no communications equipment, all the meters for recording either outflow and inflow of products were not functioning, and all the equipment in the control room were also out of order.  There was no instrumentation whatsoever, so all monitoring activity were manually done.

The PPMC was incurring a lot of demurrage because the ocean liner platform for the Arab Light Crude was not in use and because  the pumps on the ocean liners were not sufficiently powerful.  Cases of tampering with the pipelines at the jetty were rampant.  Yet, every arm of Government reportedly wanted to maintain a presence at the jetty and was daily pressuring the PPMC to provide office accommodation for it…………

Page 101 ff

Port Harcourt Refining Company (PHRC)

The NEC Monitoring team   was at the PHRC on Thursday 13^th August, 1998

The NEIC Monitoring team met with the Managing Director with all the Management Staff in Attendance.

The Managing Director was particularly happy with the NEIC for its support to keep the industry alive.  He said that NEIC was one Government Agency that had tirelessly championed support for the industry.  He informed the Monitoring team that all was being done to ensure that TAM commenced sometime in October 1998 as the process for approval was in advanced stage.

The problems of the company included inadequate funding, staffing (lack of professional staff), vehicles, indebtedness to the tune of N1.3 billion.  Another serious problem was lack of good access road to the refinery.

The leader of NEIC Monitoring team acknowledged the major problem of funding which Government was already addressing.  For a long-term solution to the problems, the Committee has advocated autonomy for NNPC subsidiaries and an urgent improvement of existing operating systems.

The Monitoring Team undertook a tour of the Company’s plant and facilities taking critical note of their state of disrepair.

At the time of the visit, on the Crude Distillation Unit was operating.  [NOTE:  IN ADDITION TO THE CDU, THE VDU, NHU, CRU, KHU, FFCU, DIM and HFA should have been working.]  The Power Plant was reported to require rehabilitation for effective operation.  There was also an on-going plan to expand the capacity of the Fuel Catalytic Cracking Unit (FCCU) to reduce supply deficit in the production capacity of the plant.

The Turn Around Maintenance of both the old and the new Port Harcourt Refineries were due in 996, but were not implemented as a result of funds limitation.  A mini-TAM for the old Port Harcourt Refinery was anticipated for the last quarter of 1998 to reduce massive importation of petroleum products.

[A Table] shows the relative contributions of the different components of the total cost of production in both the approved budget and actual expenditure for the years 1995, 1996 and 1998.  In 1995, about 50% of the approved budget was released to PHRC to fund its operation.  On the other  hand, about 64% of the approved budget in 1998 had been committed by the end of July 1998.  The relative contribution of Plant Maintenance in the actual cost of production increased steadily from 23.3% in 1995 to 43.9% in 1998.  This might be attributed, perhaps, to the non-implementation of the Turn Around Maintenance.

Recommendations

The access road from the Aba Expressway to PHRC was found to be in a deplorable state considering the contribution of the refinery along with NAFCON (Nation Fertilizer Company of Nigeria) and EPCL (Eleme Petrochemicals Company Limited) to the GDP.  We recommend urgent rehabilitation of this important road network.

We recommend that the maintenance management system at the PHRC be overhauled for effectiveness.  There is need for the establishment and implementation of an integrated computerized maintenance management system that would enhance a positive change from reactive to planned preventive maintenance and with improved funding of operations.  The present functions of maintenance planning (even TAM) needs to be integrated with inventory (spare parts) materials management, procurement, personnel management and accounts.

Bonny Export Terminal Project

The Monitoring Team was taken round for a tour of the Bonny Export Terminal Porject by the Project Officials.

The Bonny Export Terminal project was designed to provide facilities for effective and efficient marine evacuation of a maximum of five million metric tones per annum of petroleum products from the PHRC using 50,000 – 80,000 DWT Tankers which could not berth at Okrika Jetty because of draft limitations.

The scope of work consisted of the engineering, procurement, construction, commissioning and start-up of the facilities, for

a.       Tank farm/Pump Station (PPMC Terminal) within PHRC premises

b.      Export Sea Inland loading facility located at the Confluence of the Hughes Channel and Bonny River about 30 km from PHRC.

c.       4. nos. products pipelines (2 x 16” for PMS/AGO and 2 x 18” for LPFO/HPFO Low and High Pour Fuel Oil) from PPMC terminal through swamps and riverbed to the sea island location.

Although the facilities for the project appeared to have been fully installed and were on a punch-list status, the project was experiencing delay in start-up and performance test-run arising from:

a.       delay in the arrival of the representative of IPCO (Nigeria) Limited and the Equipment Manufacturers/Vendors.

b.      Product availability from PHRC and PPMC

c.       No gas supply to BET gas reception facilities by NGC;

d.      Delay in getting power from PHRC.

We noticed some corrosion on the electrical cable panel and the air conditioning duct which were installed on the Export Sea Island load facility (BET Platform).  There is need to protect the structures with additional stainless steel coatings.  (eg STEEL IT.)

Page 41 ff.

Kaduna Refinery and Petro-Chemical Company (KRPC)

The Managing Director of Kaduna Refinery and Petrochemical Company, Sir Tamuno, warmly welcomed the NEIC Team.  He gave a detailed briefing on the history of KRPC, tracing the existence of the Company from the date of commissioning in 1980 with an initial capacity of refining 100,000 barrels per day (bpd).  He said the Complex was mad up of Fuels, Lubes and Lab Plants.  There was also Tin and Drum Manufacturing Plant and a Wax Packaging Unit.  He told the Committee that the major products and the annual production capacities from the Plant were as follows:

            PMS                -                       3,857 metric tons per day

            Kerosine          -                       1,686                    “

            AGO                -                       3,000               “

            Asphalt            -                       1,796               “

            LUBE              -                            91               “

            Base Oils      -                          657               “

In explaining the timing of the Turn Around Maintenance (TAM) of the KRPC, the Managing Director said that statutory regulation required that a Hydrocarbon processing industry such as KRPC should undergo extensive inspection and repair works to enhance Plant/Personnel safety, environmental protection and Plant Reliability every 18 – 24 months.

Since the Commissioning in 1980, Sir Tamuno explained, TAM of KRPC was only carried out viz:

               Year                             Duration

1982  45 days

1983  45 days

1986  45 days

1989  45 days

1992  More than 90 days

Sir Tamuno regretted that due to fund constraints, TAM of KRPC had continued to be shifted after 1992 until 1998.  He further regretted that lack of TAM execution between 1992 and 1997 resulted in equipment unreliability, plant unavailability, unsafe and epileptic operations which finally culminated in the emergency shut-down of the plant on 25^th July, 1997 as a result of hydrogen leak into the Cooling Water Circuit.

TAM and Rehabilitation by Total Nig. PLC

IN explaining the latest development of TAM and Rehabilitation of the KRPC, the MD stated that the idea was mooted in November 1995, when the Total Nig. PLC submitted a proposal to the Hon. Minister of Petroleum Resources.  He expantiated on the series of meetings and negotiations since then, and the intervention and effort of the National Economic Intelligence Committee that led to the award of the Contract to Total Nigeria Plc in early 1998.

He confirmed that the Contract Agreement on the 6^th TAM and Rehabilitation of the KRPC was signed between NNPC/Total Nigeria Plc on March 5^th, 1998 on the agreed Contract sum of $214.979 million.

He further confirmed that the Escrow Account was opened on the 25^th April, 1998, while effective date of commencement of the Contract was 28^th April, 1998.  The MD also said that the  first Milestone payment was not made until 17^th June 1998, which was seven (7) weeks delay outside the contract term, which he explained resulted in the delay in the mobilization of equipment by the Contractor.

The MD further informed the NEIC Team that in order to achieve the successful completion of both TAM and Rehabilitation of the KRPC, the Total Nigeria PLC had sub-contracted parts of the project to the following companies:

1.      DBN

Fuels Plant - $7,599,456.00

Fluid Catalytic Cracking Unit - $6,583,216.00

Power Plant Utilities & Offisite - $4,276,872.00

2.      CAMESCO

Lubes Plant - $11,987,488.00

3.      DSD

Lab Plant - $5,784,948.00

The MD assured the Team that both Camesco and DSD would complete their projects on 2^nd November and 20^th November, 1998 respectively.  He gave a breakdown of progress of work on Fuels, FCCU and PPU & Offsite as at 9^th July, 1998….

The representative of Total Nigeria Plc, Mr.J.P. Janin, in his contribution, corroborated the presentation of the MD, KRPC.  He presented a Bar Chart, showing the dates of Contract signature, payment of first milestone, Mobilisation, Stages of Units 10….with achievable projection completion date of 24^th August, 1998.

Mr. Janin told the Team that contract on Fuels Plant was to have been completed by 15^th August, 1998, and Turbo Generators by 7^th August, 1998 and that by the tend of August, 1998, fuels should be available from the Fuels Plant, if other things had been equal.  On resumptions of production, the Refinery should have been capable of supplying about 70% of total fuel needs of the Northern States.

He further guaranteed the NNPC/KRPC a good quality work with expert finishing within the budget.  He expressed the satisfaction of Total Nigeria Plc. On the method of payment through the Escrow Account…….

The MD, KRPC, told the NEIC Team that at the completion of the TAM and Rehabilitation of the Refinery, the Plant would need the assistance of government in the area of:

                                                         i.      Provision of Chemicals and spare parts

                                                       ii.      Settlement of about N1.4 billion debts owed by the KRPC

                                                      iii.      Motivation of staff (remarking that there had been no pay rise in KRPC for workers in the past 10 years)

                                                     iv.      Provision of vehicles

                                                       v.      Adequate and regular funding of KRPC

                                                     vi.      Maintenance Agreement of KRPC with foreign partners.

Answering a question on pumping and bridging of petroleum products, the MD said that KRPC has facility to pump petroleum products from Kaduna to all parts of the North.  He agreed that Warri Refinery could also pump from Warri to Kaduna.  He futher agreed that bridging would still be in place to give added services in the supply of the petroleum products.  He however noted that the inhibiting factors of bridging were lack of adequate vehicles and congestion on roads by trucks.  He added further that about fifteen (15) Trucks of fuel were supplied to Abuja daily, but wondered why only about five (5) trucks reached the Federal Capital Territory.  What happened to the other trucks could not be explained.

Sir Tamuna informed the NEIC team that the National Insurance Corporation of Nigeria (NICON) paid a sum of $8 million for the fire incidence in 1995 at the Lubes Plant.

The MD told the Team that since the closure of the Refinery, some of the production staff were sent on training; some were absorbed by Total Nig. PLC sub-contractors and about 700 workers were involved in the TAM project.

Recommendations by NEIC

After being properly briefed on the state of affairs of KRPC, the NEIC Team makes the following recommendations:

a.       Each of the four Refineries in the country should be run as a Limited Liability Company (PLC), independent and self-sustaining.

b.      In inviting foreign partners to the KRPC, a certain percentage of the shareholding should be allocated to the staff of the Refinery.

c.       Immediate measures should be taken to commence the Turn Around Maintenance and Rehabilitation of the Port-Harcourt and Warri Refineries to complement Kaduna Refinery……

Appendix II

Report of the Activities of the National Economic Intelligence Committee 1994 – 1999

May 1999 

(72 pages)

Page 44 ff.

The Petroleum Sector

Intermediate products in the nation’s refineries, especially Naphtaha, was being allocated to individuals for export.  Even bitumen which was being produced by the Kaduna refinery was bought by individuals at a ridiculously low price and sold to road construction companies at the current higher world price.  The practice persisted until the Government revised the price upward at the instance of the NEIC.  Aviation fuel was, however, being sold to airline operators at a price which was higher than the stipulated price of N9.0 per liter, while fuel oil which is the main source of energy in the industrial sector was being exported, thus giving rise to acute shortages at home and consequent black marketeering.

The NEIC also talked to the oil companies on the need to help to reduce the huge disparity in the standard of living of the staff of the oil companies vis-à-vis those of the dwellers in the oil producing areas.  This they could do by providing more social and physical infrastructures in the oil producing communities and by encouraging greater community participation in these projects in order to ensure their sustainability.

Even though there is the belief in certain quarters that the NNPC subsidiaries are inefficient, it is the view of the NEIC that they are no less efficient than some private companies and, therefore, should not be excluded from the contract to import and export petroleum products.

The major marketers appear favoured over independent marketers.  The major marketers who are mainly expatriate companies buy petroleum products from NNPC on credit while the independent marketers who are entirely Nigerian companies pay case in advance of purchase.  NEIC did not support this discriminatory policy of the NNPC but it has continued unabated.

One of the major problems of OMPADEC was that it awarded too many contracts whose value far exceeded its revenue.  In consequence, quite a number of contractors were not paid.  Following NEIC reports, the OMPADEC was not only reformed, but part of OMPADEC debts verified by NEIC were paid beginning from March 1999.  The balance of N3.70 billion was to be made available by the Federal Government in order to settle fully the debt to the contractors.  However, NEIC recommended that the sum of N1.60 billion should be recovered from OMPADEC contractors who obtained mobilization but did not perform at all.

On the increase in allocation of crude oil to the refineries from 250,000 bpd to 300,00 bpd, the Committee noted that even when 250,000 bpd were allocated for domestic refining, only 182,000 bpd could be processed while the balance was swapped by the NNPC without Government’s approval……