- Post 08 August 2012
- Last Updated on 09 August 2012
- By OLUMIDE ILUYOMADE
The Federal Republic of Nigeria is a nation whose name is synonymous with oil riches! Shortly after independence in 1960, the young democratic nation was soon confronted with divisive and unsavoury political wrangling which led to an unsolicited military intervention and political assassinations! A violent vortex of political unrest, sectional violence and further military agitation and politicization was to follow, which ultimately culminated in a civil war in 1967!
In the early formative years, Nigeria was not known for oil production, much rather the nation had a vibrant and fecund agrarian economy. Commercially viable crude oil deposit was first discovered by Shell-British Petroleum Company at Oloibiri (now in Bayelsa State) shortly before independence in 1956. Initially, a 50-50 sharing arrangement between the company and the colonial government of Nigeria was implemented. By the early 1960’s Mobil, Texaco and Gulf Oil had purchased concessions and Shell-British petroleum was no longer the exclusive oil exploration company.
By 1970, in the aftermath of the civil war, the nation as a whole was in the process of recovering from the devastating effect of war and the blossoming Nigerian oil industry had not been spared the negative impact either! Oil production had dropped to a mere 33% of its production peak of 420,000Bpd in 1966. The incumbent military leadership was in dire need of revenue and new sources of income to pay outstanding debts and forge a viable nation state. It was under this circumstance that Nigeria was to discover her true potentials as an oil producing nation.
A few years later, the tides of the nation would turn dramatically culminating in the oil boom of the 70s, Nigeria experienced her first and most critical economic boom! Billions of dollars generated by the production of crude oil flowed into the national confers. The fossil-fuel rich Niger delta region which had been a primary bone of contention in the acrimonious negotiation leading to the civil war was to become the nation’s primary source of revenue! Nigeria had become an important and critical producer of the most valuable energy resource in the world! Thus the nation’s influence and wealth grew exponentially.
Nigeria soon joined OPEC and embraced regional initiatives. Critical national infrastructures were constructed and strategic oil Refineries were built to reduce dependency and to yield greater income! The military government which was in control of the federal government, realizing the great potentials and the wealth trapped underneath the ground, especially with regards to revenue generation, actively and aggressively sought out the best opportunities and means of exerting exclusive control over the valuable resource! The federal government persisted in garnering control over oil revenues by implementing the following laws and policies:
- In May 1971, the Federal Government of Nigeria (FGN), then under the leadership of General Yakubu Gowon, consolidated its involvement in the nation’s oil industry through the creation of Nigerian National Oil Corporation (NNOC).
- 1972: FGN declared that all properties not currently owned by a foreign corporation or entity, legally and automatically became properties of the federal government, thus effectively nationalizing regional assets and gaining jurisdiction and control over the sale and allocation of concession to foreign investments.
- 1974: FGN decreed a mandatory participation in all oil industry projects that accrued 55% equity share to the federal government.
- 1975: FGN enacted Decree #6 which increased the federal share of the revenue from oil to 80%, with only 20% going to the states!
- 1976: First notable exploration and development venture undertaken by NNOC to uncover commercially viable deposits of petroleum off-shore
- 1978: FGN promulgated the Land Use Act which vested control over all land in the office and jurisdiction of each respective State governor.
- 1979: Declaration of 1979 federal constitution of Nigeria. Section 40(3) of the constitution declared all natural resources – fossil oil, minerals and natural gas; found within the sovereign boundaries of Nigeria as the exclusive and legal property of the federal government of Nigeria.
- 1979: In an effort to further increase its control over the oil industry, the FGN merged and restructured the functions and responsibilities of NNOC with the Federal Ministry of Petroleum’s area of oversight, thus creating the Nigerian National Petroleum Corporation (NNPC). Through its proxy in NNPC, the federal government’s involvement and equity share in all petroleum ventures was henceforth established by law to be 60%.
As oil production revenue rose, federal government subvention to states and parastatals increased significantly, getting to the point where the states and agencies felt no pressure to generate their own income or even maintain a semblance of self-sustenance! With the concentration of funds and resources in the hands of the central government, hardly any efforts were made by the state governments to engage any economic activity to help maintain and accomplish self-reliance! It was to be the beginning of an unfortunate saga!
It was also during the oil boom of the 1970s that the political economy of petroleum in Nigeria became characterised by endemic patronage and corruption by the political elites. It was to be the beginning of a federal government policy drive that entailed brazen insensitivity to the needs of the nation as a whole, especially with regards to the economic inclusion and environmental concerns of the communities wherein the resources were extracted! This period would also highlight the completion of a federal objective to takeover all oil revenue and centralize income!
Having never reconciled the differences, bitterness and grievances of the various ethnic factions that constituted the nation after the civil war, allegations of sectional favouritism in the allocation of funds and resources were soon common place and rife. A general mien of discontent persisted within the political elites! Nigeria’s income centralization when coupled with her colourful diversity and a bludgeoning population was a recipe for disaster! The temporal demise of the military from politics in 1979 would ensure and bring about another morbid struggle for political dominance and control! The federal government and federal offices became the epicentre of acute political wrangling, power struggle and economic subjugation!
In ignoring the nature of her federal constitution and depending exclusively on the sale of crude oil for income generation, Nigeria’s military leadership and the subsequent national governments had unwittingly created a dangerous situation which spelt doom for the previous ideal of autonomous regional governance and self-reliance! The mandate of federalism with which the nation had been bequeathed, had now been clearly subverted!
Beyond that, the dangers and disadvantages of having a monolithic and singular source of income had been made evident by the erratic swinging pendulum of commodity prices! It had now become obvious that a stable and consistent economic growth could only be attained through the development of a broad and versatile economic base! In other to achieve this, the current oil revenue would have to be purposed tacitly to more focused, astute and strategic objectives! It goes without saying that this noble objective was never accomplished!
Today, Nigeria is home to 160 million citizens making it the most populous nation in Africa! Nigeria is also the 7th most populous nation in the world along with being the most populous black nation in the world!! In spite of having fabulous economic potentials, ebbing human resources and a territory riveted with natural resources, Nigeria has not fared so well, economically! Over the years, the socio-economic prospects of her citizens have dwindled, even as the earnings and income generated from oil continued to sky-rocket!
Nigeria is the Cinderella nation that never quite made it to the king’s dinner, having been betrayed, ambushed, raped and despoiled by her own keepers and guards! The moribund nation has had the great misfortune of being saddled with 32 straight years of utterly corrupt, depraved and inept leadership! The consequence of which is the total annihilation of any form of advancement or development hitherto achieved! The social retrogression and the prevalent social decadence currently experienced is a lasting testament to this undeniable truth! Virtually every aspect of the nation’s socio-economic well being and national virtue has been completely eroded and thoroughly devastated!
To fully understand the magnitude and scope of problems and dysfunction experienced in the Nigerian oil industry today, it is imperative that a detailed and comprehensive overview of the industry be carried out. In so doing, a lot more light will be shed on several confusing and unknown facts. Also, the opportunity to review, identify and expose areas of inadequacies and recurring shortfalls will be thus assured!
In the last 20 years, Nigerian citizens have had to deal variously with a myriad of unmitigated issues! Chief among such problems is the perennial fuel supply problems which range from scarcity of fuel to outright non-availability of some products! With a total installed capacity of 445,000 barrels per day (bpd), the nation’s four refineries despite their capacity, have been consistently and variously mismanaged, pilfered, sabotaged, politicized, neglected and denied much needed maintenance! It is no wonder that they have been unable to perform to expectation and deliver the domestic needs of the nation!
Today in Nigeria, the federal government owns all the major refineries in the nation and they were all constructed or installed between 1965 and 1989. The refineries are as follows:
- Port Harcourt Refinery 1 – (PHRC I) This is the smallest and oldest of the refineries. A former Shell-British Petroleum complex and investment which was nationalised under General Obasanjo’s administration. Built in 1965 as a simple topping and distillation refinery with a capacity of 60,000Bpd! With no overhaul or upgrade since then, it is essentially obsolete and decommissioned! NNPC website suggests that refinery’s facility is probably used for oil storage with some pump station components.
- Port Harcourt Refinery 2 – (PHRC II) The new Port Harcourt refinery which also happens to be the youngest and biggest of the nation’s refineries was conceived as an export refinery with a capacity of 150,000Bpd. It was completed in 1989 by General Babangida’s administration. The Eleme Petrochemical plant was built adjacent to the refinery in 1995. It was designed to produce Olefin, Polypropylene and Polyethylene. Today, due to a history of poor management and maintenance, the current output in the refinery is a low fraction of its installed capacity. Even at that, it is perhaps still the most functional of the nation’s refineries. Like the refinery, the petrochemical facility has been plagued by unresolved technical and maintenance issues and has never been able to function at more than 40% of its installed capacity. It now lays dormant!
- Warri Refinery – (WRPC) This refinery was built in 1978 when (the then) Brigadier Buhari headed the Petroleum Ministry. With an installed capacity of 125,000Bpd, the complex had an additional petrochemical processing capability added to it in 1986 for downstream petroleum products such as Polypropylene and Carbon Black. However, with an unresolved history of corrosion even in its younger days and frequent shut-down due to neglect, lack of maintenance and pipeline sabotage, the facility often manages to output at no more than 30% of its installed capacity but that is on an infrequent and haphazard basis! WRPC also has an integrated design capability that generates 125MW of electricity if running at capacity. Hence the energy needs of the refinery could be met while the excess energy produced (upwards of 70%) could supply the nation’s power grid. In more recent years, however, most operations have ceased and the facility has typically become unproductive and comatose!
- Kaduna Refinery – (KRPC) Built and championed by General Buhari as head of NNPC in 1979, under the administration of General Obasanjo, this politically motivated project is perhaps one of the most convoluted, ill-conceived projects ever built by the federal government of Nigeria! Located over 600km from its feedstock supply in Escravos, Delta State and designed to process both Nigerian Bonny light and imported crude oil (Arab Light), Kaduna refinery has never performed at full capacity! With an installed capacity of 110,000Bpd, the refinery was also designed to feed a base-Oil manufacturing plant, an asphalt plant and a LAB plant. However, having never had an assurance of unimpeded flow of feedstock except in the first 10 years of its installation, KPRC has been plagued by all kinds of problems including a frequent sabotage of the supply pipelines, technical breakdowns, pilferage, poor management and maintenance which has resulted in a major fire outbreak on at least two occasions – 1997 and 2002! In its best operating years, between 1999 and 2002, KRPC’s output was estimated to have been around 30%-40% of capacity. In 2003, due to political unrest, communal discontent and rebel actions, the pipeline from Escravos was sabotaged and blown apart! The refinery is currently said to be barely operational and is capable of being operated at less than 10% capacity, however this can only be done sporadically - if and when there is crude feedstock supply!
OIL EXPLORATION & PRODUCTION:
By law, all petroleum exploration and production carried out by foreign Multi-National Corporations in Nigeria are performed as a Joint Venture (JV) with Nigerian National Petroleum Corporation (NNPC), which is a proxy of the federal government of Nigeria. NNPC has the sole responsibility for upstream and downstream developments and is also charged with the responsibilities of regulating and supervising the oil industry on behalf of the federal government.
In 1988, NNPC was commercialised and its operational departments were split into eleven (11) subsidiaries. The ensuing business model covered the entire spectrum of the oil and gas industry. The subsidiaries are as follows:
- Nigerian Petroleum Development Company (NPDC): A wholly owned subsidiary of NNPC with responsibility for Petroleum Exploration and Production activities.
- National Petroleum Investment Management Services (NAPIMS): A subsidiary mandated to enhance the benefits accruing to the federation from its investments in the upstream petroleum industry through effective cost control and supervision of JV and PSC operations.
- Nigerian Gas Company (NGC): Wholly owned subsidiary charged with the responsibility of developing a domestic gas industry to fully serve Nigeria’s energy needs. It is also responsible for laying an integrated natural gas pipeline and network for both domestic and regional export market.
- Products and Pipelines Marketing Company (PPMC): This subsidiary is essentially mandated to ensure the security of supply of petroleum products to the domestic market. It does this by transporting crude oil to the refineries and moving petroleum products to the domestic market through various different means.
- Nigerian Liquefied Natural Gas Limited (NLNG): This is a joint venture between NNPC (49%), Shell Gas B.V (26%), Total LNG Nigeria ltd (15%) and Eni International (10%). NLNG operates six liquefaction units (LNG trains) producing 22 million metric tons of LNG per year. NLNG operates a liquefied natural gas plant on Bonny Island.
- Integrated Data Service Limited (IDSL): IDSL was set up to offer services in the upstream sector of the oil and gas industry. These services include; Seismic Data Acquisition, Seismic Data Processing, Reservoir Engineering Services and Data Storage & Management Services.
- National Engineering and Technical Company Limited (NETCO): This wholly owned subsidiary provides both basic and detailed engineering in the oil and gas industry. Company handles procurement, construction supervision, project management, quality assurance, quality control, environmental services and training.
- Hydrocarbons Services Nigeria (HYSON): An NNPC/VITOL joint venture which was envision to be an international petroleum trading company with particular emphasis on the West African and the Central African sub-regions.
- Warri Refinery and Petrochemical Co. Limited (WRPC): More detailed description given earlier.
- Kaduna Refinery and Petrochemical Co. Limited (KRPC): More detailed description given earlier.
- Port-Harcourt Refinery Company (PHRC): More detailed description given earlier.
The Joint Operating Agreement (JOA) is the basic and standard agreement between NNPC and the numerous operators (IOCs). The agreement sets the guidelines and modalities for running the operation according to the law and constitution of Nigeria. As such, Oil corporations operating in Nigeria generally appropriate only 40% of the revenue or crude volume, while the federal government through its proxy in NNPC accrues about 60% of the revenue or crude oil. Six Joint Ventures involving International Oil Companies (IOCs) are currently operated and they are as follows:
- Shell Petroleum Development Company Nigeria Limited (SPDC): The biggest Joint Venture in Nigeria producing 899,000Bpd as of 1997. JOA provides for a rather complex appropriation – NNPC (55%), Shell (30%), Elf (10%) and Agip (5%)
- Chevron Nigeria Limited (CNL): Largely operating around the shores of Warri at an estimated production rate of 400,000Bpd. The JOA provides for NNPC (60%) and Chevron (40%)
- Mobil Producing Nigeria Unlimited (MPNU): With an estimated production rate of 632,000Bpd (1997), MPNU is the second largest joint venture. The JOA is NNPC (60%) and Mobil (40%).
- Nigerian Agip Oil Company Limited (NAOC): A joint venture owned by NNPC (60%) and operated by Agip (20%) and Conoco-Philips (20%). 1997 output was 150,000Bpd!
- Elf Petroleum Nigerian Limited (EPNL): An off-shore and on-shore joint venture between NNPC (60%) and Elf (40%). Output was 125,000Bpd in 1997.
- Texaco Overseas Petroleum Company of Nigeria Unlimited (TOPCON): A joint venture operated by Texaco (20%) and Chevron (20%) and owned by NNPC (60%). Production output is 60,000Bpd from five off-shore fields.
DATA & PERFORMANCE:
According to the Oil and Gas Journal, Nigeria has an estimated 37.2 billion barrels of proven oil reserves as of January 2011. In 2010, total oil production in Nigeria was slightly over 2.46 million Bpd making Nigeria the largest oil producer in Africa. The instability in the Niger delta has caused significant amounts of shut-in production. The US EIA estimates that Nigeria’s total production capacity may be close to 2.9 million Bpd however, due to incessant disruptions and instability often occasioned by attacks on oil infrastructure, daily crude oil production could sometimes hover as low as 1.7 – 2.1 million Bpd.
In 2010, Nigeria exported approximately 2.2 million Bpd of total oil output and 1.8 million Bpd of crude oil. Over 40% of Nigeria’s oil output is exported to the US, thus making Nigeria the fourth largest foreign oil supplier to the United States. Nigeria’s light, sweet crude is a preferred feedstock and is thus priced higher in the commodity market because of its low sulphur content. A barrel of Saudi Heavy crude (2.8% sulphur, 27API gravity) is intrinsically worth less than a barrel of Nigerian Bonny Light (0.14% sulphur, 34 API gravity), because the former will yield less high-value gasoline, diesel and jet fuel than the Nigerian variant. Consequently, any disruptions to Nigeria’s oil production impacts trading patterns and refinery operations in N. America, often affecting world oil market prices!
Considerable attention has been drawn to the environmental damage caused by oil spills in the Niger Delta. According to the Nigerian National Oil Spill Detection and Response Agency (NOSDRA), approximately 2400 oil spills were recorded between 2006 and 2010, most of which resulted from sabotage, bunkering and poor infrastructure. The annual volume of oil spilled in Nigeria has been estimated be about 260,000 barrels per year for the past 50 years!
It is also no secret that Nigeria has an even more abundant supply of natural gas than oil! According to the ‘BP Statistical Review of World Energy’, Nigeria has an estimated and proven natural gas reserve of 187 trillion cubic feet (Tcf), which makes the nation the ninth largest natural gas reserve holder in the world and the largest in Africa! In 2009, Nigeria produced about 820 billion cubic feet (Bcf) of marketed natural gas and consumed another 255 billion cubic feet (Bcf), mostly for the generation of electricity. Nevertheless, according to National Ocean and Atmospheric Administration (NOAA), Nigeria flared 536 billion cubic feet (Bcf) in the same period!
Because many of Nigeria’s oil fields lack the infrastructure to channel and market associated natural gas, it is often flared away – an action with grievous environmental consequences! In 2011, an NNPC report claims that flaring costs Nigeria roughly $2.5 billion per annum in lost revenue! The government of Nigeria has maintained a policy that is targeted at ending natural gas flaring, however progress is limited, largely due to uncommitted and unserious implementation of policy and an unfocused and feeble regulatory culture.
POWER & ENERGY CORRELATION:
With regards to energy, available data from US Energy Agency (IEA), shows Nigeria has an electrification rate of 50% for the entire country. Approximately 76 million people do not have access to electricity in Nigeria! The current and the most critical challenge and pending issue is the need for the Nigerian government to produce enough electricity to meet its economic needs and the pent up local demand! Nigeria has vast resources in the form of petroleum, natural gas, coal and renewable energy that could be used for domestic generation of electricity. However, the country is lacking a proper Power and Energy policy to harness the resources and develop the electricity infrastructure.
The Nigerian government recognizing the need to address its power inadequacies, developed and introduced a ‘Gas Master Plan’ that promotes the installation of new gas-fired power plants to help reduce gas flaring and provide much needed electricity generation. However, the implementation of this Gas Master Plan has been fraught with graft and corrupt practices! Also, the plan has not been integrated, merged and reconciled with a viable National Power and Energy policy. As is usual, Nigerian government keeps coming up with various frenzied plans that merely address the symptom and not the root cause! This includes a recent announcement to create up to 40,000MW of electricity by the year 2020 (compared to the current 5900MW installed capacity), however the underlying issue and the primary need for a comprehensive and viable Power and Energy policy remains unresolved and keeps getting ignored and sidetracked!
SUBSIDY AND THE STATUS QUO:
Nigerian citizens have always insisted on and clamoured for the right to enjoy certain basic benefits from the nation’s oil wealth - a privilege which the government which had often failed to act in the best interest of the people, sees as burdensome! The revolving and perennial problems of corruption and putrid leadership when added to the latent and insidious problems created by the actions or the inactions of such corrupt governments over the years had left citizens with much despondency and considerable disenfranchisement in the face of extreme social deprivation!
Therefore the people, who have never known or had the benefit of a good social infrastructure or a social safety net to rely on, as is done in other countries, have maintained a subconscious resolve to make the benefit of cheap oil a worthy cause! It has hence become a natural imperative for the embattled citizens to fight and resist any and every attempt to deny or rob them of the only benefit which they could perceive and enjoy as Nigerian citizens. To truly understand the anger, frustration and absolute mistrust that the citizens have for their government in this regard, a revision of the history of oil prices in the last 30 years is in order.
In 1986, the military administration of General Ibrahim Babangida declared that due to the devaluation of the Naira, the domestic price of fuel had become unreasonably cheap and was therefore burdensome to the federal government’s purse! The price of petroleum products was thus raised from 23 kobo per litre through a negotiation process, eventually settling at 70 kobo per litre! Chief Ernest Shonekan, the brief successor to the Babangida regime, cried out in dismay at the fiscal state of affairs upon taking over. The price of fuel was identified as one of the primary budgetary burdens based on the fact that the currency had further been acutely devalued. In 1993, the price of gasoline (petrol) was therefore increased to N5/litre!
Shortly after General Abacha grabbed power from the tethering administration of Ernest Shonekan, he would reduce the price of petroleum products slightly to gain public support. With gasoline (petrol) now priced at N3.25/litre, fuel price adjustment had become a tool in the hands of the government for manipulating the support and mood of the people! Just over a year later in 1994, the government announced a sharp increase in the price of petroleum products. PMS (petrol) would now cost a fearsome N11 per litre! Upon the death of Abacha and the ascension of General Abdulsalami, the price was once again reviewed and increased to N25/litre! An outcry by the public and resistance from the labour congress forced the administration to reduce the price to a ‘paltry’ N20/litre in January of1999.
As democracy was ushered in, the newly ‘rebranded’ President – General (rtd) Olusegun Obasanjo, soon found enough reason to want to ‘remove the subsidy’ on oil product prices! Obasanjo would become the president who increased and inflated the price of petroleum products three times within a period of 8 years! Alongside some other economic indices, this action would bring about a hyper-inflationary trend that remains unresolved even today! Phrases such as ‘subsidy removal’; ‘eliminate waste’; ‘to free government funds’ and ‘encourage foreign and local investment in upstream sector’ were thrown around with reckless abandon! Does that sound familiar??
In the space of 8 years, the price of petrol went from N20/L to N30/L in 1999 but was reduced to N22/L because of public resistance in 2000. In 2002 prices went to N26/L, however, in 2003 it was increased to N40/L but reviewed back to N34/L because of another stiff resistance from the public. In 2006 however, the price was revised up to N40/L again and finally as a parting gift in 2007, the reprobate president would foist a criminal and sudden increase to N75/litre on the citizens! For his part, the feeble and morbid President Yar’dua who succeeded Obasanjo, showed some compassion and reduced the official price of petrol to N65/litre!
After a mere 18 months in Aso Rock, the incumbent president, Goodluck Ebele Jonathan declared that the Federal Government of Nigeria could no longer afford to keep paying for the subsidy of oil products (by this stage diesel had already been surreptitiously deregulated!). It was disclosed that the FGN was expending an inordinate amount of money, a sum that totalled a whopping N1.3 trillion for the fiscal year of 2010! The president further alleged that the status quo and current arrangement was a painful and debilitating burden on the federal budget and thus is unsustainable! He further iterated that the FGN had made a decision to do away with all subsidies and deregulate the domestic petroleum product market –hence opening fuel supply and prices up to capitalistic endeavours and free market forces! Deja vu!!
In 2010, Nigerian domestic market consumed approximately 280,000Bpd according to official NNPC figures. Under the current dispensation, upwards of 92% of Nigeria’s domestic demand for finished petroleum products is imported by ‘independent marketers’ through the implementation of contract and license based arrangements with NNPC. The hand-picked importers (cabal??) are allocated a proportion of the domestic demand which is expressed in weight/volume, upon which the allotted quantity of petroleum product is imported to the nation. The difference in the cost accrued for importation in comparison to the official domestic price of N65/litre (PMS), along with an agreed profit margin for the marketer, is thus calculated and paid out - called a reimbursement, ...these essentially is what is being referred to today as a ‘Subsidy’!
This ‘Fuel Subsidy’ cost has increased dramatically over the years, especially as world crude oil price has risen! Other factors that may have contributed significantly to the rising cost are the devaluation of the Naira and the increasing cost of transportation. However, the primary component of the cost that has caused the greatest uproar is the inordinate ‘Depot’ (dock and jetty) charges which is best described as very high and unnecessary ‘demurrage charges’ at the port!
According to information derived from the website of Petroleum Products Pricing Regulatory Agency (PPPRA) - the agency charged with the control and regulation of domestic fuel consumption, Petroleum Product Pricing templates are being used – a formatted and standardized formula for calculating the final landed cost of petroleum products. It is indicated that as of July 2011 the landed cost of PMS (petrol) was calculated to be N142.40/litre! This suggests that N77.40 will have to be ‘subsidized’ by the FGN in other to sell that fuel for N65/litres! A closer study of the underlying component of the cost reveals that ‘Depot’ related costs are separately charged to federal government account, which amounts to almost N50/litre –this ‘fuzzy’ charge is said to be the cost of port demurrage alone without adding the landed cost of the imported fuel! In essence, the actual and total cost of a litre of PMS fuel (Petrol) to the FGN was a whopping N191.91/litre!!!
In 2006, Nigeria spent N261.1 billion (US$2.03 billion) on ‘fuel subsidy’. In 2007, this figure rose to N278.9 billion (US$2.3 billion). By 2008, the amount expended nearly tripled to N633.2 billion (US$5.37 billion)!! The drastic increase in cost was partly attributed to a depreciation of currency and the very high global prices of oil products. However, there was also the incessant issue of massive graft and fraud which was opportune by the unfortunate and sordid chain of events that led up to the death of the former president! Once this precedence had been set in 2008, the stage was primed for inordinate fraud and for annual increases in the cost to the FGN that would eventually culminate in the whopping cost estimate for the fiscal year 2011!
It comes as no surprise however, to note that despite the exponential increase in the cost of importing and ‘subsidizing’ fuel for domestic consumption, there has only been a marginal increase in the total volume of domestic fuel consumption over the last few years! (2006 -2010). In 2006, the official figure for domestic consumption acquired from PPMC indicated a consumption rate of 237,000Bpd. For 2010, PPMC data reflects domestic consumption rate of 280,000Bpd for the year. Most of PPMC data is however based on the figures for Domestic Supply Obligation (DSO), although it is a well known fact that the actual figures for the import of petroleum products may not necessarily equate to this figure!
An unspoken and often overlooked but critical factor to consider is that NNPC is mandated to set apart a certain amount of crude oil to fulfil the allocation for Domestic Supply Obligation (DSO). This particular allocation of crude oil is supposed to be supplied to the local refinery companies at a hugely discounted and commiserate local price! In the past years such discounted prices have been as low as US$18 per barrel however, it is nearly impossible to verify the current discounted price! The entire premise surrounding this DSO debacle is deliberately hushed and remains a well kept secret!
In the original bureaucratic process, the standard arrangement was for NNPC to allocate the approved DSO to the local refinery companies through its subsidiary - Products and Pipelines Marketing Company (PPMC), for refining and then re-distributed for domestic consumption! However, since all the refineries have been rendered impotent and are incapacitated - being unable to meet domestic obligations, the allotted crude supply (DSO) is re-diverted by NNPC through a shady and dark process that is not remotely transparent! This arrangement involves the issuance of ‘oil lifting rights’ to private marketers, lobbyists and powerful brokers (Oil Cartel??), who act on behalf of NNPC and sell the crude supply at astronomical profits in the international export market!! In this way, much of the nation’s wealth is siphoned into private confers through illicit back-deals and corrupt practices! For the year 2010, the DSO crude supply amounted to 280,000Bpd which the FGN had heavily discounted, however the profit accrued from the sale remains unaccounted for and goes into private pockets without any return to the people!
According to data available from Transparency for Nigeria, a NGO and watchdog, Nigerian domestic consumption and demand for the key petroleum products in Nigeria is as follows:
- PMS: Premium Motor Spirit (popularly known as Petrol) – 30 to 34 million litres per day
- AGO: Automotive Gas Oil (popularly known as Diesel) – 12 million litres per day
- DPK: Dual Purpose Kerosene (popularly known as kerosene) – 8 million litres per day
- ATK: Aviation Turbine Kerosene (Known as Aviation fuel) – 2 million litres per day
- LPG: Liquefied Petroleum Gas (known as cooking gas or propane) – 192,000kg per day (15,360 cylinders of 12.5kg each)
SUMMATION & VERDICT:
In conclusion, one must wonder what has been done to mitigate and resolve this cyclical problem of ‘fuel subsidy’ that seems to have been a bone of contention for every administration for the past 26 years! It is also interesting to note that the beginning of the perennial problem was the devaluation of Naira in 1986, when the Babangida administration adopted and implemented the Structural Adjustment Program (SAP). It was apparently not so long after this moment that the nation’s refineries started experiencing operational and maintenance issues! It goes without saying that the nation’s journey from that moment on, especially with regards to Energy and Power, became a quick downward spiral!
In more recent years however, there was a glimmer of hope – not because of improvement in the leadership profile or improvement in management skill of the government, but rather because of a fortunate and fantastic global phenomenon that inordinately increased and multiplied the nation’s earnings through a steady and consistent stream of high crude oil prices! A Bloomberg report revealed that Nigeria has earned $196 billion in the past 4 years alone (2006 – 2010)! As a matter of fact, it is important to point out that Nigeria’s earnings in the last 10 years has exceeded the total earnings of the nation for a period of 29 years dating from 1970 – 1999!!
The question must therefore be asked of our government and leadership, what has been done with all the money earned recently in the face of the nations numerous problems, chief among them, the perennial issue of domestic fuel supply?? Why are the refineries still in a state of disrepair and neglect even after more than 20 years of epileptic performance and under-performance?? Knowing the strategic importance of the refineries and the importance of reducing governmental deficits and pay-outs, especially with regards to the ‘fuel subsidy issue’, should the government not have made the overhaul and re-alignment of these refineries a national priority??
With the amount of money earned and with a recent high in our foreign reserve that exceeded the $56 billion mark, can it be said that the funds to overhaul, build, expand, restructure and realign the nation’s critical infrastructure to adequately accommodate the domestic needs, was unavailable?? What did the government do with the $23 billion that was recently depleted from the Excess Crude Account (ECA) in a short period of less than two years?? Why should the people be asked again to pay more for gasoline when similar and previous promises to prudently expend any funds realized on building and improving infrastructure have never been fulfilled??
What happened to the lofty promises of Babangida’s (DIFFRI) program, Abacha’s (PTF) program and Obasanjo’s (Vision 2020)?? Most importantly, what did the Goodluck Jonathan administration do with the funds in the Excess Crude Account (ECA)?? It has been suggested and estimated by several professionals and experts that the US$23 billion that was only recently squandered could have been sufficient to finance and resolve all of Nigeria's immediate infrastructural problems which include Refineries, Power Plants and good Inter-State Highways!
A sincere, cogent and prudent assessment of these questions will reveal the answer, the true nature and intent of Nigerian leaders and government! For us to find a true and lasting solution to the domestic energy needs and the fuel supply problems in Nigeria, we will have to effect and mobilize a critical overhaul of current practises, restructure our institutions and get rid of gaping loopholes and the inherent culture of corruption and graft that is prevalent in the oil industry and the national government as a whole! For true and effectual results to be realized, the government must steadfastly implement a total reform of its rules, policies and practices while maintaining a high degree of common sense measures in delivering and attaining the worthy aspiration of the people for Power and Energy sufficiency, independence and affordability! The details of this noble objective will be fleshed out and examined in the second part of this article.