NNPC Spends $5.8bn to Tackle Fuel Scarcity in 4 Months

Kachikwu cautions on price increase

Damilola Oyedele, Ndubuisi Francis and Chineme Okafor in Abuja

The Nigerian National Petroleum Corporation (NNPC) spent $5.8billion to import 9.3million litres of petrol in the last quarter of 2017 to date to tackle the scarcity of the essential commodity, its Group Managing Director, Dr. Maikanti Baru, said on Tuesday.

The GMD of the corporation said this when he appeared before the Senate Committee on Public Accounts over the resumption of subsidy payment for petrol.

Baru’s revelation came just as the Minister of State for Petroleum, Dr. Ibe Kachikwu, warned against an increase in the price of petroleum products, saying any move

in that direction would have to be taken with utmost caution.

Speaking on Tuesday at the ongoing Nigeria International Petroleum Summit (NIPS) in Abuja, the minister also said that while fixing the local refineries and encouraging private investors to build new ones would help to reduce the pressure around pricing of fuel, he explained that those alone would not solve the problem of scarcity unless the cost of production of crude was substantially reduced.

But appearing before the Senate committee on Public Accounts, Baru, who was represented by the NNPC’s Chief Operating Officer (Finance and Accounts), Mr. Abdulrazaq Isiaka, said the corporation had resorted to massive importation of PMS, to ensure adequate supply to stop the lingering queues.

He added that the NNPC had to embark on massive importation as oil marketers had been unable to fill their quota, due to the differentials between landing costs and the regulated selling price of PMS.

He explained: “For one year, marketers avoided importing fuel because they incurred losses. The private sector cannot bring in the product because it does not make economic sense for them. They cannot land it at a price for which they are going to sell and cannot make profit. That is the main reason they are not bringing in the product.

“As a national oil company, the NNPC is that supplier of last resort and we must take that responsibility where the private sector that is profit driven runs away from a particular business. The economics is that if you bring in the product into Nigeria, you will make a loss, if there was profit in this business, the private sector would have been the ones bringing in this product.

“NNPC was not designed to bring in the product 100 per cent; they have stepped out, but we have a national responsibility that Nigeria does not suffer and that is the role the corporation is playing by bringing in the product.”

The Executive Secretary of the Major Oil Marketers Association of Nigeria (MOMAN), Mr. Obafemi Olawore, in his submission to the committee, however, said his members would resume importation of the product, as soon as the government pays their subsidy claims from 2013-2015.

Olawore was silent on the actual debt owed to the marketers, but the claims had been put at about N800 billion.

“Our members are incapacitated and cannot import fuel due to nonpayment of the arrears and interest on subsidy to banks by the federal government. The banks are always adding their interest at the end of every month. We had a promise from the Central Bank of Nigeria (CBN) that the aspect of interest will be stopped at a certain period of 2017 but that did not come to pass, so the banks at the end of every month are charging us interest,” he said.

He disclosed that two major marketers were able to import fuel into the country in 2017 for some specific customer needs, because they have foreign affiliates who could cover them in terms of dollar coverage.

The Chairman of PAC, Senator Matthew Uroghide, said the committee was committed to helping to ensure accountability in the sector.

He, however, queried the NNPC for inputting subsidies paid on PMS, into operating costs, instead of it being a line item.

In another development, the Senate also mandated its Committee on Public Accounts to carry out a holistic investigation into the operation of an account bearing NNPC/ Nigerian Agip IPP security account.

The account, which is allegedly domiciled with the First Bank Nigeria Plc with account number 2006367288, has an opening balance of N31, 704, 807, 979.2 with a closing balance of N34, 423, 738, 086.4 as at 25th April, 2017.

According to Senator Dino Melaye (Kogi APC), who sponsored the motion, there are several questions regarding the account, which needed to be determined.

These include the objectives of the account, the signatories to the account, the sources of the fund and whether the account is known to the federal government.

Kachikwu Cautions on Price Increase of Petrol

Speaking at the NIPS in Abuja, Kachikwu emphasised that Nigeria would have to urgently address extant issues surrounding the pricing of petroleum products in her downstream market, noting that unless that was done, it would be difficult to expect a comprehensive solution to the downstream sector challenges.

The minister, however, stated that any attempt to review the prices of petrol or any other petroleum commodity in the country would require a lot of care to ensure that people were not made to suffer unduly.

He said: “Ultimately, the greater challenge that this country would have and still have is that of pricing. Everybody wants power, available gas and freely delivered fuel with no queues, but people are not willing to make the sacrifices that are essential for these things to happen.

“Sometimes, it is a pricing issue. We have got to get to a point where we got to deal with some of these issues in a manner that doesn’t hurt our people but at the same time create the level of efficiency as to remove arbitrages and patronages that are inbuilt in them.”

He added: “Refineries and local production are key. We expect a 12 to 18 months corridor of construction and hopefully, at that point, we would get our refineries back. However, if we get refineries back by 2019, does that solve the problem? No, it doesn’t. You still have to deal with the pricing issues, because nobody is going to build a refinery and sell products at a loss.”

Kachikwu, also disclosed that even with this in mind, the federal government would be setting parameters and incentives for building refineries in the country.

According to him, this is to ensure that a typical producer, especially the small level producers are able to see enough incentives to be able to get some of their products refined in-country and then export if possible.

“That is the major policy directive. There are going to be incentives for those who are doing the major practical investments in the refineries for example. There is not a dearth of opportunities in this country. I do not know of any country with the vast opportunities that Nigeria possesses,” he explained.

He argued that there was actually no reason why oil companies would do their business in Nigeria and take 100 per cent of the crude oil produced out of the country.

According to the minister:

Meanwhile, the Managing Director for Shell Petroleum Development Company, Mr. Osagie Okunbor, has disclosed that the company spent $100 million to repair the Forcados crude oil pipeline in the Niger Delta region which was vandalised by militants in 2016.

Okunbor, explained during one of the NIPS executive roundtable session at the titled: ‘Growth Outlook and Strategies for staying competitive after a Global Downturn’ at the NIPS, that the break on the pipeline resulted in the loss of 300,000 barrels per day (bd) of oil at that time, which according to him contributed to the economic recession Nigeria got into.

He said: “The standing view we have in Shell is that if we feel the asset is not safe then we shut it down. Sometimes at great economic cost that requires great discussions with our partners but we will shut it down. Through the years we have invested quite a bit in pipeline replacements, huge huge spending on asset integrity.

“You and I living in that part of the world know that when you actually look at it is actually less than 10 per cent, maybe five per cent of these spills are as a result of operational failures well over 90 per cent of what we are seeing is as a result of theft and sabotage to facilities. This is this biggest issue that confronts us in the Delta today.”

He added: “In 2016 many of us in this country saw what happened in the western Delta, when our export line was sabotaged, this is one of the biggest reasons why this country went into recession, close to 300,000 barrels per day of oil was taken out at the time when oil prices were at historic lows and it cost us well over $100 million to actually replace that line.

“This problem is real and we will not hide as operators in ensuring that we continue to operate in the best international standards.”

Other panelsits at the session where Okunbor spoke were Jeffrey Ewing, Managing Director of Chevron Nigeria, Nicolas Terraz, Managing Director of Total E&P Nigeria Limited (TEPNG), Paul McGrath, Managing Director of Mobil Producing Nigeria (MPN) and Esso Exploration & Production Nigeria Limited (EEPNL), Olalekan Akinyanmi, Chief Executive Officer, Lekoil, Tony Attah, Managing Director, Nigeria Liquified Natural Gas (NLNG), and Massimo Insulla, Vice Chairman and Managing Director of Nigeria Agip Oil Copany (NAOC).