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Fixing Nigeria’s Dilapidated Oil Pipelines

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  • Fixing Nigeria’s Dilapidated Oil Pipelines

The outcome of a study commissioned by the Nigerian National Petroleum Corporation (NNPC) to determine the operational status of the country’s network of petroleum products pipeline it manages and how it can become commercially viable to the country was recently obtained by Investors King.

The report indicated that the lines are mostly broken-down and would need to be replaced or fixed with $12 billion and $1.1 billion respectively.

Initiated to amongst other objectives, come up with an intervention plan to transform government-owned downstream oil pipelines into a proper business with incentives to attract private sector participation, the study showed there was an urgent need to refurbish and get Nigeria’s oil pipelines to work economically and optimally.

Current Condition of NNPC’s Pipelines

The outcome of the study stated that product losses from vandalism on pipelines owned by the NNPC, as well as costs incurred by the corporation to repair them when broken have been enormous, and suggested they be segmented for either privatisation or commercialisation.

To buttress its findings, a September 2018 edition of the monthly operations and financial report of the NNPC, had explained that products theft and vandalism have continued to destroy value and put NNPC at disadvantaged competitive position.

The NNPC operations report had stated that between September 2017 and September 2018, a total of 1,883 vandalised points were recorded on the pipelines of the corporation.

Similarly, the corporation stated in another of its monthly reports that between January and December 2017, a total of 1120 vandalised points were recorded on its pipeline, thus indicating that theft of products and vandalism of its downstream assets have continued to affect negatively its value addition to the country’s oil and gas industry.

Findings of the Study

Though the extensive upstream crude oil pipelines owned by oil producing companies and downstream gas pipelines were excluded in its study, it however captured all of the existing products lines of the NNPC, but could not exactly state how well they are positioned to operate.

For instance, it stated that: “The exact mechanical condition of the network is unknown, and it would cost more than $12 billion to replace the entire network today, and more than $1.1 billion to repair and inspect it comprehensively.”

Furthermore, the study highlighted that that: “The pipeline network is a worthy investment that is currently vastly underutilised due to a myriad of problems.”

According to it, the Pipelines and Products Marketing Company (PPMC), a subsidiary of the NNPC, which manages the lines have been unable to make the most of the pipeline network, which traverses the country, and consists of 4,315 kilometres of multi-product pipelines and 701 kilometres of crude oil pipelines.

“The pipelines are operated by Products and Pipelines Marketing Company (PPMC), and are utilised to transport crude oil from Warri to the Kaduna refinery, and to transport refined products (i.e. premium motor spirit (PMS), automotive gas oil (AGO), dual purpose kerosene (DPK), and aviation turbine kerosene (ATK)) nationwide.

“The key challenges identified with PPMC operations of the pipelines under exclusive government ownership comprise, refinery operations: low availability of the refineries results in sub-optimal utilisation of the pipelines; security, pipelines vandalism, and theft of products: this is well entrenched in Nigeria; product pricing and downstream market regulations: these stifle private sector participation in the value chain, and related losses have been estimated at up to $15 billion per annum; poverty and chronic underdevelopment: this is partly responsible for the chronic incidences of vandalism and theft of products,” the outcome of the study explained.

It stated that while Nigeria faces challenges in its pipelines, pipeline transportation business has however been thriving in many countries, particularly the United States, thus indicating the country has remained largely behind in the modern approach to petroleum products distribution.

Nigeria, it noted still relies on expensive road tankers to take products across her length and breadth.

Way Forward

In its recommendation, the study stated that deregulating the downstream sector, and privatising or commercialising all its value chain such as the refineries; pipelines network; pumping stations; and product storage depots, would ensure that the sector operates in a sustainable manner, such that market realities will keep its long-term viability.

It equally did a comparative study of pipeline commercialisation models for possible adoption, along with policy recommendations developed for commercialisation with guidelines for implementation of the recommendations.

According to it: “For efficient management and to encourage competition, the products pipelines can be divided into three sections: The Western, Eastern, and Northern sub-networks. Additionally, the upstream segment for supply of crude oil to the Kaduna refinery can be managed as a dedicated crude oil sub-network.”

It however warned that before the commercialisation proposal is accepted for implementation, the country must endeavour to fix first its refineries and ensure they work well.

“Subsequent to their privatisation/commercialisation, fix/repair the four inland refineries and ensure they operate at optimum availabilities. If this is not achieved, it is unlikely that private investors will show a keen interest in acquiring/managing the pipeline network,” it explained.

Continuing on the actions to be taken, it said splitting the lines into segments could then be the next action to be implemented. It warned the government to avoid repeating the mistakes it reportedly made in the 2013 power sector privatisation exercise which perhaps included not getting the market governance processes right before launching out the market.

“Split the pipelines network into the indicated four segment sub-networks, i.e. Western, Eastern, Northern and Crude Oil, and privatise/commercialise each as distinct companies.

“Avoid the pitfalls associated with the privatisation of PHCN (Power Holding Company of Nigeria) assets in the electricity supply sector. Generate employment for the general public and the host communities via the pipelines privatisation/commercialisation process,” it stated.

Turning to pipeline vandalism, the study stated that its severity was higher in the south than in the north, and that there is a ‘market’ for both crude and refinery products tapped from the pipelines.

It equally questioned the capacity of the PPMC to secure the lines, saying: “Responsibility for pipelines rests with PPMC. However, it appears that PPMC do not have a unit capable of managing the entire spectrum of pipeline operations, particularly those related to technical maintenance.

“Even basic security surveillance of the pipeline RoW is severely compromised. The opportunities that these technical and security-related operations offer to engage the communities on the pipeline RoW – and thereby improve government presence therein – are not maximised. Instead, only a token effort is made.”

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Economy

Electricity Consumers Get 611,231 Meters Under MAP Scheme

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Electricity Consumers Get 611,231 Meters Under MAP Scheme

A total of 611,231 meters have been deployed as at January 31, 2021 under the Meter Asset Provider initiative since its full operation despite the COVID-19 pandemic and other extraneous factors, the Nigerian Electricity Regulatory Commission has said.

NERC disclosed this in a consultation paper on the review of the MAP Regulations.

The proposed review of the MAP scheme is coming nearly four months after the Federal Government launched a new initiative called National Mass Metering Programme aimed at distributing six million meters to consumers free of charge.

“The existence of a huge metering gap and the need to ensure successful implementation of the MYTO 2020 Service-Based Tariff resulted in the approval of the NMMP, a policy of the Federal Government anchored on the provision of long-term low interest financing to the Discos,” NERC said.

The commission had in March 2018 approved the MAP Regulations with the aim of fast-tracking the closure of the metering gap in the sector through the engagement of third-party investors (called meter asset providers) for the financing, procurement, supply, installation and maintenance of meters.

It set a target of providing meters to all customers within three years, and directed the Discos and the approved MAPs to commence the rollout of meters not later than May 1, 2019.

But in February 2020, NERC said several constraints, including changes in fiscal policy and the limited availability of long-term funding, had led to limited success in meter rollout.

NERC, in the consultation paper, highlighted three proposed options for metering implementation going forward.

The first option is to allow the implementation of both the NMMP and MAP metering frameworks to run concurrently; the second is to continue with the current MAP framework with meters procured under the NMMP supplied only through MAPs (by being off-takers from the local manufacturers/assemblers).

The third option is to wind down the MAP framework and allow the Discos to procure meters directly from local manufacturers/assemblers (or as procured by the World Bank), and enter into new contracts for the installation and maintenance of such meters.

“Customers who choose not to wait to receive meters based on the deployment schedule of the NMMP shall continue to have the option of making upfront payments for meters which will be installed within a maximum period of 10 working days,” NERC said.

The regulator said such customers would be refunded by the Discos through energy credits, adding that there would be no option for meter acquisition through the payment of a monthly meter service charge.

“Where meters have already been deployed under the meter service charge option, Discos shall make one-off repayment to affected customers and associated MAPs. Such meters shall be recognised in the rate base of the Discos,” it added.

NERC urged stakeholders to provide comments, objections, and representations on the proposed amendments within 21 days of the publication of the consultation paper.

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Economy

Nigeria’s Economy Moving in Right Direction but Slow – Amina Mohammed

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Nigeria’s Economy Moving in Right Direction but Slow – Amina Mohammed

Nigeria is moving in the right direction economically but its movement is not fast, the United Nations stated on Thursday.

Deputy Secretary-General of the United Nations, Amina Mohammed, said this during a meeting at the headquarters of the Federal Ministry of Industry, Trade and Investment in Abuja.

She said the challenges in Nigeria were huge, its population large but described the country’s economy as great with lots of opportunities.

The UN scribe stated that after traveling by train and through various roads in the Northern parts of Nigeria, she discovered that the roads were motorable, although there were ongoing repairs on some of them.

Mohammed said, “This is a country that is diverse in nature, ethnicity, religious backgrounds and opportunities. But these are its strengths, not weaknesses.

“And I think the narrative for Nigeria has to change to one that is very much the reality.”

Speaking on her trips across parts of Nigeria, she said, “What I saw along the way is really a country that is growing, that is moving in the right direction economically. Is it fast enough? No. Is it in the right direction? Yes it is.

“And the challenges still remain with security, our social cohesion and social contract between government and the people. But I know that people are working on these issues.”

She said the UN recognised the reforms in Nigeria and other nations, adding that the common global agenda was the Sustainable Development Goals.

Mohammad commended Nigeria’s quick response to the COVID-19 pandemic, as she expressed hope that the arrival of vaccines would be the beginning of the end of COVID-19.

On his part, the Minister of Industry, Trade and Investment, Adeniyi Adebayo, told his guest that the Federal Government was working hard to make Nigeria the entrepreneurial hub of Africa.

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Economy

N10.7tn Spent on Fuel Subsidy in 10 Years – MOMAN

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N10.7tn Spent on Fuel Subsidy in 10 Years – MOMAN

Nigeria spent a total of N10.7tn on fuel subsidy in the last 10 years, the Chairman, Major Oil Marketers Association of Nigeria, Mr Adetunji Oyebanji, has said.

Oyebanji, who was the guest speaker at the 18th Aret Adams Lecture on Thursday, said N750bn was spent on subsidy in 2019.

He highlighted the need for a transition to a market-driven environment through policy-backed legislative and commercial frameworks, enabling the sustainability of the downstream petroleum sector.

“Total deregulation is more than just the removal of price subsidies; it is aimed at improving business operations, increasing the investments in the oil and gas sector value chain, resulting in the growth in the nation’s downstream petroleum sector as a whole,” he said.

The managing director of 11 Plc (formerly Mobil Oil Nigeria Plc) said steps had been taken, “but larger and faster leaps are now required.”

According to him, deregulation requires the creation of a competitive market environment, and will guarantee the supply of products at commercial and market prices.

“It requires unrestricted and profitable investments in infrastructure, earning reasonable returns to investors. It requires a strong regulator to enable transparency and fair competition among players, and not to regulate prices,” Oyebanji said.

He noted that MOMAN had recently called for a national debate by stakeholders to share pragmatic and realistic initiatives to ease the impact of the subsidy removal on society – especially on the most vulnerable.

He said, “A shift from crude oil production to crude oil full value realisation through deliberate investment in domestic refining and refined products distribution, creates the opportunity to transform the dynamics of the downstream sector from one of ‘net importer’ to one of ‘net exporter’, spurring the growth of the Nigerian economy.

“Effective reforms and regulations are key drivers for the growth within the refining sector. Non-functional refineries cost Nigeria over $13bn in 2019. If the NNPC refineries were operating at optimal capacity, Nigeria would have imported only 40 per cent of what it consumed in 2019.”

Full deregulation of the downstream sector remains the most glaring boost to potential investors in this space, according to Oyebanji.

He said, “As crude oil prices will fluctuate depending on the prevailing exchange rates, it will be astute to trade in naira to avoid inevitable price swings.

“There needs to be a balance between ensuring the sustainable growth of the crude oil value chain (upstream through downstream) and providing value for the Nigerian consumer and the Nigerian economy.”

He said the philosophy should be for the government to put the legislative and commercial framework in place and let the market develop by itself.

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