Monday, 9 November 2009

Milking The Cash-Cow

The nation's continued oil crisis is blamed on a tiny group in the Nigeria National Petroleum Corporation, NNPC, which ensures that no government oil reform policy succeeds because of its vested interests

By Emma Alozie

Long queues of vehicles have once again returned to the nation's filling stations barely three weeks after such had disrupted socio-economic activities of the country. Last month's crisis was blamed on the huge sums of money owed to independent marketers by the federal government on fuel importation. The marketers claimed that government was indebted to them to the tune of N70 billion on petroleum subsidy. As a result of this, fuel importation by the marketers was halted leaving the Nigeria National Petroleum Corporation to be the sole importer of the products.

Domestic oil consumption in the country is in the region of between 30 and 35 million litres per day. Major oil marketers import about 60 percent of this figure while the Nigeria National Petroleum Corporation, NNPC, makes up the balance. The suspension of oil importation by the marketers means that only less than 15 million litres of fuel will be available for local consumption in the country. This will definitely result in scarcity especially during festive periods when there will be increase in vehicular activities.

The scarcity was again blamed on the ongoing reform in the banking sector, which made it difficult for the marketers to get loan to finance petroleum importation.

The current scarcity started two weeks ago. At first, it was thought to be caused by panic buyers who feared that prices of petroleum products would still increase by November 1, the earlier date announced by the federal government for the commencement of its deregulation policy. But as the queues persisted, some more reasons began to emerge. It was blamed on a cabal in the NNPC and its subsidiaries who are holding the entire country to ransom. Members of the cabal are believed to be benefiting handsomely from fuel importation into the country.

Nigeria has two facilities for the storage of imported fuel – the Atlas Cove in Lagos and Mosimi in Sagamu, Ogun State. It was gathered that the cabal, in pretence of ensuring adequate fuel supply in the country, would import more than the two government owned facilities can accommodate. This will require additional storage facilities, this time private jetties. The most available ones are Yinka Folawiyo and Capital Oil. Unlike government owned facilities, storage in the private jetties attracts some charges. This time, N3 is paid per litre of petroleum product stored in these private jetties. This is a business between the cabal and owners of the jetties. The cabal is entitled to N1 on every litre of petroleum product stored. The two private storage facilities are said to have a combined storage capacity of over five million litres of any product. What this translates into is N5 million a day.

Apart from that, they also make money from inflated demurrage charges. Again, the cabal also encourages the importation of up to 66-ship load of products, which berth at the Lagos and Port Harcourt ports at the same time, awaiting discharge. About $8,000 is paid per ship whereas $2,000 is paid as demurrage to port officials. This amounts to about $48,000 as over-invoicing. With the tactical out muscling of independent marketers, the corporation has monopolised the industry. The petroleum products price regulating agency, PPPRA, was also accused of denying oil licences to oil majors.

These, in addition to commission from commodity traders swell the pocket of the cabal. Officials of Glencore, Trafigura and Vitol are believed to pay about $500,000 daily as commission to the cabal to retain the petroleum products importation contract.

The current and debilitating fuel shortage being experienced by Nigerians is as a result of the move by NNPC to muscle out opposition in product importation. And the only reason why they are desperate to oust any competition is to create the atmosphere for more kickbacks.

Levi Ajonuma, general manager, public affairs, however denied the allegations. Ajonuma, in an advertorial in national dailies, explained that it was the handiwork of oil marketers who are vexed with the federal government's directive that NNPC should ensure that there is no fuel scarcity during the U-17 World Championship being hosted in Nigeria. “Indeed there is no prize for guessing that the said story emanated from the camp of some major oil marketers still ruining the federal government's directive that NNPC should ensure that there is no fuel scarcity in the run-up to the FIFA U-17 tournament, Sallah/Christmas festivities,” Ajonuma said.

In another advertorial, a group which called itself, concerned oil industry professionals, absolved NNPC of any wrongdoing in the current state of affairs in the downstream sector of the oil industry. The advert was signed by one Engr Raphael Akintunde and Engr Amaechi Ubaka as national coordinator and secretary respectively. The association's defence however, contradicted the position of Dr. Ajonuma. Ajonuma, who in his advertorial, denied the abandonment of Atlas Cove and Mosimi jetties. “It is important to state that the NNPC has not and will not abandon the Atlas Cove storage facility and the Mosimi depot in preference for Yinka Folawiyo and Capital Oil depots. For the first time in many years, the Mosimi depot did not record a single case of pipeline rupture for a whole month. This feat enabled pumping of products to peak at 100 percent in Mosimi,” he stated. But the professional while admitting that the Yinka Folawiyo and Capital Oil facilities are on lease, submitted that the two private depots are the best in Nigeria and therefore their use should be encouraged. “It is common knowledge within the downstream sector that the Folawiyo jetty is so far the best in-shore jetty. The jetty is able to accommodate an import vessel of 30,000 metric tonnes capacity without lightening. This in turn reduces the waiting time and consequently reduces demurrage. Also, Capital Oil jetty has the second best in-shore draft after Folawiyo and as such, can accommodate vessels of 25,000 metric tonnes. This again reduces vessel turn-around time and cuts down demurrage,” the group concluded.

The existence of a cabal in the nation's oil sector is an undeniable fact. President Umaru Musa Yar'Adua in May this year when the country was gripped with fuel crisis, attributed the problem to the handiwork of a cabal in the oil sector. Dr. Rilwanu Lukman, minister of petroleum also accused the cartel of frustrating the deregulation policy of the federal government.

Gaius Obaseki, former group managing director of the NNPC in June 2009 told members of the House of Representatives ad- hoc committee probing the activities of the corporation and its subsidiaries that when he took over in 1999, he met a cabal on ground, but he fought them to a standstill. He admitted before the committee that the cartel at the NNPC was responsible for the granting of oil licences even 10 years ahead of time. Obaseki also said that he suspected that the amorphous cabal was responsible for the comatose state of the nation's four refineries.

The syndicate is said to be responsible for the dysfunctional state of the nation's refineries so as to continue to sell the local crude allocation daily and import finished products at a price determined by them. The house committee was also told how the mafia masterminded the inflation in 2000 by increasing the quantity of petrol imported into the country from 5.9 million metric tonnes to 7.3 metric tonnes only to turn around and pocket the money.

Since the advent of democracy in 1999, the country has sunk in millions of dollars in trying to revamp the ever ailing refineries. Rasheed Gbadamosi, former chairman of PPPRA, not too long ago, said the nation spent $700 million between 1999 and 2003 on both turn around maintenance and rehabilitation projects on the refineries. In 2008, $57.9 million was earmarked for the turn around maintenance, TAM, of Kaduna refinery alone.

Hundreds of millions of dollars have been voted in to revive the refineries. Rather, the authorities from the NNPC and petroleum ministry continue to contradict each other on the true state of the refineries. In an interview with journalists in London recently, Lukman promised that three out of the four refineries would be back to their full capacity soon. But the acting director of the department of petroleum resources, DPR, Billy Agha, said that local refining has been on the free fall without any hope of picking up soon. “If we recall, the local production of petroleum products has generally continued to fall as the refineries are operating under very low capacity utilisation.”

Investigations have shown that the refineries no matter how hard the government tries may never work. A source told this magazine that the same persons that make sure that several million dollars is expended on turn around maintenance, TAM, will also ensure that the refineries would still lay prostrate because of their entrenched interests. “These men are not working alone. They maintain various strategic positions at the NNPC in the interest of their fellow powerful importers and this perhaps explains why no matter how hard the government of the day tries, the refineries would not work,” the source said.

The cabal would not allow what it regards as external influence to jeopardise members' personal interest, which is to continue to reap the oil lucre. Sources equally revealed to this magazine that during the Obasanjo administration, all proposals brought through the corporation for government to help out in the establishment of new and modern refineries never saw the light of the day because what the clique continued to drum in the ears of the then president was that the project is capital intensive.

At the height of the oil boom during the Obasanjo regime, Nigerians in Diaspora presented a proposal on how to make the nation's oil sector more efficient. They had argued that no matter how many licenses the government grants to private individuals for new refineries, the prohibitive cost of a refinery coupled with the suspicion of foreign investors on the political stability of Nigeria would make it almost impossible for private individuals to invest in the downstream sector of Nigeria's oil industry. They therefore proposed that the government should set aside at least $10 billion from the excess crude account and treat such as loan advance to individuals who would then use such money to build refineries. According to them, there should be a five year moratorium on the loan, which should be interest free. With this, it was strongly believed that these high net worth individuals would site the refineries without consideration to the usual Nigeria geo-politics and by now, it would have been yielding the desired result.

This proposal was killed by the top echelon of NNPC because it would put an end to their products import slush fund and take business away from their outside collaborators. The cabal argued that government has no business in doing business and has heightened the campaign that deregulation is the only solution to the numerous problems besetting the sector.

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