Nigeria's downstream petroleum industry

Here is how the industry works
[1] Nigeria’s total petroleum production is 2.5m
barrels a day
[2] We have four refineries with a combined
capacity of 445,000 barrels a day
[3] Refineries are working at no more than 30%
capacity i.e 133,500 barrels (12.2m litres) a day
[4] Domestic petrol consumption totals 12m litres
[5] The cost structure of crude oil
Production
Findings/development - $3.5
Production cost - $1.5
Refining Cost - $12.6
Pipeline/transportation - $1.5
Distribution/bridging fund margin - $15.69
[6] True cost of one litre of producing a litre of
petrol anywhere in Nigeria
When refined
Total sum cost of one litre equals $34.8 = $
34.8/159 litres (One barrel) = $0.219 - Naira
equivalent adds up to 0.219 x N160 = N35.02k. Add
tax of N5 + N35.02 and the total is N40.02 a litre.
[7] Basically, it costs N40.02 to produce a litre of
petrol in Nigeria, so selling it at N65 a litre generates
a healthy profit for the industry
[8] Given that domestic production actually
exceeds demand (Even with the refineries
operating at only 30%) there is no justification
whatsoever for importing petrol
[9] Crude oil is currently being sold on the
international market for about N105 a barrel.
Multiplied by 2.5m barrels a day, this generates $
262.5m a day for Nigeria. Multiplied by 365, this
adds up to $95.8bn a year!
[10] Nigeria’s budget is premised on crude oil
selling for $73 a barrel. The excess of $32 a barrel
goes into the excess crude account which is
distributed between the three arms of
government. So when Mrs Ngozi Okonjo-Iweala
says that the request for more money came from
the governors, I ask why she did not ask them
what they have done with the extra and
unbudgeted cash bonanza they are getting from
the excess crude account.
Questions we want answered
[1] Why is petrol refined abroad in the first place?
[2] How many barrels or litres are refined abroad?
[3] The government has told us that it costs N138
to produce a litre of petrol. I challenge them to tell
us how this is the case. In the US, petrol sells for
this price after it is bought for $105 a barrel from
Nigeria and then other costs like shipping,
insurance US refining and retailing are added. What
Ngozi Okonjo-Iweala just did is look at the retail
price in the US and decided that this is how much
it costs to produce the same product in Nigeria.
[4] Can the petroleum minister Mrs Diezani Alison-
Madueke please explain to us if costs the same
amount to produce petrol locally and to import it.
If not, then there should be a two-tier market with
domestic petrol costing less than imported petrol.
[5] Nigeria does not even pay for the petrol it
imports. What happens is that the Nigerian
government exchanges the 275,000 barrels per
day with commodity traders (90,000 barrels per
day to Duke Oil, 60,000 barrels per day to
Trafigura (Puma Energy), 60,000 barrels per day
to Societe Ivoirienne de Raffinage (SIR) in Abidjan,
Ivory Coast and 65,000 barrels per days to
unknown sources). If this is how we get our
refined imported petrol, I ask why we are paying
these marketers this subsidy in the first place.
[6] These are the companies that were getting the
subsidy payments:
1. Oando Nigerian Plc N228.506bn
2. MRS N224.818bn
3. Enak Oil & Gas, N19.684bn
4. Bovas & Co. Nig. Ltd, N5.685bn
5. Obat N85bn
6. AP N104.5bn
7. Folawiyo Oil N113.3bn
8. IPMAN Invest. Ltd N10.9bn
9. ASCON N24.1bn
10. Atio Oil N64.4bn
11. AMP, N11.4bn
12. Honeywell, N12.2bn
13. Emac Oil, N19.2bn
14. D.Jones Oil,N14.8bn
15. Capital Oil, N22.4bn
16. AZ Oil, N18.613bn
17. Eternal Oil, N5.57bn
18. Dozil Oil, N3.375bn
19. Fort Oil, N8.582bn
I ask exactly what service they were providing to
justify these payments. Mrs Alison-Madueke
should please explain what it is they were doing
[7] We were told before the price hike that we had
55 days stock of subsidized oil in reserve. Now
that prices have risen to N141 a litre, it means that
this “subsidized” petrol is being sold at the higher
rate too. Where is that excess of N76 going?
[8] Within just eight months, these companies
earned about $7bn in “subsidy” between January
and August of 2011. Has the January part of this
payment already gone into the government’s
planned special account or has it disappeared?
[9] How much will it cost to make our four
refineries fully functional and how long will it take
to achieve this? Surely, this has got to be a major
priority of the petroleum minister. When Mrs
Alison-Madueke took office, she should have been
given a maximum of six months to sort this out
[10] Has any company ever gone to the petroleum
minister and told her they can produce and retail
petrol for the fair production price of about N40 a
litre? I believe those companies who can do it
would have been interested and applied to do so.
Mrs Alison-Madueke should please confirm this
and tell us why the market was not opened up to
those willing to provide petrol as competitive rates.
Our demands
[1] The immediate resignation of oil minister Diezani
Alison-Madueke
[2] Get our four refineries fully functional so they
can operate at their maximum capacity of 445,000
barrels a day. Have it as a long term goal that
petrol and diesel production should always exceed
demand by about 10%. This way, you have an in-
built mechanism to avert scarcity and shortages
[3] Open up the market to competition so that
private refineries can augment this under the plan
to bring total domestic refining to 1m barrels a day.
This should be done through the offering of
incentives and enticements to anyone willing to
build a refinery in Nigeria. Encourage anyone wiling
to do so with tax holidays, land leases and security
under the condition that they provide employment
[4] Scrap the programme of offering licences to
certain companies to import petroleum products.
All it does is create a cabal of price fixers. Place
such a heavy tax on petrol refined abroad that it is
no longer economical for the cabal running the
racket to keep doing it
[5] Set up a special fund within the NNPC, so that
about 10% of its revenue is set aside for
infrastructure development, maintenance and
capital investments. This way, shutdowns are
avoided, facilities are maintained and expansion can
be introduced as necessary
[6] Have a four-year programme to build six
regional gas-fired power stations, so gas can be
used to generate electricity. Under this
programme, establish a gas-based national
electricity grid to augment PHCN. It should run in
parallel to it
[7] The national minimum wage should be
increased to N30,000 immediately to cope with the
suden surge in inflation
[8] Create a powerful office of oil ombudsman to
deal with matters such as hoarding, price fixing
and creating artificial scarcity. It should be
empowered to impose heavy fines on offenders
[9] Parliamentarians should take a 40% cut in their
salaries and this money be diverteds towards
paying the new national minimum wage
[10] Ultimately, float the NNPC on the Lagos and
either the London or New York Stock Exchange. Let
it operate as a private concern that can match and
rival the large oil companies. Its activities should be
vertically integrated, so it manages the entire
process from extraction to retailing via petrol
stations. The Nigerian government should maintain
something like a 20% stake in it

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