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Oil and Gas industry’s many changes under Buhari

For most Nigerians, they have never seen an administration under which so much happened in the ministry of petroleum resources in a short period as seen in the present one. MUSA ADAMU writes.   

It is an administration that has defied all known traditions in the sector thus far. This began early enough with the appointment of the Group Managing Director (GMD) of the Nigerian National Petroleum Corporation (NNPC), who is made to also wear the cap of the Minister of State, Ministry of Petroleum Resources. While it may not be the first time a sitting president doubles as substantive minister of the ministry, it is novel that the title of the GMD and that of the minister, whether state or not, are concentrated in one man’s hands.

Timeline of events: Reduction in pump price
In an unprecedented move, the federal government, in January this year, 2016, approved a down ward review of the petroleum pump price from N97 to N86, taking cognisance of the fall of the price of crude oil at the international market.

The then Executive Secretary of the Petroleum Product Pricing Regulatory Agency (PPPRA), Farouk Ahmed, while announcing the decision clarified that while the NNPC retail outlets would sell at N86, other oil marketers would sell at N86.50k per litre.
He explained that the reduction in the price due to implementation of the revised components of the petroleum products pricing template for PMS and household Kerosene.
According to him, the revised template, to be reviewed on quarterly basis, is geared towards ensuring an efficient and market-driven price that will reflect current realities.

He said: “Since 2007, while crude oil price had been moving up and down, the template remains the same. This made it necessary for us to introduce a mechanism whereby the template would be sensitive to the price of crude oil. However, the template is not static, as there would be a quarterly review and if there is any major shift, the minister would be expected to call for a review, either upward or downward. If there is no major shift, the price would continue from January to March 2016. In addition, there would be a product pricing advisory committee that would be set up to advice the PPPRA concerning movements in the price of crude oil.”

Cancellation of OPA
In the year under review, the management of the NNPC took another radical step by discontinuing the Offshore Processing Arrangement (OPA) and replaced it with Direct Sale-Direct Purchase (DSDP) programme.
The NNPC explained that replacement of the OPA with the more efficient DSDP was aimed at enshrining transparency and eliminating the activities of middlemen in the crude oil exchange for product matrix.

It further disclosed that the call for commercial bids issued to the 44 shortlisted bidders, made up of 34 international firms and 10 indigenous companies have been withdrawn.
The Direct Sale-Direct Purchase alternative allows for the direct sale of crude oil by NNPC as well as direct purchase of petroleum products from credible international refineries.
The NNPC further explained that it came to this informed position after the evaluation exercise of pre-qualified bidders revealed that most of the 44 companies earlier shortlisted for the next stage of the tender process only had affiliations to refineries abroad a situation which introduces toll on the value chain.

It added that if allowed to subsist, the development would in turn constitute a significant value loss to the Federation by way of accruals.
It said: “In this regard, only bona fide owners of Refineries identified in the ongoing OPA Tender Evaluation process will be further engaged. The identified Refineries will be subjected to due diligence and analysis by NNPC appointed consultants to confirm suitability in line with International best practice.”

Restructuring of the NNPC
Seen as the bastion of opacity in the country, inefficiency and not business strategic, it had always been the opinion of most analysts that the NNPC needed to be given a second look.
Thus, as part of its radical moves the administration of President Muhammadu Buhari restructured the NNPC into seven new divisions.
Announcing the restructuring, the minister explained that under the new structure, NNPC would have five core new divisions comprising the upstream, downstream, refining group, gas and power, as well as the ventures’ groups.

The other two, he said, are finance and services groups.
He said the restructuring was the only opportunity available to the NNPC to become productive again, adding that employees of the corporation would have to work to earn their wages going forward.
He pointed out that nothing much had changed with the unbundling except for the distribution of subsidiary companies of the corporation that would further be restructured into direct management of the new divisions.

He listed some of the subsidiaries under the divisions to include Upstream: the Nigerian Petroleum development Company (NPDC) and Integrated Data Services Limited (IDSL); Downstream Retail: Nigerian Product Marketing Company (NPMC), which was formerly PPMC, (NPSC); Gas and Power: Nigerian Gas Pipeline and Transportation Company (NGPTC), Nigerian Gas Marketing Company (NGMC), and gas and power investment; and the Refineries:

Warri Refining and Petrochemical Company (WRPC), Kaduna Refining and Petrochemical Company (KRPC), and Port Harcourt Refining and Petrochemical Company (PHRC), while the ventures’ company includes medicals, property, pensions, shipping, and wheel insurance.
According to him, all the analysis done to date in terms of the number of staff is that we are overstaffed and the only way we can do this is to create work so that everybody who is in the system has something that they are doing and so that they get busy and earn money.
Expectedly, the NUPENG and PENGASSAN, the two unions in the oil and gas sector swiftly reacted to the announcement by shutting down the NNPC outlets across the country. The workers however, backtracked less than 24 hours later a talk with minister.

Deregulation: Pump price moved to N145
Faced with the dwindling price of the crude oil in the international market, it  was clear that for the country to survive, the administration cannot shy away from taking difficult and unpopular decision.

And so, the administration bite the bullet by fully deregulating the downstream sector, a similar move which had pitted Nigerians against past governments, especially the immediate past one.
According to the Minister, the federal government coughed out N16.4 billion every month to offset the subsidy claims of oil marketers, a policy many Nigerians believe is fraud.
He explained that at the time the government made the decision to remove the subsidy, it was incurring about N13.7 kobo as subsidy on each litre of petrol bought by Nigerians.

He said at the rate of N13.7 kobo per litre as subsidy claims, the government would have paid out N16.4 billion to marketers monthly, adding that the government does not have such funds in its 2016 budget, more so now that the country’s earnings from crude oil have dropped.
He explained that: “There is no provision for subsidy in 2016 appropriation. As of today, the PMS (petrol) price of N86.50 gives an estimated subsidy claim of N13.7 per litre, which translates to N16.4 billion monthly. There is no funding or appropriation to cover this. NNPC has continued to utilise crude oil volumes outside the 445,000 barrels per day, thereby creating major funding and remittance gaps into the Federation Account.”

While the move got commendation from notable Nigerians, the labour led by the Nigerian Labour Congress (NLC), a known opponent of the policy, expectedly swore to bring the house down unless government reverses the policy.
Unfortunately for the apex labour body, its traditional allies such as NUPENG, PENGASSAN, NAAPE,  NARTO, TUC and most civil society organisations (CSOs) saw the removal this time around differently, and when it hit the street to protest the policy, it did that almost alone, leading many to conclude that its action failed first time.

While many analysts believe that as an administration taking charge at one of the most economically trying times in the history of the country, the quick strategic moves in the oil and gas sector were unavoidable, others believe that government was not circumspective enough to take it easy on the already traumatised populace.
As the industry begins its journey into the second anniversary of the Buhari administration, it is expected that many radical changes are still going to be introduced, since after the successful removal of the subsidy, some are already calling for the privatisation of the four non-performing refineries in the country.

About Muhammed Adamu