The barrel operators’ controversy (1)

 

(By Sonny Atumah)

We have just rebased our economy which has placed us as the 26th economy in the world. We would have got a higher rating if we were optimising the full potentials of refining. Ordinarily, we are joining the big league with many challenges. We cannot afford to be importing refined products from countries that buy our crude, refine and sell to us all the by-products at their rates and terms.

 WE now have sanity and no more days of endless queues at petrol stations! However, here we are, it has been another sad story of the barrel operators in Nigeria. Wole Soyinka wrote The Man Died decades ago to express corruption, injustice and oppression in our land. The macabre dance of corruption and inefficiency as we have watched several times has not ended whether in the upstream or downstream sectors of the Nigerian petroleum industry.

   Perhaps we are playing the script of the great American writer, Al Batt who said:  ‘‘It is easy to sit up and take notice. What is difficult is getting up and taking action”. We have indeed taken notice of the problems bedeviling the sector but have found it extremely difficult to take action due to pecuniary barrel of crude gains those in the custody have of our commonwealth.

  Who will bail us out in this land of plenty of crude but with perennial scarcity of refined petroleum products? Who is our savior? One still routs for President Goodluck Jonathan. One tries to go through his checklist and has this as a reminder that we still look up to him to rescue us from this web of the barrel operators’. He had done it before and will do it again. We have fuel everywhere now unlike in the military era and administrations when we had fuel sparingly and at differential rates nationwide. We can do more if we refine locally.

   In the run up to the January 2012 nationwide protests, the Federal Government had argued that the total removal of the petroleum subsidy would solve the problem of corruption in the petroleum industry. We have consistently asked who the beneficiaries of the latent petroleum subsidy corrupt practices are. Indeed some of us who are close watchers do not agree to that argument that subsidy removal is the answer because we believe that you do not subsidise what you do not produce.

   Basic economics tells us that subsidy is economic benefit (such as tax allowance or duty rebate) or financial aid (such as cash grant or soft loan) provided by government to support a desirable activity (such as exports), to keep prices of staples low, maintain the income of producers of critical or strategic products, maintain employment levels or induce investment to reduce unemployment. Simply put, subsidy is the money paid by a government or an organisation to reduce the cost of services of producing goods so that their prices can be kept low. The basic characteristic of all subsidies is to reduce the market price of an item below the cost of production. It is also called subvention.

   From the barrel operators’ point, it is obvious we are subsidising what we are not producing. The Petroleum Products Pricing Regulatory Agency (PPPRA) had, in August 2011, claimed that the landing cost of a litre of petrol was N129.21; margin for transporters and marketers was N15.49 with the expected pump price put at N144.70 while the official pump price was N65. The Government increased the price to N140 on 1st January 2012, and with the protests and resolutions with labour, it was settled at N97 per litre. We are subsidising the idleness of the barrel operators who may not have let the government do the right thing.

   Government enquiries that followed the protest proved some of us right. The Farouk Lawan Committee of the House of Representatives that investigated the downstream operations (even with its controversy) gave an expose of the corruption in the sector. The Nuhu Ribadu Committee set up by the Federal Government to investigate the upstream operations also came up with damning revelations of the rot in the industry. The Nigerian Extractive Industry Transparency Initiative’s Reports have always rated our barrel operators low for many years now.

   What lessons have we learnt from what we have done and what we have failed to do? Investigations have shown that we have failed to utilize the natural resource we have to the greatest good for the greatest number, which is the utilitarian principle.

   There are as much as 6,000 investment opportunities in the downstream sector of petroleum if we refine. We have appealed to the operators to let our people enjoy the benefits of refining, but nay we are lone rangers in this crusade. It is unacceptable that we are still importing refined products in the 21st century.

    The industry is structured in this way: Oil and gas extraction including natural gas liquids extraction; drilling oil and gas wells; support activities for oil and gas operation; natural gas distribution; oil and gas pipeline and related structure construction; petroleum refineries; asphalt paving, roofing and saturated materials manufacturing; petroleum and petroleum products wholesale; gasoline stations; fuel dealers; and pipeline transportation.

   One would want to enumerate the uses of petroleum when we refine a barrel of crude oil. Crude oil is made up of a mixture of hydrocarbons. When heated at varying degrees from 90-1000 degrees (F) the following products can be recovered: light distillates as Liquefied Petroleum Gas (LPG – propane and butane), gasoline (petrol or premium motor spirit), kerosene, jet fuel and other aircraft fuel. Middle distillates include automotive and rail road diesel fuels, residential heating fuel, other light fuels. The heavy distillates are heavy fuel oils, bunker fuel oil and other residual fuel oils. Others are naphtha’s, solvents, elemental sulphur (sometimes sulphuric acid), petrochemical feedstock, asphalt and tar, petroleum coke, waxes and greases, transformer and cable oils and carbon black.

   Product derivatives like olefins (alkenes) can be manufactured into plastics or other compounds. Other derivatives include wax used in packaging frozen foods, sulfuric acid, and petroleum coke and aromatic petrochemicals used as precursors in other chemical production. Agriculture is a major beneficiary of petroleum. Nearly all pesticides and many fertilizers are made from petroleum.

  In essence, a barrel of petroleum can produce these products directly or indirectly when we refine locally. It is on record that there about 6,000 products from petroleum when we refine a barrel. A list of 144 of that is attached here. (Courtesy of Ranken Energy)

   We have joint venture partners (oil majors) that produce a barrel of crude oil and sold at say 100 dollars ($100). We now buy all the byproducts and their derivatives thereof for as much as say 3,000 dollars ($3,000) from countries that are net importers of petroleum, because they have added value by refining. That is the controversy we have over in Nigeria. This is what we have been suffering since the early 1990s when our refineries were left to rot due to lack of maintenance. We have no business importing refined products.

   Also, from the $100 we sold the barrel of crude, we share in a ratio of 60: 40 with our joint venture partners operating in our land (60 per cent to the Federal Government and 40 per cent to the joint venture partners). This is not good business. Let us put this in context and why we need to refine in the country rather than rely on imports. We gain technologically through skill acquisition for our people who may be employed in the expanded industry; increase our gross domestic product base beyond what it is now and earn more revenue for the government. Strategically, we are put in good stead in the international arena.

     We have just rebased our economy which has placed us as the 26th economy in the world. We would have got a higher rating if we were optimising the full potentials of refining. Ordinarily, we are joining the big league with many challenges. We cannot afford to be importing refined products from countries that buy our crude, refine and sell to us all the by-products at their rates and terms.

   Refineries are required for strategic reasons including economic, political and security. If for any reason we have an external aggression and our petroleum products suppliers are sympathetic to the aggressor nation, the consequences would be grave because we do not have a reserve base of refined products to sustain our country.

  It is for these reasons that the following net importers of petroleum have refineries in this order: Japan (29), India (21), Germany (14), France (13), Italy (16) and South Korea (5). It is also for these reasons that the United States only imports crude to augment the shortfall for her 149 functional refineries to keep the economy going. The U.S. does not import refined products. They derive the full benefits of petroleum by refining their products locally.

    Nigeria is the 15th world producer of petroleum after Saudi Arabia, Russia, the United States, Iran, China, Canada, Mexico, United Arab Emirates, Kuwait, Venezuela, Norway, Brazil, Iraq and Algeria. Incidentally, Nigeria is the only one that exports all her crude and imports virtually all her refined products and their derivatives. This is the reason why we place our budget bench mark on the sale of crude in the international market.

• To be continued.

• Atumah is a media consultant and member of the Middle East Petroleum Club.    satumah@yahoo.com

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