A few days ago the
Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN,
suggested to the Federal Government of Nigeria that in order to solve the
perennial problem of petroleum products availability, the subsidiary of the
Nigerian National Petroleum Corporation, NNPC, in charge of delivering such
products nationwide, the Pipelines and Products Marketing Company, PPMC, need
to be repositioned for better service delivery. PENGASSAN added that some of
the challenges affecting the efficient operations of PPMC include insecurity of
pipelines and staff and aging and substandard operational
equipment, shortage of manpower and irregular capacity building for existing
staff of the company, inadequate funding and poor safety standards.
All the problems
mentioned by PENGASSAN are real. And yes, a well run PPMC would not only supply
products to all nooks and crannies of the nation but also engender job creation
and economic growth. No arguments there.
The PPMC is one of
the more, if not the most, ubiquitous of the NNPC subsidiaries. In spite of the
fact that it is a pipelines company that has few operational pipelines and
depots that are mostly dry, the PPMC is responsible for every litre of fuel you
buy in the country. This very important arm of the NNPC maintains the artery,
be it through pipelines or by trucks, that supplies petroleum products to all
retailers in the country. It manages 5,120 km of product and crude pipelines,
34 terminals, storage depots, jetties and pump stations. It receives a daily
allocation of crude oil from the NNPC which it refines in NNPC’s refineries and supplies to the
domestic market using its supply infrastructure. Any refining shortfall is
compensated for by importation.
Breaking down the
PPMC business model into its base components, it can be seen quite easily that
both ‘pipelines’ and ‘products marketing’, in other climes, are successful business in their own
right and can be both self-sustaining and hugely profitable. The question to be
asked is why and how such a company has turned into drain on the nation’s resources.
Of the three main
liquid derivatives, that is diesel, gasoline and kerosene, only diesel is fully
deregulated. So PPMC is performing a social service in its product supply
business and not expected to turn a profit at the end of the business day - not
unlike any public school or hospital.
The pipelines
business is also performing well-below capacity and even when it does perform
well, it is part of a business system that, ab initio, is not primed to for
profitability - it is also not profit centre for the NNPC. There is hardly a
country in the world where such an infrastructural outlay is not used by a
private company to generate profit for its investors or by a nation to generate
revenue for the common good.
An example is
Kinder Morgan, an energy infrastructure company based in the United States of
America which is a 130 billion dollar company with a business is mostly derived
from owning and operating petroleum products pipelines and terminals. The company
neither refines crude oil nor sells its derivatives. All it does is efficiently
transport and store products on its over 68,000 miles of pipeline and in its
125 million barrel capacity terminals. The company transports on the average
2.3 million barrels of liquid products and 1.3 billion cubic feet of gas per
day. All over the world there are hugely successful companies that do nothing
but that.
This column avers
that the issues PENGASSAN highlighted are real and cogent, but they are neither
the cause nor the ailment but the symptoms. They are symptoms that have been
manifest and in the face of the citizenry, the government and more importantly
the management of the Nigerian National Petroleum Corporation, NNPC, for a very
long time and are only acknowledged because there is not enough sand for the
ostrich to hide its head. They are symptoms of a systemic failure that has its
roots in the way and manner PPMC, NNPC and the nation is run and has been run
in the recent past.
Even if all the
problems of the PPMC as enumerated by PENGASSAN are remedied and the pipelines
are transporting products and depots are all ready to receive and store these
products if the refineries are performing at nil, or near nil capacity, and the
nation is dependent on imports, the products scarcity problem shall persist and
can only be remedied by importation. Products importation is an expensive and
highly inefficient option and cannot be a long term panacea to epileptic
refineries in a nation with the energy consumption profile of over one hundred
and seventy million people.
Moving up on the
chain, even if the refineries are working and feeding the pipelines and depots
with products the problem shall still persist as long as the subsidy regime is
in place because such a model robs the entire value chain of a profit motive.
Neither the refineries, the pipelines nor the depots are currently not profit making entities even
when they are all working at full installed capacity. Like a wheat mill that
adds value to the grain by turning it into flour for a fee, refineries receive
crude and turn it in to various petroleum derivatives for a fee. As a
processing centre, a refinery should charge for its services in refining PPMC’s daily crude allocation. And when
the system works as it should, an NNPC refinery may refuse to process PPMC’s crude because a competitor to PPMC
is ready to pay more for that refining slot or vice versa.
But even if there
is no subsidy and the entire value chain is focussed on making a profit as long
as there is no sustainable profit-oriented plan that ensures technical
competence, prudence, discipline, accountability and sound business management
system the products supply venture will not generate enough revenue or profits
to be sustainable. Highly technical maintenance and supply contracts would
still be given out to friends and incompetent suppliers as favours or for a
less wholesome motive. This would, in
turn, see the gradual decay and obsolescence of the infrastructure, the erosion
of capacity and plummeting of profitability.
Security of the
pipelines, manpower capacity, inadequate funding and all the problems mentioned by PENGASSAN shall be
remedied if the PPMC is run like a company that is out to make a create value
and reward its investors and which will lose money, go bankrupt and cease
existing if it does not perform. Given the size of its market and the
infrastructural outlay at its disposal, the PPMC is more likely to swim than to
sink if left alone.
In a way it is a
good thing that PENGASSAN is wading into this. The union is one of the few
national bodies that are qualified to know the issues bedevilling not only the
PPMC or the products supply end but the entire Nigerian oil and gas industry.
They will be doing a disservice to themselves and the nation if they put any
lustre on the situation.
So for PPMC to get
to where PENGASSAN and the entire nation wants it to be there is a need to
rethink the entire business model of the subsidiary in light of the challenges
of petroleum products supply in the country and business profitability. The
problems stated may be manifesting in the PPMC but they definitely do not have
their roots there. The issue of PPMC and the efficient supply of petroleum
products in the country is an excellent example of how much work lay in store
for the incoming government.
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