Saturday, June 6, 2015

PENGASSAN May Have A Point on PPMC But…



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 NNPCs 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 nations 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 PPMCs daily crude allocation. And when the system works as it should, an NNPC refinery may refuse to process PPMCs 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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