Options for fixing PPMC supply, distribution infrastructure

NNPC’s network of pipelines, depots, pump stations, jetties, terminals etc are in a dilapidated state, owing to a combination of aging facilities, maintenance neglect and persistent vandalism. National refineries cannot operate effectively and efficiently where the supply and distribution (S/D) infrastructure in colossally compromised.

According to PPMC’s figures in 2012, around $2.8 billion is required for minor repairs, whereas a study carried out by AON Energy Risk Engineering in 2010 estimated that $8.9 billion would be required to fix the PPMC supply /distribution infrastructure.

This supply and distribution infrastructure comprises of the following:

• 5,120 kilometers of pipeline network (for crude oil and petroleum products flow);

• 21 petroleum products depots;

• 16 pump stations;

• 8 LPG depots;

• Atlas cove terminal;

• PPMC Escravos terminal;

• Bonny Export terminal.

Taken together, this infrastructure behaves like a natural monopoly because it links up all current and projected productive entities within the oil industry.

In the near- term government would be ill-advised to privatize this infrastructure. Several actions need to be taken before these can privatized because of national security issues involved.

Therefore, in the interim, these facilities should be repaired under a Downstream Petroleum Infrastructure Rehabilitation Plan.

This infrastructure is the foundation upon which new refineries, petrochemical, fertilizer, ammonia, urea, and other plants and facilities could be brought on stream, so repairs and rehabilitation work on this supply/distribution infrastructure should be pursued as stridently as the need to construct new refineries and petrochemical plants.

In the medium- term, a government agency (through an Act of National Assembly) could be set up under a truly independent regulator (with the requisite character and integrity) to operate this infrastructure on a truly commercial basis (i.e. cost plus). Such an agency would be entrusted with the responsibility to design third-party access code and to set tariffs for users of these facilities.

Only to the extent that it should be a long- term measure and only applicable to the network of pipelines, I concur with a professional colleague’s (Dr John Erinne) recommendation that PPMC’s S/D infrastructure should be privatized into 4 companies along the following lines: West (Mosimi Area); Central (Warri Area); East (Port Harcourt Area); and North (Kaduna & Gombe areas).

He further contends that in the national interest, NNPC should retain at least 40%, but no more than 49% equity in the privatized companies.

He advocates that in the national interest, a privatization exercise (if chosen as an option) should be broad enough to include a variety of stakeholders, such as major marketers, independent marketers, depot owners, refining companies, independent oil producers, major oil producers, oil service companies, State & Local Government, and the general public at a later stapes (via  the stock exchange market).

This is sound logic, because given the special nature of petroleum products and its unique economics; due care should be taken to ensure that monopoly situations do not exist in order to protect strategic national interests. Therefore, safeguards must be put in place!

However, prior to privatizing these national assets, the requisite regulatory agencies (DPR) and Bureau for Public Enterprises (BPE) could work together to design the guidelines. The guidelines / safeguards put in place for the privatization of S/D infrastructure should also apply to the privatization of national refineries. Both privatization exercises need to be carried out in tandem.