I have read a lot about the current fuel crises but have not seen a lot of suggestion on how to resolve the issue apart from calling NNPC to repair the existing refineries and building new ones. It will take 12 months to repair the refineries, about 48 months to build a new one and 18 months to build a mini refinery.
My suggestion to NNPC on how to solve this problem will only be successful if NNPC start to look at itself differently.
First, who is NNPC, it is a big local national oil company that only operates in Nigeria, it does not have even a jerry can outside the shores of Nigeria (forget about London office, I mean oil assets) unlike other NOCs like Saudi Aramco, Petronas, Statoil and Petrobras, who are now multinational global corporations.
For NNPC to achieve this objective it has to be bullish and start to think global as against a local player that it is today. At a subsidy of N32 per liter the minimum amount of subsidy to be borne by government on PMS alone is $1.5b per annum.
Another fact is that Dangote refinery will ease only the supply gap but not much on price as he will sell at international price to NNPC who would have to subsidise so as to sell at N145, so there would be no much relief on price.
As at last year there are 22 oil refineries that closed down in Europe (I have the list), with $500m that is about 30% of the cost of subsidy per annum, NNPC can purchase 500,000 barrels worth of refinery capacity.
NNPC will buy the refineries, they are in good order as they are being maintained even though they are shutdown it will take them a few weeks to re start them and start refining crude oil.
These become properties of NNPC, they will then use NIDAS, that is the shipping arm of NNPC to transport crude from Nigeria to the refineries, refine it then bring the products back to Nigeria, pump some through the Atlas Cove and store some offshore on NNPC storage facilities and discharge some into independent jetties.
The arrangement in terms of logistics is very simple as it will enable NNPC to do 100% of fuel importation itself till such a time that the local refining capacity is adequate then NNPC can export refined products from its refineries in Europe or sell them off since they have served their purpose.
Beside, the 40m litres of daily PMS requirement is just one shipload and therefore not a problem to manage from logistics point of view.
Because NNPC controls the entire supply chain from production to transportation to refining and distribution it will have significant leverage to manage and control the pump price without any subsidy.
Please note that the cost of producing a barrel of crude in Nigeria they say is between $12 – $18 while international crude price is about $67 today , therefore NNPC can invoice its European refineries at any discount it deems fit so as to arrive at the desired retail price.
Some people would ask what is the difference between this model and swap arrangement, there is a big difference in that the refineries belong to NNPC, the shipping and refinery margins belong to NNPC giving NNPC another source of income and lunching NNPCs international operations.
In summary, the only way for NNPC to ensure supply of refined products at the acceptable retail price without subsidy is to immediately buy refineries in europe and because it is in control of the entire value chain and makes profits along the chain and can effectively control the price of the products. This can be achieved in 120 days if NNPC is serious about it.
Bello Shehu Mohammed,
Founder Kanem Refinery Limited, Alu Avenue, Nasarawa GRA, Kano
