ANGO ABDULLAHI SHOULD STOP LYING TO NIGERIANS... The NORTH did not develop Nigerias Oil Industry Nigeria’s financing pattern before and after independence: ”north” did not build the oil industry – Shell and the FG did Government Finance A major cause of political conflict in Nigeria since independence has been the changing formula for allocating revenue by region or state. Before 1959 all revenues from mineral and agricultural products were retained by the producing region. But after 1959, the region retained only a fraction of the revenue from mineral production. This policy was a major source of dissatisfaction in the Eastern Region, which seceded in May 1967 as the would-be state of Biafra. By contrast, the revenue from agricultural exports was retained by regional marketing boards after 1959, but the agricultural exports of eastern Nigeria were smaller than those of the other major regions. The rapid growth of petroleum revenue in the 1970s removed most of the severe constraints placed on federal and regional or state budgets in the 1960s. Total federal revenue grew from N306.4 million in 1966 to N7,791.0 million in 1977, a twentyfivefold increase in current income in eleven years. Petroleum revenue as a percentage of the total went from 26.3 percent in 1970 to more than 70 percent by 1974-77. During the civil war, most of the twelve new states created in 1967 faced a revenue crisis. But a 1970 decree brought the states closer to fiscal parity by decreasing the producing state’s share of export, import, and excise duties, and of mining rents and royalties, and by increasing the share allocated to all states and the federal government. Also, in 1973 the commodity export marketing boards, which had been a source of political power for the states, were brought under federal control. Other changes later in the 1970s further reduced claims to revenue based on place of origin. In the 1970s, the federal government was freed to distribute more to the states, thus strengthening federal power as well as the states’ fiscal positions. Statutory appropriations from the federal government to the states, only about N128 million in FY1966, increased to N1,040 million in 1975 with the oil boom, but dropped to N502.2 million in 1976, as oil revenues declined. The burgeoning revenues of the oil boom had encouraged profligacy among the federal ministries. Government deficits were a major factor in accelerated inflation in the late 1970s and the early 1980s. In 1978 the federal government, compelled to cut spending for the third plan, returned much of the financial responsibility for housing and primary education to state and local governments. Federal government finances especially drifted into acute disequilibrium between 1981 and 1983, at the end of President Shagari’s civilian administration, with the 1983 federal government deficit rising to N5.3 billion (9.5 percent of GDP) at the same time that external debt was increasing rapidly. The state governments’ deficit compounded the problem, with the states collectively budgeting for a deficit of N6.8 billion in 1983. Falling export prices caused the military governments between 1983 and 1988 to continue cutting real spending, especially for capital, imports, civil service and armed forces salaries and consumer subsidies. Many parastatals also had their subsidies cut, while others were sold off entirely. The result of these actions was a substantial reduction in the federal deficit. The announcement of the spending reductions that would be part of the fifth plan coincided with the military coup of August 1985. Unlike earlier plans, the fifth plan (put back to 1988-92 party because of the coup) allocated the largest amounts of capital to agriculture and stressed the importance of private investment. In 1988 the federal budget was still highly dependent on oil revenues (taxes on petroleum profits, mining rents and royalties, and Nigerian National Petroleum Corporation earnings). Altogether, oil receipts accounted for 77 percent of total federal current revenue in 1988. The federal government retained 62 percent of the revenue it collected in 1988, while the rest of the funds were distributed to the state and local governments by a formula based on population, need, and, to a very limited extent, derivation. International aid designated for domestic Nigerian development constituted a minor source of government revenue. In 1988 such official assistance amounted to US$408 million, or US$1.1 per capita, which placed Nigeria lowest among low-income and lower- middle-income aid recipients. This aid represented 0.4 percent of Nigeria’s GNP, far less than the average of 2.4 percent received by all low-income countries, a group that included much states as China, India, and Zambia. Culled from Nigeria: The Economy mongabay/reference/ country_studies/nigeria/ECONOMY.html Exploration for crude petroleum oil in Nigeria first began in 1908. However, serious and sustained efforts did not happen until Shell Darcy Petroleum Company commenced operations in 1935. It took this company more than 20 years to discover petroleum crude oil in commercial quantities in Oloibiri in 1956. Before 1965, all the international petroleum marketing companies in Nigeria imported their stocks independently from their own refineries located abroad. As the local demand grew for these products, and following the local availability of crude oil by pipeline, establishment of a refinery in Nigeria became commercially viable.. Two oil marketing companies in Nigeria , Shell and British Petroleum, BP, formed a 50/50 joint venture refining company in Nigeria , the Nigerian Petroleum Refining (NPRC) in 1960. The NPRC built a 38,000b/d petroleum refinery at Alesa-Eleme, near Port Harcourt to refine local crude oil into five petroleum fuel products. Construction of the refinery commenced in 1963 and production started two years later, in 1965. Crude oil processed in the NPRC refinery was a portion of the production destined for export through Shell-BP’s Bonny Island export terminal. By a special contract agreement among all the five major products marketing companies, they procured crude oil from Shell-BP.. The crude oil was transported by pipeline to the NPRC Refinery for processing based on the quantity processed, at an agreed unit price per ton of crude oil. The major marketers also, at their own cost, arranged the timely evacuation of the products from the refinery, mostly by the sea to Lagos and the remaining by road tankers.. The refinery was de-bottlenecked in 1973, in order to increase its crude oil processing capacity from 38,000b/d to 60,000b/d. The domestic demand for petroleum products which steadily increased was satisfied by the NPRC refinery for about 8 to 10 years. In 1970, the Federal Government acting as a member of OPEC compulsorily acquired and paid for an equity share of 60 percent in all private international companies working in the Upstream and Downstream sectors of the Petroleum Industry in the country. The Federal Government invested these shares in its wholly owned corporation, the Nigerian National Oil Corporation, NNOC.. NPRC was one of such companies whose shares were compulsorily acquired by government. NPRC was allowed to continue to operate commercially and profitably, without any interference from government. The Federal Government participated only at the board, represented by NNOC, as the majority shareholder. NPRC paid dividends regularly to its shareholders. The refinery was adequately maintained and achieved its production targets efficiently and safely.. . NNPC Refinery Division. In 1977, a new Decree 77 was promulgated to establish the Nigerian National Petroleum Corporation, NNPC. Among the five divisions created in the new NNPC corporate headquarters was the Refinery Division, which was headed by a general manager. This division was responsible for policy, projects implementation and coordination of all petroleum refining activities of the corporation.. In particular, the general manager Refinery Division was appointed chairman, NPRC Board, following the federal government’s compulsory acquisition of the (60%) equity shareholding in the NPRC.. . NNPC Refinery Port Harcourt. In 1978, the Federal Government through the NNPC had acquired the remaining 40 percent equity of NPRC from Shell and BP. The name of the NPRC was changed to NNPC Refinery, Alesa-Eleme, near Port Harcourt . A new position of managing director and a new management structure were established. The chairman of the board remained the general manager Refineries Division of NNPC. While the refinery continued to produce and maintain its facilities as before. With a few years, the NPRC management.€™s commercial culture had been replaced with a more bureaucratic style on the NNPC management.. In fact several management changes occurred within the first five years which fully entrenched the bureaucratic style and structure. The NNPC Refinery at Port Harcourt had become a cost centre instead of a profit centre. The same fate would soon befall the other refineries subsequently constructed by the NNPC.. The Refinery project at Warri, Kaduna & Port Harcourt. The acute and prolonged nationwide shortage of refinery products, especially petrol, started between 1973 and 1974. These shortages resulted from several factors but were generally due to the sudden sharp increases in demand. The main reasons for the high demand were attributed to a considerable increase in the economic activities following the end of the Nigerian Civil war. . This also coincided with the beginning of the so called Oil boom in Nigeria which started in the mid 1970s. Nigeria suddenly began to earn unprecedented amounts of revenue from oil.. International Oil prices had risen sharply following the oil embargo of 1973 by the Arab countries as a result of the invasion of Egypt by Israel . These earnings were mainly from Royalties and the Petroleum Profit from Tax (PPT) paid by the Oil companies. The Federal Government financially buoyed by these large earnings from oil had embarked on a very large number of projects including a Iron & Steel Industry, road and bridge construction projects, and two grassroots refinery projects. However, probably the single most contributory factor to the sharp increases in demand for petrol was the Udoji Awards for salary increases and arrears in the public and private sectors. These awards gave a huge step increase in the purchasing power of a large number of Nigerians. . This temporarily created a middle class in the country. Purchase of all types of vehicles, especially .tokunbo cars, electrical and electronic household goods sky-rocketed. The domestic demand for petrol more than doubled. Electrical power consumption also sharply increased nationwide.. Feasibility studies were first undertaken by BEICIP, an international oil and gas consulting firm from Paris , in 1974 for the Federal Government. The objectives were to establish the demand and consumption patterns of petroleum products. These studies were also used to determine the size of a new refinery to be constructed. Following a tendering exercise involving international engineering contractors, a contract was awarded to Snamprogetti Spa of Milan , Italy , in 1975. The contract was for the design, procurement and construction of a new grassroots petroleum refinery in Warri. The design capacity of the refinery was 100,000 b/d, and the lump sum cost was $478 million, for project duration of 30 months. This project was completed in 1978. The refinery commenced operation immediately thereafter. A second new refinery was planned for the production of lubricating oil products, waxes and asphalt (for the road projects). This refinery which was located in Kaduna consisted of two refining streams, (50,000 b/d fuels units) and (50,000 b/d lubes, waxes Asphalt plants). The contract for the construction of the Kaduna Refinery was awarded in 1976 to Chiyoda Engineering and Construction Company of Japan, at the cost $525 million, for a project completion period of 36 months. The refinery was completed on schedule and was commissioned in later 1979. The existing products pipeline linking Warri Refinery to Kaduna was converted to pump crude oils for supply to the new Kaduna Refinery.. By 1980, with the old Port Harcourt , Warri and Kaduna refineries in operation, there was still an appreciable level of importation of petroleum products to augment domestic production from the three refineries. A review of the old study was conducted to update the demand and the pattern of consumption to cover the next period of 10 years. This was also to determine the optimum size and location for an export oriented refinery, which would also supply the domestic market as required. The several options considered included, new refineries and/or expansion of existing plants. The Federal Government decided to expand the capacities of the fuels units in the existing refineries at Warri and Kaduna by de-bottlenecking. The de-bottlenecking route was quicker by capacity increases were moderate. The de- bottlenecking projects were completed in 1985. The new capacities at Warri Refinery and Kaduna Refinery became 125,000b/d and 110,000b/d respectively. In addition, a new grassroots refinery with a capacity of 150,000 b/d would be constructed adjacent to the existing refinery at Port Harcourt . The total additional refining capacity added from the result of the new study became 185, 000 b/d. this would bring the total refining capacity in Nigeria on completion of the projects in 1989 to 445,000b/d, which is still the current total installed refining capacity in Nigeria. The new Port Harcourt refinery with a capacity of 150,000b/d was designed to include facilities to export products in excess of domestic demand. The contract for the design and construction was awarded to a consortium of JGC Corporation/Marubeni Corporation both of Japan and Spibatignolles of France in October 1985 at a total cost equivalent of US $850 million. The construction was completed and the refinery was successfully commissioned in October 1989. However, the exportation of petrol and diesel from refinery lasted only a few shipments during 1990 and 1991. The increase in domestic and demand couple with decreasing production from Warri and Kaduna refineries had put an end to the idea of exportation of petroleum products, except fuel oil. The decision by the Federal Government to construct new refinery It is important to make the following comments on the policy decision by the Federal Government to undertake these refinery projects from 1974 to 1989. I believe the Federal Government took the correct decisions at that time, to undertake the projects because:. . (a) The investment and operating costs of any refinery project were too high for any local private company to undertake, regardless of the profitability of the enterprise. Moreover, non of the international oil companies operating in Nigeria was interested in establishing any new refineries in Nigeria at that time.. (b) The economic stability of the country was seriously threatened by the acute shortage of the crucial fuel products.. (c) There are many other additional benefits realisable from that decision, such as the creation of new jobs and potential cost savings for the country.€™s economy. The feasibility studies for the new Port Harcourt refinery project had clearly demonstrated the potential savings to be earned from refining Nigerian crude oils at refineries located on the coastal areas of the country, when compared to the importation of the products for domestic consumption.. (d) Fortunately, the federal government to preserve the economic and social stability of the country, by investing in these projects in response to the looming crisis. It is a completely different matter to continue to own, manage and operate such strictly commercial assets as cost centre. With the benefit of hind sight, the federal government should have divested all or majority of its equity to a competent private company at the earliest opportunity. That would have ensure the refineries would be run efficiently and profitably at all times like the NPRC refinery had been a decade earlier. Unfortunately it did not do so. I am not aware such advice was given to the federal government at that time.. . Analysis of the performance of the Nigerian refineries. There are standard criteria used in the industry for measuring the performance of petroleum refineries. These include:. a) . . . The percentage capacity utilisation. This is the most common parameter used and it essentially measures the overall efficiency of the refinery.. b) . . . The products yield vis-a -vis design yields. This measures the efficiency of the processing unit of the refinery.. c) . . . Historical safety records. Such records include the number, frequency and severity of different causes of accidents.. d) . . . The refinery on-stream factor. This is measured for individual process units, as well as the entire refinery. These factors measure the continuity and reliability of the operations.. e) . . . The design turn down ratio of 60% is the minimum percentage of design capacity throughput recommended to operate the crude oil distillation column by process engineering designers, industry wide. If the crude distillation column is operated below this value the products yield pattern and quality may be different from the design specifications.. f) . . . . On the basis of the parameters described above I have reviewed the performance of the Nigerian Refineries from inception up till the recent times.. . Culled from a lecture delivered by Alex Ogedengbe, a former managing director of Port Harcourt Refinery, at the recent induction ceremony of Nigerian Academy of Engineers, in University of Lagos . businessdayonline/NG/ index.php/oil/3203-nigerian-refineries-history- problems-and-possible-solutions-1
Posted on: Sat, 01 Feb 2014 16:32:01 +0000
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