Issues in Petroleum Products Distribution Chain

11 Nov 2012

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Dizeani Allison Madueke, Petroleum Minister

The problem of inadequate fuel supply has been persistent in the last two months and many fear Nigerians may carry the problem into the new year. Several reasons have been adduced for the fuel scarcity while many Nigerians have engaged in the blame game, but there is a need to properly situate the issues in the fuel distribution channel, writes Festus Akanbi

For over two months, the issue of irregular supply of petroleum products, especially petrol, has been dominant in major public gatherings. Apart from the pains being borne at corporate and individual levels, opposition politicians have also latched on the public angst against the products scarcity to criticise the process put in place by the federal government agencies for petroleum products distribution.

However, industry players last week explained that rather than heap the blame of the product scarcity and the indiscriminate hike in the price of fuel on the Petroleum Products Marketing Company (PPMC), which is directly in charge of the products distribution, a clear understanding of the Nigerian situation will set the records rate.

Vandals at Work
The current fuel supply and distribution situation Nigerians are experiencing can be traced to recent vandalism of the Nigerian National Petroleum Corporation (NNPC) products pipeline at Arepo, where PPMC engineers who went for repairs were shot and three of them confirmed dead. As a result of the security challenges, PPMC is yet to gain access to the vandalised points to effect repairs. The point is along the Atlas Cove-Mosimi line that feeds five depots and accounts for products supply to the whole of the South-west region and also contributes to about 60% of total bridging to the North.

Records showed that since the advent of the present crop of PPMC management in February 2011 till date, no major fuel supply and distribution issues had been encountered. This is to attest to the efforts of the present PPMC management. This achievement is said to have been made possible in spite of the prolonged subsidy issue.

Since the heated issue of subsidy began in early 2012, NNPC/PPMC has solely sustained PMS supply to the Nigerian market as marketers have refused to bring in products. Despite that singular effort by PPMC, supplies have been robust and hitch- free with PMS available across the nation at a uniform price.

This, according to observers, is an improvement over what was obtained in the horrible period of 2009-2010 when Nigerians were sleeping in fuel stations looking for fuel to buy.

PPMC’s Intervention
To smoothen the process of fuel distribution, the PPMC has re-commissioned Kaduna-Suleja line, Kaduna-Kano line, Suleja-Minna line, Kaduna-Gusau line, Kaduna-Jos line, Port Harcourt-Aba line and Warri-Benin line. With these lines functioning, NNPC has been able to distribute products to Suleja, Kano, Minna, Jos, Gusau and Aba depots. However, some of these depots have not worked for over 15 years. It is noteworthy that in spite of the numerous challenges facing the NNPC in maintaining pipelines, products like AGO and DPK that have not been pumped to these depots has been achieved. Suleja and Aba depots have received/and are in the process of receiving all products (AGO and DPK).

The re-activation and rehabilitation of the pipelines was informed by the consideration of the fact that the pipelines are by far the safest, most efficient, quickest, cost effective means to distribute products especially for a country as large as Nigeria.

Sources said once the pipelines are available, PPMC is ready to pump all products to the depots located in all regions of the country. It is only when the pipelines are not available that they are compelled to use other methods to make the products available. In the absence of security, the vandals have a field day and prevent the pipelines from functioning effectively.

The continued attacks on the pipelines have also raised the issue of security and the failure of the authorities to bring vandals to book. The question being raised is since the 1990’s when PPMC witnessed an increase in pipeline vandalism, how many culprits have been apprehended and successfully prosecuted?

Harvests of Challenges
However, certain fundamental factors are militating against a process of seamless fuel distribution in recent times. THISDAY investigation showed that rather than putting the blame of the shortage of fuel supply in the various parts of the country on the PPMC, the resolution of the present logjam can only be achieved by focusing attention on some agencies of the federal government whose activities are creating the loopholes, which saboteurs are cashing on.

One of such agencies is the PPRA. A source explained that the agency is in the habit of introducing new import requirements without prior notice. This ad-hoc/spontaneous policy, it was gathered, severely affects products discharge with its attendant demurrage exposure especially for cargoes that are already delivered prior to the policy.

Also, the additional guidelines or documentation requires the supplier to sometimes refer to the load port for such documentation. In the process of getting the additional documentation, import vessels remain offshore Lagos with attendant demurrage exposure to NNPC.

Another agency involved in the distribution processes is the Department of Petroleum Resources (DPR) which has to re-certify products quality before giving the necessary clearance for discharge. The source said the absence of DPR personnel at discharge ports upon arrival of vessels causes delays and demurrage exposure while the absence of well-equipped and efficient laboratory to carry out product analysis delays the issuance of vessel clearances to the detriment of NNPC operations.

Explaining the causes of delay at the port, a product marketer said that lack of deep sea ports has continued to affect the berthing of import vessels with resultant use of shuttle vessels through transshipment. Other hurdles include the fact that getting the necessary clearances to berth vessels and or transshipment takes longer time than necessary.

Another agency whose activities indirectly affect the process is the Nigerian Maritime Administration and Safety Agency (NIMASA). This is because clearing of vessels by the agency to carry out discharge operation leads to delays and also exposes NNPC to demurrage while indiscriminate arrest of various officials for no justification constitutes delays and result to demurrage.

Another industry source also alleged that inadequacy of PEF staff at the loading depots to witness loading activities for the re-imbursement of bridging allowance slows down NNPC’s ability to maximise supplies to the market.

Increased activities of vandals on the NNPC pipelines and Jetties made the corporation to lose about N105billion worth of crude oil and products in year 2011 alone. This is because System 2B alone when operational was losing an average of N600m per week due to the activities of vandals.

Other challenges include non-payment of petroleum support fund (PSF) to PPPRA suppliers, which has resulted in backlog of arrears and inability of the marketers to meet their quarterly supply obligations. There is also the problem of lack of credit facility or credit line from the banks for PPPRA marketers to import products. Others include lack of sufficient budgetary provision for the payment of subsidy in 2012. N888bn was earmarked in the 2012 budget for the settlement of subsidy claims.

Operators are still worried that budgetary provision of N900bn in 2013 fiscal year does not take into consideration arrears of 2009, 2010 and 2011. Consequently, marketers are no longer interested in the supply of petroleum products to the market leaving NNPC’s 47 per cent to cover the entire market.

What happened is that marketers are taking advantage of the current situation to divert products that are meant for the major cities to the vulnerable areas (villages, hamlets and non-performing filling stations) for profiteering in view of the strict regulation to sell PMS at N97.00 a litre.

Investment in Pipeline
Nigeria has a total land mass of about 910,770sq kilometres with a population of about 167 million. And statistics from the PPMC have it that Nigeria has a robust pipeline network of about 5,120 kilometres across the nation, with 21 loading depots and 19 pumping stations. The total replacement value of these assets is in the excess of $9 billion. However, due to incessant pipeline vandalism, most of the lines were not available before the present management of PPMC took over.

To distribute the current contribution of about 35m litres of PMS daily by NNPC to meet the national demand for example, about 1,061 trucks needs to ply the roads daily. With our bad roads, the menace of robbers and environmental considerations in having the trucks travel the length and breadth of this large country, what effects can that achieve?

Observers noted that except for the small time jerry can boys, the main players who use valves to siphon products with barges and with trucks are left to enjoy their loot. “These are pertinent questions we should ask ourselves as a nation rather than blame the NNPC or an individual,” one source said.

Sales Strategy
NNPC/PPMC sells petroleum products as a matter of policy to Independent Petroleum Marketers Association of Nigeria (IPMAN), Major Oil Marketers Association of Nigeria (MOMAN) as well as NNPC retail and private depot owners.

An official of the oil regulatory body said NNPC/PPMC records and indeed its policy do not show that petroleum products have been sold to middlemen as is being canvassed in some quarters. It is pertinent to note that there are entry barriers in products allocation. Some of which includes signing a Bulk Purchase agreement (BPA) with PPMC after inspection and certification of facilities before any of the four categories listed above can lift petroleum products. Therefore, PPMC does not and has never sold to middlemen. PPMC has the records of all products deliveries to all its registered marketers especially since the inception of this management.

One PPMC official told THISDAY that once the vandals are put at bay and the pipelines are in good shape, NNPC/PPMC is in a position to pump products through its pipeline network spanning the entire country to our 21 loading depots attached to various segments of the pipeline network. He explained that the non-availability of the pipelines, due to incessant acts of vandalism, is what is denying PPMC the ability and indeed flexibility to efficiently distribute products hitch free, nationwide.

On the orders of the National Assembly, PPMC increased kerosene supply from 8 to 11 million litres per day. However, there are still hiccups in distribution because it is on record that kerosene meant for the masses is diverted either to the aviation industry, road construction and manufacturing or directly smuggled across the borders. Others still are used as ‘rice and beans’, the local parlance referring to the mixture of kerosene and diesel for the purpose of increasing the volume of diesel used for fueling. These challenges notwithstanding, it is on record that kerosene in the last one year is now more easily available and accessible. Its cost in the open market also in the last one year has come down from a high of between N150 to N250 per litre to between N90 to N120 per litre as of date.

A PPMC official, who spoke on condition of anonymity, therefore appealed to marketers who buy at N40 and sell at N120 to do a rethink. “We are also using this medium to appeal to DPR to do their duty of enforcing the recommended price of DPK. It is noteworthy that those who are licensed by DPR to sell the product buy it from either IPMAN, MOMAN, depot owners, NNPC retail and resell at inflated and outrageous prices over and above the recommended price of N50 and that indeed is because of the arbitrage,” the official said.
Oil industry sources said all of these sharp practices in the sale of DPK could be attributed to the high subsidy in the product. Perhaps this is an opportunity for Nigeria to have a rethink on the subsidy policy on kerosene rather than heap the blame on NNPC/PPMC, he said.

They maintained that time had come to now pursue the long overdue switch from the use of kerosene to LPG which is produced abundantly in the country and can now be easily accessed.

Records from the sector show that as of today, Nigeria can produce 3.2 million tons of LPG while consumption is at a miserably 130,000 tons per annum. Meanwhile, LPG is cleaner and more environmentally friendly, portable, convenient and readily available in country than Kero. Nigeria is massively importing kerosene in order to meet up its daily consumption. That increased daily consumption as stated above is as a result of the use of kerosene in other sectors of the economy. Why must government be subsidising other sectors of the economy rather than the poor masses? This is because at the end of the day, what government is subsidising are aviation, road construction, manufacturing companies, rice and beans and smugglers; and not the poor man.

Switch to Gas
The consensus is that rather than continue to put subsidy of kerosene in the wrong hands, government and other stakeholders should aggressively pursue the policy of a switch from kerosene to LPG like it was successfully done in other countries like Indonesia, Brazil, China and neighboring Chad Republic. In order to tackle the inherent problems in fuel distribution, industry analysts said a robust security of the pipelines through establishment of Pipeline Protection Force should be put in place. There are also calls for relevant government agencies playing critical roles in the supply and distribution chain to be more proactive while immediate payment of subsidy arrears to the marketers is also recommended.

Tags: Business, Nigeria, Featured, Petroleum Products

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