jpphilips:
Subsidy in Nigeria has become our most controversial economic reality, without an introduction, Subsidy interference (partial withdrawal, total withdrawal and continuity) has proved beyond doubt to be fatal to the Nigerian people.
Arguments from all quarters over the years from the government and the media, leave a lot of holes that one could hardly make a comprehensive analysis of why each step was taken, ie if we could bifurcate the lies from the reality.
Personally, the only viable solution I could phantom is a restructure of critical areas of our Economy that will not necessitate a removal of subsidy but will render subsidy irrelevant, rightly put, subsidy phasing out. With a government enthroned on the platform of sincerity of purpose, Nigerians may want to consider the following strategy;

Phase 1:
Probe and forensic auditing of the existing subsidy regimen;
This is necessary to curb the inefficiencies in the system, recently, the Nigerian Failed Ex Minister for Finance paid "FOREX differential" as part of the subsidy regimen amongst other inefficiencies, that is so wrong to say the least. Even when the CBN issue FOREX to importers at the interbank exchange rate, yet we have to pay for the differential?
I admit there was an economic need to devalue the naira, the only justification for that payment was that relevant stakeholders were not carried along including those importers.
This is the latest inefficiency in the subsidy regimen, who knows what else is there? In 2012 it was revealed that storage of pet. products forms part of our subsidy and I ask why?
the answers didn't really add up because I have personally perused the DPR guideline for issuance of such license and storage is an integral part of it, how people without storage capacity, or people who rent storage facilities were issued those license, is where the audit will do the needful.
Issue of port delays to attract demurrage, import waivers, racketeering and other unscrupulous activities, NNPC subsidized products sold to Private depot owners at higher prices etc. I am convinced that a thorough fix in this area will save us about 15% of our current subsidy expenditure. Duration: (3 months)

Phase 2:
Power:[color=#000099]
[color=#000099]You cannot touch subsidy without fixing power, since both are a function of each other both in sustainability and cost, since the FG does not have the cash to execute a comprehensive power approach, then, Prof. Osibanjo's balkanization of the National grid comes in handy here.
During the process of restructuring Nigeria's transmission infrastructure, preference should be given to towns with high population density, it is estimated that a Nigerian home, consumes an average of 45l of petroleum products in 24hrs, therefore, If the number of homes per city could be estimated as 1/3 of the population of that city, then Lagos [13.4m people/2.5m homes (2010 figures)], Kano (1.2m homes ), Abuja (900,000 homes), Ibadan (765,000 homes), Kaduna (500,000 homes) , Portharcourt (900,000), Aba (400,000), ogbomosho (360,000 homes), Maiduguri (359,100 homes), Benin (340,000), Zaria (300,000) and Jos (305,000) should receive a minimum of 17hrs electricity daily, balanced 9hrs during the day and 6hrs in the night, subsidy is expected to reduce between 25-30%. Already, Lagos, Abuja, Portharcourt, Aba and Benin all have existing IPPs, with 45% of subsidy receipt gone, then we go to phase 3 (duration: one and half years)

Phase 3:
Trade off Kerosene:
There are a whole lot of intrigues surrounding the Nigerian Subsidy regimen on Kerosene, a plethora of Kerosene explosions and the 2012 incident when the FG announced the removal of fuel subsidy surprisingly, price of air travel doubled, it raised some legitimate questions if the Nigerian kerosene regimen subsidizes the Aviation industry and I ask why?
The downtrodden who are supposed to be the legitimate beneficiary of kerosene subsidy, hardly have the means to patronize the gas stations for the product, hence they rely on the surface tank retailers or the hawkers, at what price do they get it? just ask around and confirm.
The truth is this; Kerosene subsidy ends at the NNPC mega station, if you are lucky.
Then the airlines who are the major bulk buyers cart it away and the distributors are glad selling to them for quick money, so the surface tank operators get from the private tank farm owners who get from the importers at an unsubsidized rate, hence the distribution chain of kerosene, from Importer to the consumer is a huge fraud that doesn't need to be fixed, so why do we sustain it?

Air travel is a luxury so anyone who wish to embark on such luxury should be ready to pay for it, based on this assessment, Kerosene subsidy does not benefit anyone, except the aviation industry, if manufacturing industries could give up their AGO subsidy, why not Aviation? this move will reduce subsidy by 20%. (duration: 2 weeks consultations with relevant stakeholders) With 65% of subsidy gone

Phase 4
Lean Government and Restructure of NPDC: It is only fair that Allison Madueke is arrested and charged for treason for crimes against the Nigerian people, NPDC by proxy. According to PENGASSEN, NPDC produces 170,000bopd, a figure I doubt seriously because by the end of 2013, NPDC is struggling to produce 90,000bopd, considering the mess Madueke made in the industry with her fraudulent indigenisation policy, I will give NPDC a fair 130,000bopd estimate for the sake of this analysis.
All the oil blocks, production platforms, Marginal wells diverted, sold or on lease by madueke including the recently divested SPDC assets should be returned to NPDC with immediate effect.
Buhari must recall the PIB from the Senate and strike off all the fraud there in and make the following changes;
*NPDC oil production will no longer be part of the Nigerian JV oil controlled by senate approved budgetary benchmark. By so doing, the senate must accept a lean government structure, that will cause a significant drop in government revenue (temporarily) but with a reduced recurrent expenditure, it is workable.
* NPDC operatorship license Must be revoked; NPDC will enter a fresh operatorship agreement with a company that qualifies with a track record of managing oil and gas production facilities. Agreement should be one that gives room for NNPC/operator expansion of production output.
* PRCN, WRCN and KRCN will have their operatorship Licence revoked, NNPC will award operatorship license to qualified refining companies to manage her operations, agreement should be one that gives room for operator/NNPC expansion of refining output.
* All the operators of NPDC, WRCN, PRCN and KRCN will be required to inherit their existing staff, train and deploy them and kindly lay off the unproductive ones to maximize efficiency.
* Export Prohibition law for NPDC output except as refined products
* Diversion of Petroleum products must attract a life sentence with no option of fine.

* Workman compensation for oil and gas workers ( a clear sharing formula for personnel charge between the contractor and the employee), an implementation agency must be enshrined in the PIB (to avoid union wahala)

Phase 5
Rebasing the NPDC production:
It is expected that the NPDC oil output is rebased, since the existing 130,000bopd of NPDC oil has been detached from the JV oil and SPDC interest divested, there is need to revalue the NPDC oil, starting from cost of production to logistics, that cost will be less than the international crude price, when fed to the refinery, the refining cost is borne by the trio RCN, I expect such products to be less than 87naira per liter.

Phase 6
Turn around Maintenance of all the refineries
after which two different sources of petroleum products will exist in the country;
1) The trio RCN products
2) Imported Govt subsidized products,
With product 1 cheaper than product 2, interest will shift from 2 to 1 and subsidy will drop to 5%. As NPDC output grows, it is expected that new private refineries will come on board to utilize the new output that will further increase the RCN output and subsidy will die a natural death.

Some of the phases can run concurrently depending on how fast the Government desire results. Any government that attempts a total withdrawal in one day will end up clueless like her predecessor.
Subsidy removal requires a blueprint that will be followed over a period of time.
cc Moderators for FP attention

You saying the former Finance Minster failed is at YOUR own discretion. Now let’s take a look at your claim.
PMS brought into the country are imported ON BEHALF of the Nigerian Government. Simply put, the Nigerian government (through the PPMC, a subsidiary of the NNPC) asks the Major Oil Importers (Oando, Forte Oil, Conoil, MRS, etc) to bring in fuel into the country so as to complement the products brought in too by the NNPC. So they are acting on the ‘instruction’ of the Nigerian Government. The product will then be sold through their outlets. So definitely, the Nigerian Government ought to assume all liabilities (including the profit margin) incurred in this transaction. That’s the bad side to this Import Principle Model.

As at the time of importation, these companies take up bank credits to finance these imports with the guaranty of the Government to ‘stand in’. So they open Letters of Credits in USD before the devaluation and after the product have been delivered, and the LOC is to be liquidated, the naira value will not be the same as it was when the LOC was opened. For example, Kab Oil opens a LOC of $5 million @ 150 naira (CBN’s official exchange rate). When delivery and confirmation of goods is done, the exchange rate becomes 180 naira leaving a difference of 30 naira. Thus, 30 naira is the Exchange Rate Differential. Thus since Kab Oil imports on behalf of the Government, the liabilities (including the exchange rate differential) must be borne by the Government. So the marketers were right in requesting for it.

Storage of these products forms part of the subsidy because it is inputted into the cost of the product and remember they all import on behalf of the government. If it wasn’t so, the cost will be transmitted onto the consumer and reflected in the cost sold to them. In diesel, an already deregulated product, the cost per liter sold at the gas stations already have other components (transport margin, storage cost) inputted. Not every storage/depot owner owns a license to import. Some build a storage facility and store products on behalf of other marketers who have more products than their facilities can contain. An example is between Capital Oil and NNPC.

Then again, with respect to PMS, NNPC does not sell to private depot owners at any subsidized rate but use their facilities to store her products.

Firstly, using the analysis of 45l per home is highly insufficient. The average Nigerian home does not have all the facilities as with homes in developed countries. At most, the electrical appliance that can be on for 24 hours is a refrigerator. So your 45 liter is seriously flawed.
The best fix for power is still gas and gas plants. And this government has made commensurable improvements in availability of gas to power plants. There have been major problems some of which is vandalism because I wonder the economic gain derived in vandalizing gas pipelines.

You can as well fix any amount you feel is sufficient, the Phase two strategy is based on directing more electricity to densely populated cities to encourage them to turn off their Generators, so far, you have not flawed that postulation. The govt you Eulogize did more harm than good to gas generation, if you think otherwise, what is DSO for gas doing in the almighty PIB if the Govt is sincere? Mention any country in the world with proven gas reserves as Nigeria, practicing a DSO model? About vandalism, we know that gas lines that power plants have no economic benefit so why are they being vandalized? why have we not heard that one person was caught? Have you seen a vandalized gas pipeline picture since Nebo started singing? have you ever witnessed any and the inferno that ensue? Since we started asking for pictures, he changed his claim that it is done under water , as if all the lines have river crossings?

I can understand gas lines sabotaged during spiking because boys want to steal condensate but power gas lines? haba!! we are not stup!!d bro!!
while you ponder over these questions, an IOC complained sometime ago that his pipelines were vandalized on a weekly basis, after two years, they got angry and sold off the facilities (over 2billion barrels of oil was divested), through a wuru wuru bidding process, some companies emerged as new owners, for 3yrs now, we are yet to hear that a single line was sabotaged, use your tongue and count your teeth, only Nebo and his oga at the top can explain who the culprits are, I can't be bothered about that.

Kerosene is a commodity that strikes at the very heart of the average Nigerian as a large percentage of Nigerians use kerosene to meet their energy needs (cooking, burning, etc), from the urban areas to the rural areas even amongst the middle (and upper middle) class. Tinkering with it has a huge political cost which am sure, should you be in that position, would not afford to incur. Kerosene is used not just by the Nigerian people but by other industries like the construction and aviation industry. And should you own an airline, wouldn’t you go for a product that sells for a ridiculous lower price?

Then again, since the retail price of kerosene is regulated (50 naira) why waste money importing such a product when I can’t even sell at the cost price? The minus of this is that the product is majorly supplied by the NNPC (don’t know if they are the sole importer). Now compare that to PMS. If NNPC was the only supplier of PMS….

Then again, if you’ve noticed, the focus has been on sensitizing people on appreciating clean energy and safe environment. Here, cooking gas (we have gas in abundance, we do not import and we have the facilities to produce and process it) is having a strong commanding preference over kerosene. Enlightenment campaigns especially by companies who do not participate in the kerosene racketeering is strongly been pursued especially in developing cities like Greater Port Harcourt, Abuja, Benin and in some cities in Lagos too. Also, this campaign is taken to the Nigerian on the street, the market women in Ketu and the traders selling on Broad Street in Lagos.
My take is to encourage other oil marketers to go into this business and remove the subsidy.

This piece you wrote up there, it is like you are a member of these unions. Firstly you said NUPENG alleges a production of over 170,000 bpd, yet from industry sources, the NPDC was struggling to cap 90,000 bpd as at 2013 yet you give a conservative figure of 130,000 bpd? Don’t you think you are exaggerating here?

You blame Alison Madueke for the woes in this industry. Yet it was during her reign that we witnessed a considerable, visible and increased participation of indigenous Nigerian companies in the oil and gas industry especially in the exploration and production segment (upstream). It was in her reign that NPDC and other indigenous companies were given the opportunity to play a very big role in the upstream sector of the Nigerian oil and gas industry.

If the indigenous companies came with good intentions, why will I complain? who are the so called "indigenous companies"?
Mention anyone you know that is active in the industry without a political appendage?
Our oil and gas assets were divested for political patronage and you think it is in your interest?
Have you measured our industry growth in the last 5yrs? what has the so called indigenous players contributed to the oil industry infrastructure and technology wise? what was bequeathed on us is an assortment of racketeers, cabals and middle men who have everything to gain but nothing to contribute to the industry growth and you think it is cool?

have you bothered to compare the safety rating of our industry with what it used to be 5yrs ago? our oil fields are littered with dilapidated vessels, you saw the you tube video rescue of the capsized vessel where we lost 11 sea men in one incident, the standard has so fallen under her watch, do you want a Nigerian Alpha piper before you will realize the mess she left in the industry?

What was the oil and gas workers welfare 5yrs ago compared to now? bros, the list is endless, while the niger delta people has formed militant groups to challenge environmental degradation, your sweetheart conveniently enshrined "flaring permit" in the PIB, to be secured from the office of the Petroleum Minister , little did she know that change will come. stop taking that woman seriously.

Today we have Seplat, Seven Energy, Aiteo, Pan Ocean Oil all taking operatorship roles in these oil assets.
When Shell began contemplating diversification of its business interests in Nigeria, the strategy was to go into deep-water exploration. This was as a result of constant insecurity, instability within the environment of the oil assets leading to financial and in some cases, human losses.

This diversification strategy implies divesting (or rather selling off) their equity stakes (or participating interests) in these assets. In 2012, when the first set of divestments occurred (OML 26, 30, 34, 40, 42), NNPC as part of the original JV had a right of first refusal in the operatorship of the assets. So they took this and transferred the operatorship to NPDC. NPDC which originally operated 2 oil assets (OML 65 and 111) was given additional 5 OML assets to operate. That act really overwhelmed the abilities of NPDC both in technical and financial constraints. Remember, when Shell (and Total and Eni) were operating these assets, even with NNPC as a JV partner and most times defaulting in its financial obligations, operations were not disrupted.

Now, NPDC who usually go to NNPC for approvals, is now given 5 additional assets to manage, how do you think they would cope?

You made an unavoidable blunder when you alleged that All the oil blocks, production platforms, Marginal wells diverted, sold or on lease by madueke including the recently divested SPDC assets should be returned to NPDC with immediate effect.

There were no oil blocks, production platforms, marginal wells that were diverted, sold or leased by Madueke. Your hatred for this lady must really be unfounded and compelling too. Participating parties (Shell and co, with a sum total interest of 45%) sold their interests (and not assets) to other companies while the Nigerian Government through the NNPC retained her interest (55%) in these assets. In the first set, the operatorship was transferred to NPDC. Am sure in subsequent sales (OML 18, 24 and 29), the new buyers would raise some concerns in the operatorship of these assets.

The Nigerian JV structure is not subject to any Senate approval/vetting. Maybe from the President through the Minister, I can’t say. But I do know that the NNPC offsets its obligations after sales and that has been the major bone of contention between the NNPC and the government. Even the PwC report commented on this.

NPDC operatorship license should not be revoked but the company should either be given the opportunity to grow its capacity, encouraged, financed or stripped off some assets to improve efficiency. They say to whom much is given much is expected. They are not capable for now. So they should be given some assets (2 or 3) according to their abilities and made to grow. If they show themselves capable to take on other assets and responsibilities, then they should be given the opportunity. Else they should continue improving. That’s how you grow a company.

However, why rebase the NPDC production? You of all person should know that NPDC’s business is about extracting crude oil and processing it (not refining) for sale to clients. Whoever buys this crude is of no economic value to NPDC but the price at which it is sold. Also note that, like I have pointed above, SPDC and co. sold their participating interests in these assets and nothing has changed. NNPC retains the 55% on behalf of the Nigerian government and the other 45% by the new party.

The best solution is complete and outright sale. Even considering a facility management model have proven to be futile at best when it comes to managing government owned assets. Selling alone will open the door for investors to flood the market. Refineries will be built.

[quote author=Sweetguy25 post=34352162]Phase 1: You didn’t take to account some factors
1. Currency devaluation
2. Interest rates
3. Oil prices
These factors affect the cost of subsidy they’re very unstable. Besides, what happens while the probe is going on? Can Buhari assure Nigerians of constant fuel supply while the probe is ongoing?

Phase 2: Your plan on the power sector is not fool proof.
1. It will take more than 1 and a half year to fix our transmission infrastructure
2. Osinbajo talked about using embedded and distributive power as a short term fix. The problem with this method is that it’s very expensive. There will be little or no investment because the current tariff rates are very low. Investors will barely be able to get positive returns on their investment.
Update your time frame – 2 years and Buhari has spent about 2 trillion on subsidy.

Phase 3: Yes, Kerosene subsidy has to go but will Buhari be willing to end subsidy on Kerosene due to his pro-poor stance?

Phase4, 5, 6: What has NPDC got to do with your topic? Also remember that these contracts (management contracts) take at least six months to 1 years to be implemented.
If you add everything up, its three years plus trillions in subsidy payments.

Its a very complex situation that demands careful thought processes and planning but subsidy has to eventually go.

But before then, there have been no sale of oil asset by this government. Only participating interests. All oil assets belong to the Government and People of Nigeria. In fact, I don't know of any OPF today that is not less than 55% controlled by NNPC.

netotse:
@jpphilips
Your assertions as per gas vandalization are a joke.

jpphilips:



Like I said, I can't join issues with Nebo till I am convinced beyond reasonable doubt, pipeline operations is not done in the moon, if Nebo can see vandalized gas pipelines, why not me? does he have a special eye?
Imagine saying that sectional replacement cost over 140m, bros!! that guy is not a serious person, he forgot to tell us the length of the section and the OD of the line so we can do the maths with him.
When nnaji did a sectional replacement on Gergu, the recovered pipes were sleeved and some parts clamped, is it what is costing Nebo 140m?

jpphilips:

I am with the importers on that one, I have mentioned that on several threads, why I raised it as an inefficiency (on the part of the finance minister) because it is avoidable, only if the stakeholders were carried along. Exhaust all active LOC's before you devalue the damn currency because you have a liability at stake, is that too much to ask?

What Qualifies you to import is that you "MUST" have a storage facility, because that rule was ignored, someone had to pass the "rent" to the government, we are both saying the same thing, I am only saying that such inefficiency should be cleaned up, if you don't have enough storage facility, "Thou shall not import", we will save a lot from that exercise, on the NNPC-capital oil, that deal is an insult to every tax payer, NNPC has a plethora of tank farms, refuse to award integrity assessment contract for the tanks, write them off and resort to Capital for storage, what else is madness?

Tell that to the birds, the biggest insult is that after subsidy has been paid on the NNPC products, they hardly discharge everything, some part will be sold to the private tank farm owners, it is their deal and a lot of money is involved. Ask yourself, why are private depot products selling above the subsidized rate especially in portharcourt? Should Buhari conduct a probe, then we will know who is right, be patient bro!! The 15% I assigned to these inefficiencies is putting things mildly. Another disadvantage of that madness is that once the cabal is on strike, both their products and NNPC products will be on lock down, is that sane?

You can as well fix any amount you feel is sufficient, the Phase two strategy is based on directing more electricity to densely populated cities to encourage them to turn off their Generators, so far, you have not flawed that postulation. The govt you Eulogize did more harm than good to gas generation, if you think otherwise, what is DSO for gas doing in the almighty PIB if the Govt is sincere? Mention any country in the world with proven gas reserves as Nigeria, practicing a DSO model? About vandalism, we know that gas lines that power plants have no economic benefit so why are they being vandalized? why have we not heard that one person was caught? Have you seen a vandalized gas pipeline picture since Nebo started singing? have you ever witnessed any and the inferno that ensue? Since we started asking for pictures, he changed his claim that it is done under water grin, as if all the lines have river crossings?

I can understand gas lines sabotaged during spiking because boys want to steal condensate but power gas lines? haba!! we are not stup!!d bro!! while you ponder over these questions, an IOC complained sometime ago that his pipelines were vandalized on a weekly basis, after two years, they got angry and sold off the facilities (over 2billion barrels of oil was divested), through a wuru wuru bidding process, some companies emerged as new owners, for 3yrs now, we are yet to hear that a single line was sabotaged, use your tongue and count your teeth, only Nebo and his oga at the top can explain who the culprits are, I can't be bothered about that.

I left Kerosene open for debate, for PMS it is not debatable that 60% of Nigerians do get it at Govt subsidized rate at mega stations and at Major importers retail outlet except the SE with a peculiar case and a few other places, so PMS distribution and lack of task force is the only problem there, for Kerosene, the supply chain is completely broken and can not be fixed, if the manufacturing industries, offices, Plant owners could sacrifice their AGO subsidy, why not the Aviation and the construction companies? teach me something here i really want to learn from you today.

You just echoed my sentiments, you now understand why I am furious about the PIB in the gas aspect, that document has manacled our expansion capability in gas exploration, secondly, visit most Nigerian homes, (middle class down) you will notice a terrible black kitchen, stench of CO fumes when they put off the kerosene stove, when you try to educate them on the dangers, they will tell you that they have kids as such cant use gas, but in Europe, people with kids use gas, so the truth is; safety is an individual responsibility, how do you expect them to think of cleaner, cheaper energy when there is a 50naira kerosene somewhere?
Inhaling those fumes for just one minute is equivalent to smoking 20 packets of cigarette, ask any doctor you know. We expect the govt to run an efficient health insurance scheme, Ex Gov Amechi was running a free health care service in rivers state, go and see their books how much the Govt spend in treating respiratory diseases, subsidizing Kerosene is as good as subsidizing tobacco, personally, I will not complain if Kerosene subsidy goes because there is a cleaner, healthier and cheaper alternative.

I said PENGASSEN not NUPENG, I hope you know the difference, they claimed in one publication that they are doing 170,000bopd (unverified), I got a figure in 2013 (verified) of 90,000bopd, I assume that 130,000bopd is reasonable for the time passed, if it exceeds, the better for all of us, I can't complain. click my profile if you really want to know the quarters I represent. For the records, I was a comrade, is that a crime?

If the indigenous companies came with good intentions, why will I complain? who are the so called "indigenous companies"?
Mention anyone you know that is active in the industry without a political appendage?
Our oil and gas assets were divested for political patronage and you think it is in your interest?
Have you measured our industry growth in the last 5yrs? what has the so called indigenous players contributed to the oil industry infrastructure and technology wise? what was bequeathed on us is an assortment of racketeers, cabals and middle men who have everything to gain but nothing to contribute to the industry growth and you think it is cool?

have you bothered to compare the safety rating of our industry with what it used to be 5yrs ago? our oil fields are littered with dilapidated vessels, you saw the you tube video rescue of the capsized vessel where we lost 11 sea men in one incident, the standard has so fallen under her watch, do you want a Nigerian Alpha piper before you will realize the mess she left in the industry?

What was the oil and gas workers welfare 5yrs ago compared to now? bros, the list is endless, while the niger delta people has formed militant groups to challenge environmental degradation, your sweetheart conveniently enshrined "flaring permit" in the PIB, to be secured from the office of the Petroleum Minister grin, little did she know that change will come. stop taking that woman seriously.

How would they cope you asked? very well, how is SPDC managing over 200 assets in Nigeria with Nigerian engineers upto a Nigerian Managing director coping?
I have already described the restructuring that will work with NPDC, you may refer to my original post.

NPDC operatorship license should not be revoked but the company should either be given the opportunity to grow its capacity, encouraged, financed or stripped off some assets to improve efficiency. They say to whom much is given much is expected. They are not capable for now. So they should be given some assets (2 or 3) according to their abilities and made to grow. If they show themselves capable to take on other assets and responsibilities, then they should be given the opportunity. Else they should continue improving. That’s how you grow a company.

Let me assume you are joking, the Itshekiris are in court asking for their fraudulently acquired assets to be returned, just 2 weeks ago, PENGASSEN fired a warning shot for NPDC assets to be returned and you are saying this? with NPDC out of the way, who benefited from that ignominy? NECONDE!!! what is the political appendage of NECONDE, can you pls tell us who they are?
Is this what you really want for this country? I am shocked!!

You must have read that paragraph in a hurry, I left refining for PRCN, WRCN, KRCN or any other refinery that wish to join as NPDC output grows, not NPDC. You need to verify the price tag on the NPDC oil as at today to appreciate why the re-basing is necessary, what re-basing will achieve is the birth of oil that will be valued below international crude price at the same time, immune to international crude price fluctuations.

Do you mean the best solution for stake holders with political appendages? Rubbish!!

I said their operating License should be revoked and an operator contract or a JV awarded to competent companies to spur growth, NNPC/SPDC JV is older than 40yrs and it is still working, within which we have explored the sedimentary formation of Portharcourt to the marshy swamp of the delta and now in the deepest waters of the gulf of Guinea, that is my idea of growth, not selfish political growth.

netotse:


errr...quick question, why do you think it is the minister of power that replaces(or is responsible for replacing vandalized pipelines)? either you clearly don't a lot about gas-to-power in Nigeria or you're simply trying to give a dog a bad name to hang it.

What Nebo [i]sees [/i]is not vandalized pipelines, it's low gas pressures and it's clearly evident to the people that utilize gas in Nigeria. In most cases, particularly for the power plants, NGC is the operator so when is an incident of vandalism occurs it is NGC that sends notices declaring a force majeure out not the minister for power, he would get a notice just like any other customer (ok, maybe a bit earlier ).

All you see is newspaper articles and press briefings but all these incidents are real to some Nigerians, they mean sleepless nights, missed targets, angry spouses, overtime and the rest.

I agree there's no economic benefit derived from blowing up gas pipelines, but it isn't only the gas pipelines that are the issue, some crude pipelines has a direct bearing on domestic gas supply, particularly TFP (transforcados pipeline)

P.S. I would have posted pictures of vandalized pipelines but I'm sure you're likely to come up with some other complaint.


For the records, I DO NOT like Nebo for any reason whatsoever, dude was far out of his water.

kaboninc:


You are a funny guy. Transactions don't wait as you may think. And the oil market is not a market that can afford to wait for you. Also note that these are pre-ordered goods. Trust is the fulcrum here and should you show any sign of distrust, you may have problems with subsequent orders. Also note that the market is a very volatile one. If not for the government's subsidy, they would have included the exchange differential cost into the final cost per liter and so we get to pay for it at the retail outlets. That is the unfortunate cost of devaluing the currency.



Let's not talk like comrades because comrades never see anything positive in a legitimate business. The days of briefcase businessmen are over. Today, claims are carefully verified before payments are made. So you must have a minimum storage capacity before you would be allowed to import. But sometimes, due to circumstances beyond your control, your storage tank could be over utilised and you would need a partner or someone else to provide your product some accommodation. It happens in every business. There's nothing wrong with it. NNPC has a problem of itself and needs to clean itself. But in the mean time, you can help with your tank farm and rake in your money. In business, you always profit from one's misfortune.



Maybe you should explain yourself here especially the bold part. Currently, some private depots could be selling at a high price just to take advantage of the situation. But definitely, the retail stations cannot sell above the pump price in strictly monitored areas. So you also agree that there is a cabal? Hmmmm. The Major Oil Marketers cannot just go on strike. Your comrades, PENGASSEN, NUPENG and NARTO and all of you are really the pains in our as.s. You go where the money goes.



Netotse has replied you on this. You just do not believe that there is really pipeline vandalism for gas related products? I wonder what you believe in. On the idea that substantial amount of power be routed to densely populated areas just to reduce PMS consumption, that to me is may not substantially reduce fuel consumption. The major use of PMS is in motor vehicles and transportation. We have an increasing number of cars on Nigerian roads. But we'll talk about it at a later date.



Like I said, take off the subsidy and open the market.



I did not echo your sentiments.

It is this same former administration that you so much hate and slander with so much passion that was championing the use of clean energy. NGC as a substantial market share (in fact, the highest) in the cooking gas segment.



Sorry about that. However, PENGASSEN, NUPENG the only difference is just the name. They are just the same.



You're funny. Take off the cloak of the 'Nigerian' styled unionism.

Even Shell, Total, Eni, ExxonMobil and co all have political appendages, both at the time of entering the Nigerian economy and now. As a businessman, you just need those favours and if a politician can guaranty you that, why the fuss? Why worry about the indigenous companies who have political appendages? What you should worry is if they meet international best practices. If they follow international best standards in all their operations. What are their safety policies, environmental measures, all these should bother you.



You can't compare the structure and operational capabilities of Shell over NNPC, not to talk of NPDC. Shell has presence in almost every country oil is found and NPDC is found where? Also, Shell is not subject to government bureaucracy as with NNPC nor NPDC who seek approval from NNPC who in turn is subject to government's interference. Like you insinuated in your opening post "NPDC oil production will no longer be part of the Nigerian JV oil controlled by senate approved budgetary benchmark. ", it was never under the approval of the Senate. My idea still stands as the alternative as against yours. Here, I reproduce it:





Again, forget your comrade-ish here.

The assets are still held by the NPDC (NNPC transferred their 55% equity stake to NPDC) and the other JV partners. What is at stake here is the operatorship. The actions of PENGASSEN is really appalling here. If NECONDE can do a job well done, why the fuss? Seplat is operating the assets it shares with NPDC.



I still haven't understood what you mean by 're-basing'



Funny you.



You really are confused. You want their operating license revoked and when they just did, you are here complaining of asset stripping? Talking about PENGASSEN showdown and Itsekiri rampage?

jpphilips:

If you read my post and asked that question on your first paragraph, it is better I ignore you completely.
you can as well just read the comments without making any input.
I have a reasonable experience in remediation so I cant join issues with Nebo, it was Nebo who told us about the vandalism and Barth nnaji told us the quick fix at Geregu.
If you think I expect Nebo to replace pipelines, then you insult my intelligence.
Show me a picture of a vandalized ASME B31.8 tag, that is the only evidence I need to take Nebo serious.

For the records, gas pipelines heading to gas plants are not lucrative, only a f00l will sabotage them.

netotse:


Boss, no insults intended, I was wondering why you expect Nebo to show you pictures of damaged pipelines for you to believe?
He neither owns nor operates any gas pipelines so why? He would tell you about the vandalism because it affects his performance not because he is responsible. (I can give you links showing David Ige talking about Electricity transmission, what does that prove?)
Bros, the singular act of quoting that standard wrt vandalism tells me you don't understand what gas-to-power is about.

However, because it's thursday and I'm feeling nice, here, *
oh BTW, the crater in the picture you see was caused by the explosives used to blow up the pipeline, I'd be very much interested in knowing what part of ASME B31.8 talks about the pipelines that can with stand explosions from dynamite strapped to it.

There are some f00ls that want to sabotage the reforms in the electricity sector that's why they blow up the pipelines, I can't remember which incident exactly but there was an incident of vandalism that some group claimed responsibilty for and said it was as a result of the gas city brouhaha late 2014.

The case of TFP is the major one we've been experiencing this year though and that is economic vanalism.

*I personally received a force majeure notice when that pipe was damaged so I'm not talking about hearsay.

jpphilips:


What do you understand by remediation in the oil and gas industry?

kaboninc:


You saying the former Finance Minster failed is at YOUR own discretion. Now let’s take a look at your claim.
PMS brought into the country are imported ON BEHALF of the Nigerian Government. Simply put, the Nigerian government (through the PPMC, a subsidiary of the NNPC) asks the Major Oil Importers (Oando, Forte Oil, Conoil, MRS, etc) to bring in fuel into the country so as to complement the products brought in too by the NNPC. So they are acting on the ‘instruction’ of the Nigerian Government. The product will then be sold through their outlets. So definitely, the Nigerian Government ought to assume all liabilities (including the profit margin) incurred in this transaction. That’s the bad side to this Import Principle Model.

As at the time of importation, these companies take up bank credits to finance these imports with the guaranty of the Government to ‘stand in’. So they open Letters of Credits in USD before the devaluation and after the product have been delivered, and the LOC is to be liquidated, the naira value will not be the same as it was when the LOC was opened. For example, Kab Oil opens a LOC of $5 million @ 150 naira (CBN’s official exchange rate). When delivery and confirmation of goods is done, the exchange rate becomes 180 naira leaving a difference of 30 naira. Thus, 30 naira is the Exchange Rate Differential. Thus since Kab Oil imports on behalf of the Government, the liabilities (including the exchange rate differential) must be borne by the Government. So the marketers were right in requesting for it.
Storage of these products forms part of the subsidy because it is inputted into the cost of the product and remember they all import on behalf of the government. If it wasn’t so, the cost will be transmitted onto the consumer and reflected in the cost sold to them. In diesel, an already deregulated product, the cost per liter sold at the gas stations already have other components (transport margin, storage cost) inputted. Not every storage/depot owner owns a license to import. Some build a storage facility and store products on behalf of other marketers who have more products than their facilities can contain. An example is between Capital Oil and NNPC.

Then again, with respect to PMS, NNPC does not sell to private depot owners at any subsidized rate but use their facilities to store her products.



Firstly, using the analysis of 45l per home is highly insufficient. The average Nigerian home does not have all the facilities as with homes in developed countries. At most, the electrical appliance that can be on for 24 hours is a refrigerator. So your 45 liter is seriously flawed.
The best fix for power is still gas and gas plants. And this government has made commensurable improvements in availability of gas to power plants. There have been major problems some of which is vandalism because I wonder the economic gain derived in vandalizing gas pipelines.



Kerosene is a commodity that strikes at the very heart of the average Nigerian as a large percentage of Nigerians use kerosene to meet their energy needs (cooking, burning, etc), from the urban areas to the rural areas even amongst the middle (and upper middle) class. Tinkering with it has a huge political cost which am sure, should you be in that position, would not afford to incur. Kerosene is used not just by the Nigerian people but by other industries like the construction and aviation industry. And should you own an airline, wouldn’t you go for a product that sells for a ridiculous lower price?

Then again, since the retail price of kerosene is regulated (50 naira) why waste money importing such a product when I can’t even sell at the cost price? The minus of this is that the product is majorly supplied by the NNPC (don’t know if they are the sole importer). Now compare that to PMS. If NNPC was the only supplier of PMS….

Then again, if you’ve noticed, the focus has been on sensitizing people on appreciating clean energy and safe environment. Here, cooking gas (we have gas in abundance, we do not import and we have the facilities to produce and process it) is having a strong commanding preference over kerosene. Enlightenment campaigns especially by companies who do not participate in the kerosene racketeering is strongly been pursued especially in developing cities like Greater Port Harcourt, Abuja, Benin and in some cities in Lagos too. Also, this campaign is taken to the Nigerian on the street, the market women in Ketu and the traders selling on Broad Street in Lagos.
My take is to encourage other oil marketers to go into this business and remove the subsidy.



This piece you wrote up there, it is like you are a member of these unions. Firstly you said NUPENG alleges a production of over 170,000 bpd, yet from industry sources, the NPDC was struggling to cap 90,000 bpd as at 2013 yet you give a conservative figure of 130,000 bpd? Don’t you think you are exaggerating here?

You blame Alison Madueke for the woes in this industry. Yet it was during her reign that we witnessed a considerable, visible and increased participation of indigenous Nigerian companies in the oil and gas industry especially in the exploration and production segment (upstream). It was in her reign that NPDC and other indigenous companies were given the opportunity to play a very big role in the upstream sector of the Nigerian oil and gas industry.

Today we have Seplat, Seven Energy, Aiteo, Pan Ocean Oil all taking operatorship roles in these oil assets.
When Shell began contemplating diversification of its business interests in Nigeria, the strategy was to go into deep-water exploration. This was as a result of constant insecurity, instability within the environment of the oil assets leading to financial and in some cases, human losses.

This diversification strategy implies divesting (or rather selling off) their equity stakes (or participating interests) in these assets. In 2012, when the first set of divestments occurred (OML 26, 30, 34, 40, 42), NNPC as part of the original JV had a right of first refusal in the operatorship of the assets. So they took this and transferred the operatorship to NPDC. NPDC which originally operated 2 oil assets (OML 65 and 111) was given additional 5 OML assets to operate. That act really overwhelmed the abilities of NPDC both in technical and financial constraints. Remember, when Shell (and Total and Eni) were operating these assets, even with NNPC as a JV partner and most times defaulting in its financial obligations, operations were not disrupted.

Now, NPDC who usually go to NNPC for approvals, is now given 5 additional assets to manage, how do you think they would cope?

You made an unavoidable blunder when you alleged that All the oil blocks, production platforms, Marginal wells diverted, sold or on lease by madueke including the recently divested SPDC assets should be returned to NPDC with immediate effect.

There were no oil blocks, production platforms, marginal wells that were diverted, sold or leased by Madueke. Your hatred for this lady must really be unfounded and compelling too. Participating parties (Shell and co, with a sum total interest of 45%) sold their interests (and not assets) to other companies while the Nigerian Government through the NNPC retained her interest (55%) in these assets. In the first set, the operatorship was transferred to NPDC. Am sure in subsequent sales (OML 18, 24 and 29), the new buyers would raise some concerns in the operatorship of these assets.

The Nigerian JV structure is not subject to any Senate approval/vetting. Maybe from the President through the Minister, I can’t say. But I do know that the NNPC offsets its obligations after sales and that has been the major bone of contention between the NNPC and the government. Even the PwC report commented on this.

NPDC operatorship license should not be revoked but the company should either be given the opportunity to grow its capacity, encouraged, financed or stripped off some assets to improve efficiency. They say to whom much is given much is expected. They are not capable for now. So they should be given some assets (2 or 3) according to their abilities and made to grow. If they show themselves capable to take on other assets and responsibilities, then they should be given the opportunity. Else they should continue improving. That’s how you grow a company.



I think by this post, you mean the price to be considered for sales (or purchase of crude oil) should be less than the international market price? Maybe you should make some clarification here.

However, why rebase the NPDC production? You of all person should know that NPDC’s business is about extracting crude oil and processing it (not refining) for sale to clients. Whoever buys this crude is of no economic value to NPDC but the price at which it is sold. Also note that, like I have pointed above, SPDC and co. sold their participating interests in these assets and nothing has changed. NNPC retains the 55% on behalf of the Nigerian government and the other 45% by the new party.



The best solution is complete and outright sale. Even considering a facility management model have proven to be futile at best when it comes to managing government owned assets. Selling alone will open the door for investors to flood the market. Refineries will be built.

netotse:
Yep...

jpphilips:


Is that what you understand by remediation?

kaboninc:
Netotse,
I see you oh
Kwontinue!

kaboninc:
Netotse, I see you oh Kwontinue!

netotse:
had high hopes for this thread but oh well...

netotse:
had high hopes for this thread but oh well...

jpphilips:


I am not surprised you ignored those questions.
Being politically correct does not equate to wisdom in any ramification.

netotse:
had high hopes for this thread but oh well...

2sex:
Hmmm

Imokay:
Na wah o, even countries like India with humongous population and producing little or no oil still subsidize diesel fuel for running public buses, farm machines and factories. And they are successful with it, what is in our gene that a common government policy cannot be implemented?

Do we accept that we are hopelessly corrupt and bereft of management capability to run a policy used by almost all countries in the world in different sectors to achieve certain ends? Even US government the poster child for rabid capitalism provides subsidy for farmers in different ways

kaboninc:


I did not ignore your questions.

In fact, I've my replies but will post them later today. I've been very busy and time is just too expensive.

By the way, I like our debate. Just give me some time to respond.

Thanks.

jpphilips:


I don't think it is in anyone's interest arguing in circles, I will put together a few questions where I feel we don't agree for clarification.


Is it impossible for Nigeria to exhaust her LOC's before devaluing the Naira? be succinct, I am still aware of some moves made by Russia before the Rubble went down.

All the oil blocks, production platforms, Marginal wells diverted, sold or on lease by madueke including the recently divested SPDC assets should be returned to NPDC with immediate effect.

* NPDC operatorship license Must be revoked; NPDC will enter a fresh operatorship agreement with a company that qualifies with a track record of managing oil and gas production facilities. Agreement should be one that gives room for NNPC/operator expansion of production output.

Since you don't know that senate places a benchmark on Nigerian export crude annually, I don't expect you to understand the need for the re-basing. As far as im concerned, your understanding of the plan ends in phase 4.

I remembered I wrote "returned to NPDC" meaning that I acknowledged the aboriginal ownership by NPDC.
here goes another question;

Can you brief us on the Pedigree of NECONDE to warrant operatorship of those assets.
(since you implied NPDC was "overwhelmed" by the transfer, except you want to move from one inefficiency to another)
Can you brief us further the experience of NECONDE where they have operated such assets to justify the transfer.

A DSO for gas in the PIB, how does it improve NGC?

You may wish to snap out of that unionism clap trap so you can answer the questions with a clear head.
Goodluck.