Report: Nigeria Needs $12bn To Replace NNPC’s Dilapidated Oil Pipelines

A study carried out on the operational status of the over 5,000 kilometres of pipeline network belonging to the Nigerian National Petroleum Corporation (NNPC) across the country, has revealed that the pipeline network would need $12 billion to be replaced or  $1.1 billion to be fixed.

Sponsored by the United Kingdom-funded Facility for Oil Sector Transparency and Reform in Nigeria (FOSTER), for the NNPC, the study was aimed at outlining an intervention plan to transform government-owned downstream oil pipelines into a proper business with incentives to attract private sector participation.

The report, which was obtained by THISDAY, stated that product losses from vandalism on pipelines owned by the NNPC, as well as costs incurred by the corporation to repair them have been enormous, and suggested that they be segmented for either privatisation or commercialisation.

The study equally did a comparative study of pipeline commercialisation models for possible adoption, along with policy recommendations developed for commercialisation with guidelines for implementation.

However, the report did not cover the extensive upstream crude oil pipelines owned by oil producing companies and downstream gas pipelines in its study.

“The exact mechanical condition of the network is unknown, and it would cost more than $12 billion to replace the entire network today, and more than $1.1 billion to repair and inspect it comprehensively,” said  the study.

It added: “The pipeline network is a worthy investment that is currently vastly under-utilised due to a myriad of problems. For efficient management and to encourage competition, the products pipelines can be divided into three sections: the Western, Eastern, and Northern sub-networks. Additionally, the upstream segment for supply of crude oil to the Kaduna refinery can be managed as a dedicated crude oil sub-network.”

According to the report, the Pipelines and Products Marketing Company (PPMC) – a subsidiary of the NNPC, which manages the lines have been unable to make the most of the pipeline network, which traverses the country, and consists of 4,315 kilometres of multi-product pipelines and 701 kilometres of crude oil pipelines.

“The pipelines are operated by Products and Pipelines Marketing Company (PPMC), and are utilised to transport crude oil from Warri to the Kaduna refinery, and to transport refined products (that is, premium motor spirit (PMS), automotive gas oil (AGO), dual purpose kerosene (DPK), and aviation turbine kerosene (ATK)) nationwide.

“The key challenges identified with PPMC operations of the pipelines under exclusive government ownership comprise, refinery operations: low availability of the refineries results in sub-optimal utilisation of the pipelines; security, pipelines vandalism, and theft of products: this is well entrenched in Nigeria; product pricing and downstream market regulations: these stifle private sector participation in the value chain, and related losses have been estimated at up to $15 billion per annum; poverty and chronic underdevelopment: this is partly responsible for the chronic incidences of vandalism and theft of products,” it explained.

It stated that while Nigeria faces challenges in its pipelines, pipeline transportation business has however been thriving in many countries, particularly the United States.

Nigeria, the report noted, still relies on expensive road tankers to take products across her length and breadth.

The study recommended that deregulating the downstream sector, and privatising or commercialising all its value chain, such as the refineries; pipelines network; pumping stations; and product storage depots, will ensure that the sector operates in a sustainable manner, such that market realities will keep its long-term viability.

According to the report, “Subsequent to their privatisation/commercialisation, fix/repair the four inland refineries and ensure they operate at optimum availabilities. If this is not achieved, it is unlikely that private investors will show a keen interest in acquiring/managing the pipeline network.

“Split the pipelines network into the indicated four segment sub-networks, i.e. Western, Eastern, Northern and Crude Oil, and privatise/commercialise each as distinct companies.

“Avoid the pitfalls associated with the privatisation of PHCN (Power Holding Company of Nigeria) assets in the electricity supply sector. Generate employment for the general public and the host communities via the pipelines privatisation/commercialisation process.”

On the issue of pipeline vandalism, the study stated that its severity was higher in the south than in the north, adding also that there is a ‘market’ for both crude and refinery products tapped from the pipelines.

It equally questioned the capacity of the PPMC to secure the lines, saying, “The responsibility for pipelines rests with PPMC. However, it appears that PPMC do not have a unit capable of managing the entire spectrum of pipeline operations, particularly those related to technical maintenance.

“Even basic security surveillance of the pipeline RoW is severely compromised. The opportunities that these technical and security-related operations offer to engage the communities on the pipeline RoW – and thereby improve government presence therein – are not maximised. Instead, only a token effort is made.”

Source: ThisDay

Will private management of Nigeria's refineries be a success story?

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