Connect with us

Energy

PMS Deregulation: Buhari’s unfulfilled promise By Sunday Folayan

Published

on

According to the Fuel consumption Statistics published by the Nigeria Office of Statistics, the average daily consumption of PMS in Nigeria is between 41m and 52m litres per day.

This was the statistics in 2016. It means that the total Annual consumption will be 365 x 41m, ie 14,965million litres, or simply put, 15Billion litres per year.

The figure has now risen to 55m litres in 2018 .

At the current retail price of N145 per litre, it means the total annual expenditure of Nigeria on PMS is N2,169Bn or N2.1Tn. It is therefore disturbing to read in the news that Nigeria spends N774m daily on fuel subsidy.

Everything does not add up. When you consider the fact that Nigeria has 774 Local Government Areas, If each LGAs in Nigeria get an extra N1m per day, I am sure development will go deeper into the grassroots.

From the published daily statistics, with 52 million daily consumption, it means that the pump revenue is 52mx145 ie N7.54Bn. To pay a subsidy of N774m ie N0.774Bn daily therefore means that the level of subsidy is (0.774/7.54) ie 10.27%. So, you will ask, why do some stations sell Premium Motor Spirit (PMS) at N145, some at N143 and some at N142?

The answer is right there in the Pricing template of the Petroleum Products Pricing regulatory Agency (PPPRA). It has been taken off-line! So much for a Government that is fighting corruption.

When Fuel price was increased from N86 to N145 per litre in may 2016, several components of the pricing template were adjusted as reported by the Press then.  It was reported that:

“Littering expenses, which hitherto attracted a N2 charge, would in the new dispensation attract N4.56 per litre, while the charges for the Nigerian Ports Authority, NPA, and the Nigerian Maritime Administration and Safety Agency, NIMASA, which had N0.21k and NO.15k before, would now get N0.84k and N0.22k respectively.

Financing, which usually received N0.64k, would now receive N2.57k, while retailers’ margin, which used to take N5, would now take N6 per litre.

Other component items include transportation cost, which increased from N3.05 to N3.36; dealers’ margin, from N1.95 to N2.36 per litre; bridging fund, from N4 to N6.20, while administrative charge increased by 100 percent from N0.15k to N0.30k per litre.

The only component that remained unchanged was the charge for marine transport average, MTA, which would still be getting N0.15k per litre.

The new template also fixed ex-depot price, which, until May 10, 2016, was N72.20, at a price band of between N116.03 and N126.63 per litre.

Equally, ex-depot price for collection, which used to be N76.50 per litre, would now be between a price band of N123.28 and N133.28 per litre”

If you look carefully at this, you will see that costs such as Financing (N2.57k) Retailers Margin (N6), Transportation (N3.36), Bridging Fund (N6.20) all add up to be N18.13.

For a 33,000 litre Tanker, the transportation allowance is N33,000×3.36 or 110,880. That will transport fuel from Lagos to Maiduguri. What then is bridging fund and where does it go?

According to the 11th July 2016 news from the sun newspaper.

“Petroleum Equalisation Fund which was es­tablished by Decree No. 9 of 1975 (as amended by Decree No. 32 of 1989) charged as reimbursement to petroleum marketing companies for losses suffered solely and exclusive, as a result of sale of petroleum products at uniform prices throughout the nation has become another drain pipe on government purse.
Indeed, while those in the hinterland that are supposed to be the major beneficiary of the fund, suffering acute shortage of petroleum products as a result of scarcity of the products, those involved in that act of sabotage through diversion of products are smiling to the banks.

In the heat of the last fuel scarcity across the country, for example, immediate past Managing Director of Pipelines Products Marketing Company (PPMC), Mrs. Esther Nnamdi-Ogbue, raised the alarm over the massive diversion of petroleum products to neighbouring West Africa countries.

Before the President assumed office, he was quoted as saying:
On subsidy, Buhari said: “It’s Nigerian money [that was spent on exploration of crude oil and building of refineries and depots]. From each Nigerian crude, whether Akwa Ibom, Bonny Light or whatever it is, you can work out how much products it will give you; how much petrol it will give you; how much diesel it will give you if you want to produce diesel.

“We could tell how much Nigerian crude cost, the cost of transportation from there to the refinery, the cost of refining, the cost of transportation to the pump stations and maybe 5 per cent go for overhead. I can understand if Nigerians pay for those costs. But somebody is saying he is subsidizing Nigerians. Who is subsidizing who?”

He promised to look at the economics of fuel pricing when he gets into government. Buhari said the zoning of positions in government was a “speculation” because he only read it in the newspapers, and said party supremacy does not mean the APC national working committee should not have extended “courtesy” to him on the issue.

Having been in the saddle for almost three good years, what is the President waiting for? Indeed recently, NNPC clearly stated what the problem is, during a visit to Comptroller General of the Customs. According to the News Agency of Nigeria in March 2018 when Baru visited Ali.

“My mission today is to sensitise your top management on the issues relating to smuggling of Petroleum products, particularly the regulated one which is the Premium Motor Spirit (PMS) popularly known as Petrol.

“We have seen a lot of volumes being smuggled out of the country, we have seen volumes been evacuated in very high quantities.

“ I want to bring to your attention that there is a huge differential between Nigeria’s sells price of petrol and that of our neighboring countries.

According to Baru, because of the regulation of the price, government is under recovering a lot of cost base on landing cost and exchange rate of the product in the country.

He said that currently it had been observed that the marketers sell the products between N170 to N185 per litre.

These challenge, he said had made marketers to stop importing and left NNPC with the sole importation of the products.

He said special market for Nigerian product were been created in the various neighbouring countries to sell these smuggled products.

He added that the arbitrage opportunities in the neighbouring countries had pushed daily National consumption from less than 35 million litres per day to over 55 million litres per day.

There you are!! Now you see that 57% of the fuel cost is lost to rent seekers. The concept of making Fuel the same in Lagos as in Zaki-Biam is just like making Yam the same in Lagos, as it is in Zaki-Biam. That is pure economic sabotage.

As a matter of priority, we need to abolish petroleum subsidy. Scrap agencies such as the PPPRA and Equalization fund, SURE-P etc. These are rent seeking pipes and not in anyway pro-masses.

The hardship will be temporary. Within months, responsible companies will continue to import petroleum and sell at decent prices. The activities of Bovas Petroleum in the South West of Nigeria is an indication of what will happen, if shenanigans and rent seekers exit the business.

Take a stand today, accept deregulation, it will not be harder!!

Source: Sundayfolayan.name.ng.

GrassRoots.ng is on a critical mission; to objectively and honestly represent the voice of ‘grassrooters’ in International, Federal, State and Local Government fora; heralding the achievements of political and other leaders and investors alike, without discrimination. This daily, digital news publication platform serves as the leading source of up-to-date information on how people and events reflect on the global community. The pragmatic articles reflect on the life of the community people, covering news/current affairs, business, technology, culture and fashion, entertainment, sports, State, National and International issues that directly impact the locals.

Continue Reading

Energy

ExxonMobil-Seplat Deal: When a Regulator Misinterprets the Law

Article by Josiah Adewale

Published

on

ExxonMobil-Seplat

To say that the mixed news coming from the federal government of Nigeria over President Muhammadu Buhari’s consent to the acquisition of the entire ExxonMobil, Delaware, USA’s shares in Mobil Producing Nigeria Unlimited (MPNU) by Seplat Energy Offshores Limited, a wholly-owned subsidiary of Seplat Energ​​y Plc., is a serious cause for worry for the global business community is to state obvious.

Nigeria is probably the only country in the world that could allow this game by the Nigerian National Petroleum Corporation Plc. (NNPC) and the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) over a $1.3 billion transaction, which also includes up to $300 million contingent consideration.

A statement by Special Adviser to the President on Media and Publicity, Mr. Femi Adeshina, said the approval was predicated on the deal’s extensive benefits to the Nigerian energy sector.

It read: “In his capacity as Minister of Petroleum Resources, and in consonance with the country’s drive for Foreign Direct Investment in the energy sector, President Muhammadu Buhari has consented to the acquisition of Exxon Mobil shares in the United States of America by Seplat Energy Offshore Limited.

“ExxonMobil had entered into a landmark Sale and Purchase Agreement with Seplat Energy to acquire the entire share capital of Mobil Producing Nigeria Unlimited from ExxonMobil Corporation, Mobil Development Nigeria Inc., and Mobil Exploration Nigeria Inc., both registered in Delaware, USA.

“Considering the extensive benefits of the transaction to the Nigerian Energy sector and the larger economy, President Buhari has given Ministerial Consent to the deal.

“The President, in commitment to investment drive in light of the Petroleum Industry Act, granted consent to the Share Sales Agreement, as requested by the parties to the transaction, and directed that the approval be conveyed to all the parties involved.

Seplat, buhari
President Buhari

“ExxonMobil/Seplat are expected to carry out operatorship of all the oil mining licenses in the related shallow water assets towards production optimisation to support Nigeria’s OPEC quota in the short term as well as ensure accelerated development and monetisation of the gas resources in the assets for the Nigerian economy.

“President Buhari also directed that all environmental and abandonment liabilities be adequately mitigated by ExxonMobil and Seplat”.

Misinterpreting the law

Surprisingly, hardly had the President’s ink dried than the NUPRC openly countermand his assent in a bizarre move that has discomfited global business community and set tongues wagging.

In insisting that the earlier veto by the NNPC remained, Buhari’s consent notwithstanding, NUPRC Chief Executive, Gbenga Komolafe, cited provisions of the Petroleum Industry Act (PIA) 2021, which he claomed, conferred on the Commission powers of sole regulator of the upstream subsector.

“As it were, the issue at stake is purely a regulatory matter and the Commission had earlier communicated the decline of Ministerial assent to ExxonMobil in this regard. As such, the Commission further affirms that the status quo remains.

“The Commission is committed to ensuring predictable and conducive regulatory environment at all times in the Nigerian upstream sector.

“Let me just put it simply, as a Commission, we work strictly in line with the position of the law, and basically we don’t react on the basis of news making the rounds, but we work strictly in line with the law.

“And by virtue of the provisions of the petroleum industry act, under section 95, subsection 10, 14 and 15, the commission’s powers in these regards are clearly stated.

“So, regarding the issue, my clarification will just be an affirmation that the position of the Commission stands in respect of the decline of the assets (sale), without prejudice to any other position.

“So, the position of the Commission as the authority involved in the regulation of the upstream, which had earlier been communicated to Mobil, stands. As far as the commission is concerned, nothing has changed. The status quo remains as far as we are concerned,” he insisted.

But NUPRC referencing to Section 95 of the PIA as guiding ministerial consent is wrong because the PIA does not apply to the MPNU assets, which are OML assets. OMLs are still guided by the Petroleum Act (PA), and the MPNU’s OML assets are yet to be converted to PIA regime and Buhari exercised the powers of the Minister under the PA. Section 303 (1) of the PIA unambiguously provides that the PIA does not apply to unconverted OPLs and OMLs until the OPLs and OMLs come up for renewal.

Even at that, whereas Section 95 (15) of the PIA 2021, which NUPRC gleefully quotes provides that “A holder of a petroleum exploration licence shall not assign, novate or transfer his licence or any right, power or interest without prior written consent of the commission”, Section 95 (8) expressly provides that “Where the consent of the minister is granted in respect of the application for a transfer, the Commission shall promptly record the transfer in the appropriate register.”

So, industry stakeholders are understandably at a loss as to where NUPRC derives its powers to override the Minister’s consent.

Playing NNPC’s script

Obviously NUPRC is acting NNPC’s scripts. It is recalled that the NNPC had in a May 2022 letter to ExxonMobil by its Group Managing Director, Mele Kyari, said the transaction could not be consummated as it wanted to exercise its right of first refusal in the June 28, 1990 Joint Operating Agreement (JOA) with ExxonMobil.

To make good its threat, the NNPC in July dragged ExxonMobil to a Federal high Court in Abuja, asking the Court to order that a dispute had occurred between the parties over pre-emption rights, or to order them to take the matter to arbitration, quoting a statement from Seplat. It obtained an order of interim injunction baring ExxonMobil “from completing any divestment”.

However, a cursory look at the JOA in question shows that right of first refusal applied only to divestment of Participating Interest, not in a case where a company wants to sale its shares to a third party.

Article 19.4 of the JOA provides: “Subject to sub-clauses 19.1 and 19.2, if any Party has received an offer from a third Party, which it desires to accept, for the assignment or transfer of its participating hereunder (the “Transferring Party”), it shall give the other Party prior right and option in writing to purchase such Participating Interest as provided in sub-clauses 19. 4.1 to 19 .4.2”.

Sub-clause 19. 4.1 states: “The Transferring Party shall first give notices to the other Party, specifying therein the name and address of the aforementioned third Party and the terms and conditions (including monetary and other consideration) of the proposed assignment and transfer”. 

Also, sub-clause 19 .4.2 provides: “Upon receipt of the notice referred to in Sub-clause 19. 2.1, the other Party may within thirty (30) days thereafter, request in writing the assignment and transfer of such Participating Interests to it, in which event the assignment or transfer shall be made to it on the same or equivalent terms”.

However, the JOA, in Article 1 (24), defines Participating Interest as “the undivided percentage interest from time to time held by the parties in the concession (s), the joint property and rights and obligations under this agreement…” 

The question is: did NUPRC or NNPC make any efforts to ascertain from the Presidency the reasons Buhari overruled them on the matter? This becomes pertinent as findings show that the Attorney General of the Federal and the Legal Department of the Ministry of Petroleum Resources (NUPRC’s and NNPC’s supervising ministry) were of the view that the transaction followed the law and consequently advised the President to consent to the deal, as manifestly, MPNU’s Participating Interest in the respective OMLs and the JOA were not offered for sale.

The deal was for the acquisition of shares owned by third parties that are shareholders in MPNU.

It is either the NNPC and NUPRC do not understand the law or they are being mischievous with the law, for It is a given in law that the shareholders of a company are distinct from the company, just as the company is a distinct or separate person in the eyes of the law?

Precedents, implications to Nigeria


Meanwhile, precedence and propriety do not support the NNPC and NUPRC’s position and actions. They are also worried about its grave implications to Nigeria’s already gloomy investment environment.

On Tuesday, an oil and gas industry analyst and publisher of Africa Oil and Gas Report, Toyin Akinosho, decried the impropriety of NUPRC’s public spat with the Presidency, saying it was needless, spoke of poor organisation, and was definitely sending wrong signals to the investment world.

“ExxonMobil simply wants to leave the shallow waters; and other companies have left. So, there have been precedents in terms of how companies have left by handing over their entire shareholding in that particular country.

“ExxonMobil is not selling its segment in the OMLs. They are basically selling MPNU the way Ashaland sold Ashland, the way ConocoPhillips sold its entire shares to Oando, the same way Eland Oil and Gas sold to Seplat and this same government approved it.

“As far as I know, the President Buhari has signed off on ExxonMobil-Seplat transaction, the Attorney General has signed off on it. So, when NUPRC says it is not in compliance with Nigerian laws, I really don’t understand where that is coming from”, he stated.

In May, an Energy Law expert, Bloomfield, Ayodele Oni, warned that truncating the ExxonMobil-Seplat deal could cause the likes of TotalEnergies looking to also divest some of its assets to be discouraged from going into negotiations.

Likewise, the Group Chairman/CEO at International Energy Services Limited, Dr. Diran Fawibe, had warned that “the cancellation will give the wrong signal to the international community”. 

Chasing rats while the house burns

As the controversy rages, Nigerians on social media have wondered why NUPRC and NNPC fiddles when the industry is going south under their watch. Oil theft has worsened to 400,000 barrels per day. Fuel consumption per day has spiked from about 30 million litres per day in 2015 to a bogus 100 million litres amid long cues and sometimes adulterated supplies. Resource-gobbling subsidy has virtually rendered Nigeria bankrupt. NNPC’s has been unable to remit a dime to the Federation Account for months.

Yet both NNPC and NUPRC have been so preoccupied with scuttling a deal they should actually promote and find it difficult to encourage prolific indigenous oil and gas firms to boast Nigeria’s sagging production.

It is high time Mr. President calls them to order and salvage the ExxonMobil-Seplat transaction to save the nation further pains, embarrassments and loss of investors’ confidence.

Adewale, an energy analyst writes from Lagos

Continue Reading

Energy

Is Nigeria missing out on higher oil prices?

Written by Lukman Otunuga, Senior Research Analyst at FXTM

Published

on

Oil benchmark

Brent crude has gained roughly 57% since the start of 2022.

The global commodity remains supported by ongoing geopolitical risks and rising demand. As oil producers enjoy the rich bounties from surging commodity prices, some countries have failed to make the most of such an opportunity.

Nigeria’s sub-optimal oil production, poor infrastructure, and fuel subsidies have sapped the benefits from surging oil prices.

For other countries, the rally in oil prices means more foreign exchange reserves, higher revenues, and potential economic growth. In Nigeria’s case, this blessing could turn into a curse.

It is widely known that oil sales make a massive chunk of Nigeria’s export earnings and government revenues. Despite being Africa’s largest crude producer, the country exports the global commodity but imports all by-products amid the weak infrastructure.

So as oil prices rally, this could support earnings but also take a chunk out of foreign exchange earnings. It does not end here.

Anything that is left is devoured by petrol subsidies which are expected to cost the government almost $10 billion this year.

As FX reserves are drained this continues to worsen Nigeria’s problem of dollar shortages which has dragged the Naira lower. In January of 2022, the government postponed the planned petrol subsidy removal till further notice, citing “high inflation and economic hardship”.

Even if the government was to remove the subsidies in the future, the burning question is whether Nigeria has the ability to weather the storm such a move could create.

Focusing back on oil, the global commodity remains supported by supply concerns and prospects of higher demand after China relaxed lockdowns. Although various fundamental forces are pulling and tugging at oil, the path of least resistance remains north.

Oil benchmarks are trading near multi-year highs and have the potential to push higher in the near term. This could mean more for pain for Nigeria despite other oil producers cashing in and enjoying the commodities boom.

For more information, please visit: FXTM

Continue Reading

Energy

Lekoil Nigeria Asks Court to Punish Savannah Energy for Contempt

Wole Olanipekun (SAN), appeared for Lekoil Nigeria Limited in the application filed by the company against Savannah Energy Plc

Published

on

Lekoil Nigeria

Lekoil Nigeria Limited has asked the court to punish Savannah Energy for contempt of court for proceeding with the Extraordinary General Meeting held on Thursday, April 7, 2022 despite an injunction issued by the court, and for encouraging the general public to discountenance the ‘BOUGHT’ court injunction.

Wole Olanipekun (SAN), appeared for Lekoil Nigeria Limited in the application filed by the company against Savannah Energy Plc, a subsidiary of Savannah Energy Plc at the Federal High Court of Nigeria in Lagos, on June 1, 2022.

Lekoil Cayman Limited, the second defendant in the suit that was filed to halt the EGM challenged the jurisdiction of the court to issue an order on a company without a physical presence or business in Nigeria.

The presiding judge, Justice Y. Bogoro, adjourned the hearing of the application by the plaintiff, Lekoil Nigeria, to June 20, 2022 and upon closure of the suit, the application challenging the court’s jurisdiction by Lekoil Cayman Limited will be entertained.

You may recall that, Lekoil Nigeria Limited, joined by a number of third parties including Lekoil Oil & Gas Investments Limited, Mayfair Assets & Trust Limited, Lekoil 276 Limited, and Lekoil Exploration & Production Nigeria Limited, was granted an injunction by the Federal High Court of Nigeria against Lekoil Limited and Savannah Energy Investments Limited restraining them from taking any steps in furtherance of the transfer of any interests in oil and gas assets of Lekoil Nigeria Limited and the transfer or creation of any interest in Lekoil Nigeria Limited, that will alter the ownership, equity or share capital structure of Lekoil Nigeria Limited.

Lekoil Nigeria had sought the injunction further to the announcement of February 28, 2022 by Lekoil Cayman Limited that it had entered into an agreement with Savannah Energy Investments Limited, a subsidiary of Savannah Energy PLC.

Prior to the injunction, Lekoil Cayman and Savannah Energy had scheduled an Extraordinary General Meeting (EGM) to hold on Thursday, April 7, 2022. Both companies proceeded with the EGM as scheduled,  acting in defiance of the court injunction.

Continue Reading

Trending