About N4 trillion downstream investments are being threatened, as over 198 private depots or tank farms across the country have remained idle since the Nigerian National Petroleum Corporation (NNPC) assumed the full importation of petroleum products. These depots do not include the 22 operated by NNPC through which it pumps refined products across the country.
The inactivity of the depots is due to the inability of the major and independent marketers of petroleum products to access foreign exchange (forex), and obtain letters of credit to import. The development has brought to the fore the proliferation of private tank farms and their sustainability in the long term, against the backdrop of the Federal Government’s promise to end products importation next year.
A property expert, Jude Azubuike, estimates that it costs between N18 and N30 billion to construct a depot depending on the size. At N18 billion per one the 198 tank farms will translate to, at least wasting N4 trillion investments. More than this, about 19,000 direct jobs are at risk in the event that the depots close shop, aside from thousands more jobs that would be lost indirectly. According to him, about 50 of these depots in Lagos and Port Harcourt, and Warri have been put up for sale, by their owners to recoup their investment. But prospects are low because of the Federal Government’s promise to end fuel importation by 2019. Even the Dangote Refinery, reputed as the biggest in Africa, offers no hope to the endangered private depots. Its spokesman, Anthony Chiejina, insists the new refinery will have no need for the private depots, when it comes on stream in 2019. However, NNPC, as the sole importer of petroleum products, can patronise a few of these depots for third party storage agreements known as “through put” or storage for a fee under specified terms if the corporation’s existing depots are unable to receive all the imported products.
Even at that, some of the throughput contracts have recently been mired in controversies, with some products “disappearing” from the tank farms without a trace. The proliferation of the tank farms is the result of the failure of the refineries operated by the NNPC in Port Harcourt, Kaduna, and Warri with a combined installed capacity of 445,000 bpd, to produce enough fuels to meet industrial and domestic needs. This left the country with no other choice than to rely on imported petroleum products to run the economy. As a result, most of the products including premium motor spirit (PMS) or petrol; automotive gas oil (AGO), diesel; and dual purpose kerosene (DPK), are imported to meet national daily demand estimated at 40 million litres. Reliance on importation required the availability of necessary infrastructure to store the products, particularly along the coastal lines, thus leading to the springing up of tank farms in Lagos and other littoral areas.
The introduction of fuel subsidy to reimburse importers for the price differentials between the landing cost and the pump prices gave further impetus to investment in tank farms by downstream operators.
Besides, the destruction of the Atlas Cove Jetty, the country’s major and biggest reception point for imported petroleum products encouraged the breading of tank farms especially in the Lagos area to bridge the gap. In fact, to qualify for subsidy, marketers were required to own petrol depots of not less than 5,000 metric tonnes, and should be registered with the Corporate Affairs Commission (CAC). The scenario changed with the coming of President Muhammadu who took the drastic step to end the subsidy regime, which was characterised by enormous fraud. At once, the basis for establishing the depots was knocked off leaving investors stranded. With 22 NNPC depots located in different parts of the country with storage capacity of over 87 million litres and as Nigeria aspires to be self sufficient in the refining of petroleum products by 2019, investment in the over 198 private depots may be lost completely. Explaining the NNPC’s role in the downstream sector, the Group General Manager, Group Public Affairs Division, NNPC, Ndu Ughamadu, said that the corporation now has enough depots to store all imported products.According to him, with the corporation’s over 21 depots across the country fully functional, the need to patronise private depot has reduced.
Ughamadu stated: “We have depots all over the country. Many of these depots were not functional due to pipeline vandalism. The essence of these depots is to store products for onward distribution to consumers. “But over the years, many of these depots were not functioning due to pipeline vandalism. “There has been re-inaugurating of these depots by the Group Managing Director of NNPC, Dr. Maikanti Baru. “For example, Mosimi was out of stock for several years and we have been able to put Mosimi in place by fixing the damaged pipeline. Just last week, we re-inaugurated the Kano depot and plans are in place to do the same to Jos depot. We were only patronising the private depots for ‘through put’ arrangement because the pipelines were vandalised.”
But the Executive Secretary of Depot and Petroleum Products Marketers Association (DAPPMA), Olufemi Adewole has a slightly different explanation. He attributed the idle depots to the inability of the marketers to import petroleum products due to the scarcity of foreign exchange. He said that the Federal Government was yet to pay the marketers the N400 billion subsidy arrears. Adewole said that the inability to pay or service the loans has not only impeded the importation of fuel, but it is threatening the relationship between the affected banks and the marketers. He appealed to the government to provide adequate foreign exchange and pay all outstanding debts to marketers to prevent distortion in the supply chain. He said the huge debt owed marketers had taken a toll on operators, adding that further delay in the payment of the debt as allegedly agreed by both parties might affect the sector. A former Executive Secretary, Petroleum Products Pricing Regulatory Agency (PPPRA), Reginald Stanley, however agreed that 80 per cent of petroleum tank farms across the country are currently lying idle.
Stanley noted that the stiff competition in the downstream oil sector would not allow marketers to sell Premium Motor Spirit, popularly known as petrol, above the approved price limit of N145 per litre despite the fear of looming hike in the price of the product. He said: “The Federal Government has partially deregulated the downstream petroleum sector and has put the price of the PMS at a maximum rate of N145 per litre. It has also allowed a band in which marketers can go up or down. But we are in the heat of competition; so if you go up and the guy next door to you is at N145, you are out.” The Chairman, House of Representatives Committee on Petroleum Resources (Downstream), Joseph Akinlaja, is offering hope that the passage of the Petroleum Industry Bill (PIB) and the deregulation of the downstream sector would help marketers assume the full importation of petroleum products again. According to him, there are over 198 depots in Nigeria and many of them are idle because members of DAPPMA can no longer import products since the scarcity of forex set in.
“The investment will definitely be lying idle and this is not what the investors are expecting after taking loans from the bank to invest in tank farms. “We at the National Assembly have taken note of these challenges and investments must be protected. It is a pity that Nigeria has not been able to build additional refinery after 56 years despite the growth in the country’s population. Any attempt to deregulate the downstream sector is always resisted due to lack of trust among people in authority,” he said.