Nigeria is in an ironic position due to mismanagement at refineries

Nov 02, 2004 01:00 AM

A country rich in natural resources and riddled with corruption, Nigeria -- the world's seventh biggest oil producer and the fifth largest source of imports to the United States -- is only able to supply 17 mm of the 30 mm litres of petrol needed for daily domestic consumption in the country because of its faulty refineries.
Analysts say that Africa's largest oil producer finds itself in this ironic position due to mismanagement of the country's four refineries, which are run by the Nigerian National Petroleum Corporation (NNPC).

The refineries, built from 1965 to 1989, have a combined capacity for processing 445,000 bpd of oil, which is two-thirds of the fuel needed by Nigeria. However the facilities often work below capacity, and have even been shut down on occasion because they are not properly maintained.
The facilities should go through a full service once every two years, but some of the refineries have operated for more than five years without undergoing extensive checks.

Because Nigeria is effectively a net importer of refined fuel (with sources including neighbouring Ghana and the Ivory Coast), the country's government is calling for a reduction in oil prices.
In a report, the country's finance minister, Ngozi Okonjo-Iweala, said that Nigeria's government "would like the high oil prices to come down," saying that "it is not in our interest over a long period of time to have these prices because people will start looking for alternative sources, and that has ramifications for us."

The problem is compounded by the fact that the country's budget was based on a price of $ 25 a barrel, which is about half of what the commodity is currently trading at.
In an attempt to normalise the situation, the Nigerian government removed fuel subsidies last year, but because of rising fuel costs, this (together with the failure to maintain refineries) has sparked off a series of revolts by Nigerian workers. In a country where two thirds of the population lives on less than a dollar a day, high fuel prices compound the pressure for civil unrest.

To minimise the need to import refined fuel products, the NNPC announced in July this year that its four oil refineries, petrochemicals plants, and the Pipelines and Products Marketing Company (PPMC) are due to be sold, according to the US Department of Energy's Energy Information Administration (EIA).
The EIA reported that a two-year programme was underway with Accenture and Shell Global Solutions to re-engineer the company and position it to compete in global markets among companies such as Statoil of Norway or Petronas of Malaysia. This has also been met with "considerable opposition by the National Union of Petroleum and Natural Gas Workers (NUPENG) and the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), which fear job losses and sharply higher product prices resulting from the privatisations."

Crude oil theft in the Niger Delta also contributes to the rise in oil prices, with The Economist reporting that as much as 7 % of the 2,5 mm bpd of crude oil being stolen by armed gangs, often backed by state politicians.
Nigeria is rated as the world's second most corrupt country according to this year's Transparency International Corruption Perceptions Index 2004 (with Haiti and Bangladesh tied in last place).

Source: Moneyweb
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