The debate over what to do with the four refineries currently under the control of the federal government is hardly just an economic question: hence, in the examination of the various options available to it (our dubious government) going forward, socio-political implications of all options on the table must be weighed. I shall try to present workable solutions as succinctly and chronological as I can. Anyone familiar with the process of writing project plans and implementing them will tell you it is a very painstaking and difficult process- its probability of success depending more on the personnel charged with delivering the goods than the planner. Hence, it is perfectly possible to have a great plan and still fail.

But half of the problem has been whacked when you acknowledge there is a problem to tackle and begin brainstorming on possible solutions. While this article could be termed pedestrian by professional standards, it should be helpful in drawing the boundaries of the subsets of possible solutions to a perennial national problem. Of any global universe of solution available, the one I will highly recommend is copying the strategy of the competitor. Putting it in few words: since Blue Star must have submitted a business plan before they "won" the refinery bid, is it not high time NNPC start learning by copy cat? May be, I am giving the managers of NNPC too much credit.

It must be noted that when Alhaji Dangote makes entry into a market be it Indomie, Sugar, Cement or even Rice, he shakes it and takes it by storm. Hence, if the government is interested in reforming the petroleum industry in Nigeria it must be shaken to its foundation. The first action will be to investigate and dismantle NNPC as we currently know it. Let this not be one of those shenanigan investigations, which are often groping in the dark; predetermined to fool the unaware public. To avoid an unnecessary wild goose chase, only contracts and deals made after 1990 should be opened up to forensic investigation. This will ease the burden on the investigators and allow for in-depth recovery operation.

The good thing is that there is hardly anyone that partook in the pre-1990 looting that is still not doing so today: same personalities such as Lukman, Kupolokun, Obaseki and Daukoru still dominate the NNPC. The fingers of IBB-OBJ-Abacha and their heirs apparent  will definitely be caught in the cookie jar while it will be a delight to watch Offor, Etete, and Danjuma squirming as their nefarious oil deals are opened up for the world to see. Until the saboteurs of Nigeria's oil industry and their friends are prosecuted, I believe firmly that any reform will be naught. Is it not high time NNPC accounts got audited? Public and private enterprises do so as a matter of routine check on corruption, yet no audit of the NNPC has been done in decades! I am very sure that the bribes for which Halliburton and Wilbros are indicted in the US by the Justice Department was given to someone. The collector is somehow still below Ribadu's radar!

Immediately the investigation is concluded and Ribadu gets to do real police work instead of vain PR and grandstanding, the NNPC as a mater of necessity must be broken up into three integrated petroleum giants with differing strengths but shared capabilities in refining, petrochemicals and oil prospecting. This transitional strategic move does away with the monopoly called NNPC by encouraging government enterprises to compete against one another with dire consequences for the laggards and their management board: Chinese treatment is a perfect strategy in the national emergency we find ourselves. Breaking up the NNPC must be accompanied by an immediate divestiture of NNPC joint venture interests in the upstream sector from NNPC to a new Trust manned with professionals charged to ensure the JV partners live up to their contracts as at when required and negotiate new ones (an alternative is to carve out NAPIMS for this purpose from the current NNPC group structure).

The new integrated national oil companies shall be subsidized at the back end. Meaning crude oil (FG share of JV interests currently allocated to NNPC) should be provided at discounted rates for refining and eventual local sale, allowing refineries to recoup cost of operation and profit by giving them assured market access. This eliminates the corruption of front end subsidies that have encouraged fuel importation. The back end subsidy will be in form of selling crude oil at below international prices, within a budgeted price band, via an auction system that matches local demand to local producers who in turn sell at fix profit margin to the public. This trend will continue to favor local refining and increased economic activity which in turn will fuel a petrochemical revolution that add impetus to the much needed industrial growth that the country need. Ultimately, it will reverse the trend of crude export and refined fuel import in favor of valued added export and efficient use of our natural resources. Instead of using our surplus (a symptom of underdevelopment) to fuel other folk's economic growth we would instead use our crude and export the bye products. While in the near term we will sacrifice cheap foreign exchange for low energy costs locally, it will be more than made up for with export of petrochemical resins and manufactured products.

Commodity auctioning within a subsidized price band will result in pseudo deregulation of the retail oil/gas operations (since producers that pay more within the price band will likely have higher prices for refined products and vice versa), while insulating the domestic markets from price shocks of terrorism and international politics that is currently bleeding our economy. It is true that price differential between Nigeria and her less endowed neighbors can encourage smuggling, but this can be curtailed by the use of simple GPS technology combined with inventory management systems by refiners who in turn should be tightly regulated by DPR (who for one should take their regulation mandate serious) to ensure petroleum products destined for local markets do not find their way on to the international market. Dire consequences are prescribed for saboteurs of controlled deregulation and managed privatization. The crime of economic sabotage could be made an equivalent of coup plotting and terrorism!

As I earlier suggested it will suffice to mention that the FG should copy from the Blue Star Consortium model, by bringing in proven world class organizations to straighten out operations of the new companies (which include the refineries) in the interim. This period of transition (five years) should enable the three entities emerge as public traded companies under management in return for about 5% ownership if certain operational benchmarks are met. This proposal should be all or nothing, making the payments to the management organization contingent on consistent execution in those five years. If properly negotiated, this could be a good deal for everyone- including the Chinese!

In view of the fact that even a 100% production rate at current refineries is unlikely to meet future demand; imports within the five years transition should continue to enjoy current subsides pending accelerated construction and start-up of additional capacities of new refineries. JV styled partnership based upon the successful upstream model currently in place with the majors should be pursued to rapidly increase refining capacity with private sector backed partnerships. To this effect, the current administration should start good faith negotiations with Blue Star to build refineries with the cash refunded from the rescinded deal. With additional equity of 750 million dollars from the FG, that is a good chunk of money to put two mega-refineries up and running in three years in a classic joint venture deal that should be a win-win for all; shared risk and capital appreciation.

In every business plan, there must be an exit strategy that allows the owner or financier to cash out. In this case, the FG should sell a fifth (20%) shares of each of the firms in an IPO allowing market forces and the Nigerian people price such shares at premium (hopefully after turn-around) at the end of the five year turn around period. Monies invested by the managing company for the government will be recouped by this method, while the balance is paid into the treasury. It is not unrealistic to expect each of the integrated companies being worth $2b-$5b on the bourse if properly managed.

This should be followed up by an invitation to core investors (doubling as new operators) to pick up 26% equity with the proceeds going into the treasury financing infrastructural development that is badly needed. I look forward to Blue Star or the firms managing the firms in the interim (with guaranteed 5% interest stake) participating at this point, paying fair market value as determined by the stock exchange for these shares (of not just refineries but integrated business). The  49% balance of equity in the  oil concerns are to be held in trust by independent JV management entity (currently NAPIMS) representing the people's continued vested interest in the oil industry alongside the JV partnership with majors in the upstream and downstream sector, replicating the success story in the upstream and LNG sector. This passive ownership approach effectively provides the best middle ground between active government involvement and laissez faire.

There are enormous benefits to Nigeria refining her crude oil. Not only will the multiplier effect of adding value to such product be enormous, but the foreign exchange and employment provided by these activities cannot be discounted. Local refiners and petrochemical companies will also benefit from lower cost of transporting crude (their feed stock) and consequentially higher profit margins when their products get to the international market. This should lead to a steady growth of the downstream sector and increased investment in the upstream sector as well as foreign expansion especially in Africa (Angola, Sao Tome, Congo, Sudan, Equatorial Guinea) led by the new publicly traded oil companies with the benefit of local expertise and international exposure. It is my hope that Dangote and Otedola participate in this process in a fair manner.

In conclusion, it is very important to dispel the myths making the rounds on the status of Nigeria's refinery. This week, the GMD of NNPC confirmed our worst fears, by stating the obvious that in fact the refineries were somewhat functional and that "only a breached major crude pipeline bringing the feedstock crude oil into then was preventing operations". A refinery operating at 75% capacity is definitely not "scrap" and describing it as such is being economical with the truth. There are capable Nigerian engineers at home and abroad that can turn around the fate of these organizations. Fire sale at the behest of the government is not an option. Are you even aware that your country exported $1.2 billion worth of refined petroleum to the US in 2005? Is this not a country yet to meet local demand and importing feverishly? Such is the paradox of our great country! No problem is too big to solve by 140 million brains thinking.


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Re: Fixing NNPC: Dangote Business Plan on Steroids
Busanga posted on 08-02-2007, 14:12:53 PM
QUOTE:
Busaga:

Then what do you consider as \"good price\" for these refineries? $561m for a 51% holding in PH refinery is not a particularly bad price you know.


What was reaped in PH refinery, was effectively lost in the Kaduna one(and they were sold to the same Blue Star). And in my thinking, the Kaduna is even more strategic than the PH one considering it is served by a dedicated pipeline which was effectively sold with it; and also happens to be the only one North of the Niger. Most countries in the world are not building new refineries but expanding the old ones. There is a reason why- because it is so expensive to build one, and is cheap per Btu output to buy an old one , make it more efficient and expand upon its processes. If you put these cost savings in perspective, even the PH deal will look cheap. The FGN should sit on the stronger side of the negotiating table, and stop acting like wussies being forced away to give away their inheritance!
Re: Fixing NNPC: Dangote Business Plan on Steroids
Ajis15 posted on 08-02-2007, 14:19:48 PM
Anon:

Ibeco cement factory in Port Harcourt does not manufacture cement locally. The company imports cement from China and bags it Nigeria. The so called reopening is granting the company an import licence to import cement from China. The local cement factories are Benue Cement bought by Dangote, and Wapco. I believe there are others.
Re: Fixing NNPC: Dangote Business Plan on Steroids
Nero africanus posted on 08-02-2007, 14:30:28 PM
why dont we look at the refinery question like this


in 1976 we could refine crude with less than 10 percent of the technical and managerial manpower that we have now.

what is the point of selling the refinery, why cant we just hand over the refinery to a reputable managerial firm who will have complete control over managing the refineries

like this we can then have key performance indicators and benchmarks for the firm ,

in this way we can have a yearly management renewable contracts based on performance

in this way we can still own the refineries and remove the meddling hands of dangote , emeka ofor and all the other jokers that litter the nigeria landscape and of course bureaucracy

this company that will manage must meet the kpb or lose the contract , in this way they are rewarded with a percentage of profits , no profit , no reward

no profit loss of managerial contract

this is because we can never sell the refineries for what they are worth no reputable buyer will want to pay when obj and sons are sole importers of refined crude which will undermine the local refined product in terms of price.


for this reason it is not likely we shall get the full value of the sale and there is no point in going the russian route of selling and after a few years revoking the sale like putin was forced to as a result of assets sold for a song

again the markets should be guaranteed to make sure the market is guaranteed for the local refineries

this can be done using a marketing company that buys the refined crude from the company until such a time that we would not need to buy refined crude from outside.

this can be achieved by passing importation of crude to the hands of the marketing coy so they dont allow the imported crude to flood the market to the detriment f the local refined crude

nigeria is run by a bunch of incompetent fools otherwise why should e be flaring gas in a nation where this can be turned to thermal energy and burned to produce energy that is if we decide not to sell it as lng.

every time we import crude we outsource jobs , it seems the retarded bunch running Nigeria don't understand what this means for the Nigerian economy .

crude oil is an effective weapon we can wield to achieve what ever we want

imagine making all the western oil addicted nations to buy other products from us worth their value in the crude they want to buy , that way we have doubled our earnings for each barrel sold.

imagine what this can do to our productive capacity , imagine , just imagine
Re: Fixing NNPC: Dangote Business Plan on Steroids
Skanbroy posted on 08-02-2007, 14:44:17 PM
QUOTE:
What was reaped in PH refinery, was effectively lost in the Kaduna one(and they were sold to the same Blue Star). And in my thinking, the Kaduna is even more strategic than the PH one considering it is served by a dedicated pipeline which was effectively sold with it; and also happens to be the only one North of the Niger. Most countries in the world are not building new refineries but expanding the old ones. There is a reason why- because it is so expensive to build one, and is cheap per Btu output to buy an old one , make it more efficient and expand upon its processes. If you put these cost savings in perspective, even the PH deal will look cheap. The FGN should sit on the stronger side of the negotiating table, and stop acting like wussies being forced away to give away their inheritance!



But are we abosolutely sure that the pipelines "were effectively sold with it"? because i know that these pipielines are not part of the refinery's asset; they are owned by PPMC which is a distinct entity, so i doubt if pipelines were sold along with the refineries.
Re: Fixing NNPC: Dangote Business Plan on Steroids
Busanga posted on 08-02-2007, 14:53:38 PM
Nero Africanus, I am enjoying your thinking outside the box on this matter. If the refineries were just the sole focus of our attention your solution is a shoe in. Thinking outside the box is the way to go.
Re: Fixing NNPC: Dangote Business Plan on Steroids
Busanga posted on 08-02-2007, 14:57:18 PM
QUOTE:
But are we abosolutely sure that the pipelines \"were effectively sold with it\"? because i know that these pipielines are not part of the refinery's asset; they are owned by PPMC which is a distinct entity, so i doubt if pipelines were sold along with the refineries.


You are right butt that is why I used the word "effectively" the reason being that the pipelines only serve KPRC and PPMC will rather rot than stiffle their sole customer. See how Russia and Europe san Afghanistan was playing the pipeline game? Remember, Chad now has oil and Exxon can easily uppend PPMC if they play too smart with that asset. I forseee a situation where PPMC is clobbered and the asset equally picked up with the refinery- which will be the only smart move by future owners of KPRC- on the cheap as well. All said and done, KPRC is a not a fourth of PHRC capacity, why then is it fetching a fourth of the price? It is in fact the most up to date on TAM- done in 2002, why then is it be sold off the cheapest?
Re: Fixing NNPC: Dangote Business Plan on Steroids
Anon posted on 08-02-2007, 15:08:36 PM
QUOTE:
Anon:

Ibeco cement factory in Port Harcourt does not manufacture cement locally. The company imports cement from China and bags it Nigeria. The so called reopening is granting the company an import licence to import cement from China. The local cement factories are Benue Cement bought by Dangote, and Wapco. I believe there are others.


You are right that Ibeto used to import cement before he was shut down and he bagged it in Nigeria, but if after the policy that came out seeking to ensure local production his application was ignored by the government, please tell me whose fault was that? I’m posting below the excerpt from nf5kmw1’s earlier post and here is what it says.

QUOTE:
It is against this backdrop that the Yar’Adua government’s decision to reopen the Ibeto Cement factory in Port Harcourt is welcome. The FG had shut down the factory in 2005 following misleading reports from some importers who were out to monopolize the cement trade. Also shut down were the Eastern Bulkcem and Nigercem in Ebonyi State. The official shut-down was based on unproven allegations that the firms were not investing in local manufacturing of cement. President Obasanjo had refused to reopen the factories even when the ministries of Commerce, Finance and Industry had given the firms a clean bill of health.

Indeed, the affected firms were already complying with the requirements to set up local cement factories when their import licences were cancelled. President Musa Yar’Adua’s decision to reopen the Ibeto factory immediately is, therefore, going to reduce the demand-supply gap and arrest the price hike that is stunting national growth and development.


It is on record that most of them were ready to comply with government's directive, so why where they not granted license to manufacture cement along with Dangote?
Re: Fixing NNPC: Dangote Business Plan on Steroids
Nf5kmw1 posted on 08-02-2007, 16:05:22 PM
QUOTE:
I realy pity those who are spending time to preach on how to restructure the NNPC. The fact of the matter is that it is in the best interest of the powers that be that NNPC is in the big mess that it is in today.

Such a mega corporation has never had its accounts audited regularly as prescribed by law. OBJ the anti corruption president was in the saddle as Oil minister for eight years, and did not see any wrong in NNPC. Dangote has said NNPC is a house of corruption, yet Ribadu would not ask him to supply the facts. Maybe so the trail would not lead to OBJ.

I am involved with one of the companies licenced to build private refineries in Nigeria (at least in advisory capacity) and I must confess that the fact thet none has seen the light of the day is not due to lack of commitment on the part of the licenced people, but because the government of OBJ, at least, is only paying lip service to building of refineries because of the lucrative nature of fuel importation.

If the government is genuinely interested in Nigeria having more refineries so we can have adequate refining capacity for domestic consumption, let them demonstrate this by taking a 30% share in these private refineries and you will see how many refineries we will have in the next couple of years.

I do not think UMYA, the new substantive oil minister, will have the gut to clean that citadel of corruption that NNPC is. He can still prove me wrong.


Brother:
We pray the he UMYA surprises you!!!! So far he is on track. I will continue to preach and every time I feel low I look at what Donald Duke did in Nigeria or what Putin did in Russia!!! So get of the fence and if you are a praying man. Ask and it shall be given is the saying!!! Go to our site http://nigeriansforsuperenergy.com/phpBB3/index.phpand read about both men and what they did. Russia was hopeless when Yelstin hand appointed Putin .... today he has 70% approval rating.

God Bless Nigeria!!!
Re: Fixing NNPC: Dangote Business Plan on Steroids
Nf5kmw1 posted on 08-02-2007, 16:14:17 PM
QUOTE:
While I agree with Abraxas' writeup, I need to make a quick clarification:
WAPCO, BCC, CCNN, Ashaka, Dangote (Obajana) are NOT 'cement BAGGING depots' but \"local cement factories\" in the real sense.

However, Dangote also owns cement bagging plants; Ibeto is a cement bagging plant.


Nawaya:
To further clarify Ibeto asked for a license to manufacture and they were refused. That is what makes people wander!!!!!
QUOTE:
It is against this backdrop that the Yar'Adua government's decision to reopen the Ibeto Cement factory in Port Harcourt is welcome. The FG had shut down the factory in 2005 following misleading reports from some importers who were out to monopolize the cement trade. Also shut down were the Eastern Bulkcem and Nigercem in Ebonyi State. The official shut-down was based on unproven allegations that the firms were not investing in local manufacturing of cement. President Obasanjo had refused to reopen the factories even when the ministries of Commerce, Finance and Industry had given the firms a clean bill of health.

Indeed, the affected firms were already complying with the requirements to set up local cement factories when their import licences were cancelled. President Musa Yar'Adua's decision to reopen the Ibeto factory immediately is, therefore, going to reduce the demand-supply gap and arrest the price hike that is stunting national growth and development.
Re: Fixing NNPC: Dangote Business Plan on Steroids
Tonsoyo posted on 08-02-2007, 17:15:12 PM
QUOTE:

You are right that Ibeto used to import cement before he was shut down and he bagged it in Nigeria, but if after the policy that came out seeking to ensure local production his application was ignored by the government, please tell me whose fault was that? I'm posting below the excerpt from nf5kmw1's earlier post and here is what it said.



It is on record that most of them were ready to comply with government's directive, so why where they not granted along with that of Dangote?



Anon,

Ibeto has always has a license like every other companies in cement to manufacture, not just Dangote that you people like to blame for everything, there are about eight of them.
Ibeto was shut down for failing to comply and was cheating on the extra import concession granted to specifically to the company. Even when others did not even get such concessions.

Why should Ibeto be allowed to import at this time when other investors are already producing with 95% home raw materials. Would it not be counter productive and oppressive to allow one company to continue to import while others are going through the harder route of local manufacturing?

Ibeto should not be allowed to import if others are not. Since his license has been restored he should start local manufacturing like every other companies.
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