The energy sector in the first quarter of 2013 was an interesting mixed grill. Unlike last year, the battle was in the operators’ arena; this year, it shifted to the National Assembly. Initially, it was a fight against 10 per cent Petroleum Host Communities Fund by northern legislators, and later it was that people from the north own over 83 per cent of oil blocks. The National Assembly within the period firmly stood against moves by the Nigerian National Petroleum Corporation (NNPC) to borrow $1.5 billion. However, the power sector privatisation programme recorded some milestones with preferred bidders 25 per cent payment of the PHCN assets they bought. EMEKA UGWUANYI Assistant Editor (Energy) looks at the activities in the sector in the past three months.
The country’s oil production remained flat at 2.4 million barrels per day in the first quarter. However, the French multinational oil firm, Total awarded a contract for the construction of the floating production, storage and offloading vessel put a cost of $3.2 billion to Korea’s Hyundai Heavy Industries Limited. The vessel will be used for the production of oil from its deepwater asset, Egina field, which is expected to add about 150,000 barrels of oil per day to the country’s production when it begins operation.
Petroleum Industry Bill (PIB)
The issues in the Petroleum Industry Bill (PIB) took centre stage in the National Assembly, with focus on the 10 per cent Petroleum Host Communities Fund, a provision meant for development of oil producing communities. Northern Legislators vehemently opposed the provision on the grounds that it would put more revenue in the coffers of oil producing states.
Their stance was, however, punctured by the revelation that a sizable proportion of the nation’s oil blocs and wealth, about 83 per cent, that is, are in the hands and control of northerners. Therefore, the argument was that the 13 per cent and the proposed 10 percent communities fund in PIB are but a pittance when compared with what the oil blocks owners earn, especially when compared to the grave environmental and health hazards the oil producing communities go through.
Considering the fact and validity of the argument of the southern lawmaker, the PIB passed second reading at the National Assembly, and it is believed the legislators will pass the bill into law soon, to move the petroleum industry forward.
Another issue that made the round in the the review period, was the plan by the Nigerian National Petroleum Corporation (NNPC) to borrow $1.56 billion from a group of local and foreign banks to pay debts incurred during transactions with foreign oil marketers. The issue lingered in the National Assembly with a couple of invitations to the management of NNPC by the lawmakers seeking explanation for the loan.
The management of the NNPC, in one of its appearances before the lawmakers, explained that the $1.56 billion was not a loan, but a forward sales arrangement to offset accumulated legacy liabilities incurred as a result of crude oil and product losses, pipeline vandalism and demurrage on products in the strategic reserve stock.
The Group Managing Director of the NNPC, Andrew Yakubu, stated this while making a presentation to the House of Representatives Joint Committees on Petroleum Resources (Upstream), Petroleum Resources (Downstream), Aids, Loans and Debt Management and Justice in Abuja.
Yakubu said: “The non-reimbursement by Federal Government of the petroleum products price differential to NNPC has gradually led to accumulated and unpaid petroleum products invoices of about $3.5 billion.” He added that petroleum products importers have become agitated over the non-payment of their petroleum products invoices some of which were over three years old and the exposure of domestic banks is about $1.5 billion, noting that default of this magnitude of exposure could lead to another round of banking crisis.
Crude oil theft and pipeline vandalism continued unabated in the first quarter of the year to the extent that President Goodluck Jonathan has commenced to collaborate with leaders of other countries to help fight the menace. Jonathan held a meeting with the Prime Minister of Britain on the issue while other measures are being planned internally to check the crime. A source told The Nation that the Presidency said it would use diplomatic resources to ensure that it makes it easy to track and identify stolen crude from the country in order to discourage the thriving activities of oil thieves.
Another concern in the first quarter was the production of oil and gas from shale formations by the United States, a major consumer and importer of Nigeria’s oil. There was concern that the development would lead to substantial drop in volume of Nigeria’s oil export and price. It was reported that breakthroughs made by advance countries including the United States in terms of extraction of oil and gas from shale formations would position the United States from a consumer to a net exporter of oil and gas by 2030, which top officials of the NNPC proved wrong.
Shell Petroleum Development Company (SPDC) declared force majeure on Bonny Light following shutdown of Nembe Creek Trunkline (NCTL) after it discovered leaks on the pipes caused by vandals.
Downstream
The arrest, interrogation, prosecution and trial of alleged oil marketers fingered to have fraudulently collected fuel subsidy claims continued in the first quarter, while the bulk of fuel import still remained with the NNPC as a result of non-payment of arrears of subsidy to purported genuine marketers by the government.
Vandals continued to attack System 2B pipeline, a major petroleum products distribution facility, at Arepo community in Ogun State. Yakubu said the corporation was losing about N600 million worth of fuel to vandals through the Arepo axis per week. In view of the losses and frequency of attacks on the asset, NNPC has begun horizontal and directional drilling which would enable the pipes be buried deep below the surface to prevent vandals from accessing the them.
Power
A substantial progress was made in the power industry in the first quarter of the year. The commencement of finalisation of negotiations of transaction documents between the Federal Government and the preferred bidders for Power Holding Company of Nigeria (PHCN) successor generation companies (Gencos) and successor distribution companies (Discos) began on January 15, in Abuja after receipt of bank guarantees for 15 percent by the Bureau of Public Enterprises (BPE).
But before end of the quarter, 14 preferred bidders of 10 distribution and five generation companies unbundled from the PHCN have paid 25 per cent value of the assets they submitted bids for, which is $559,445,573.96. While the 14 preferred bidders shop for the remaining 75 per cent cost to complete payment for the assets, which is a condition they will meet before handover of such assets, the BPE is progressing with the process of selling the remaining one generation and one distribution companies that were not sold alongside others for the failure of the bids submitted for their acquisition to meet stipulated criteria.
The preferred bidders have been given six months to pay the remaining 75 per cent as the Federal Government strives to settles it liabilities, such as payment of severance package to the PHCN workers. The BPE said: “All the preferred bidders for the 15 PHCN successor companies have met the deadline for the payment of the mandatory 25 percent of the offer value of their bids. As at March 21, 2013 deadline, the Bureau had received $559,445,573.96 from 14 bidders for the 15 successor companies.”
The BPE said it received $32.25million from Vigeo Consortium for Benin Distribution Company; $31million from 4Power Consortium for Port-Harcourt Distribution Company; $31.5 million from Interstate Electrics Limited for Enugu Distribution Company; $27,913,633.50 from North-South Power Company for Shiroro Power Plc while Transcorp/Woodrock Consortium, paid $75 million for Ughelli Power Plc; CMEC/EUAFRIC Energy JV, paid $50,249,965 for Sapele Power Plc; $41 million from Kann Consortium for Abuja Distribution Company; $20,464,968.15 from Aura Energy for Jos Distribution Company; Mainstream Energy Limited paid $59,467,500 for Kainji Power Plc; and Sahelian Power SPV paid $34.25million for Kano Distribution Company.
Others are: Amperion Power Company Limited, which paid $33 million for Geregu Power Plc; Integrated Energy Distribution & Marketing Company, $42.25 million and $14.75 million for Ibadan and Yola Distribution Companies respectively; NEDC/KEPCO paid $32.75 million for Ikeja Distribution Company; and West Power & Gas, paid $33.75 million for Eko Distribution Company.
Following directive by the Vice President, Namadi Sambo, that projects under the National Integrated Power Projects (NIPP) be completed by end of this year, the Niger Delta Power Holding Company Limited (NDPHC) owners of the National Integrated Power Project (NIPP), has delivered several distribution and transmission projects across the country while power plants under the NIPP are capable of supplying over 2,000MW of electricity.
Most of all, the Minister of Power, Prof. Chinedu Nebo, was appointed as the minister in February, six months his predecessor resigned and the former Director-General of BPE, Ms Bolanle Onagoruwa, was also sacked within the quarter by the Federal Government.
