The Nigerian National Petroleum Company Limited (NNPC) has awarded new contracts to four companies, including two downstream firms, for the rehabilitation of the country’s pipelines, sparking criticisms from industry operators.
BusinessDay findings showed Oilserv Limited, A.A RANO Nigeria Limited, Macready Oil & Gas Service Company Limited, and MRS Oil Nigeria Plc emerged as preferred bidders for the maintenance of the pipelines, through the build, operate, and transfer financing model to facilitate crude supply to the refineries and products evacuation from them.
The pipeline network consists of 4,315km of multi-product pipelines and 701km of crude oil pipelines, interconnecting 22 fuel depots, the country’s four refineries, and the jetties at Atlas Cove and Warri.
Industry experts who spoke to BusinessDay said the developments will give retailers that won pipeline contracts a competitive advantage over others with access to a reliable and secure supply – a development they described as contrary to global standards.
“It’s an anomaly for downstream retailers to win pipeline contracts. In the US market, pipeline operators are separated from retailers,” a business leader in Nigeria’s energy sector said. “Whether by accident or deliberate regulatory constraint, no single company sits astride the entire value chain.”
BusinessDay’s findings showed some of the biggest United States pipeline companies such as Kinder Morgan, Williams Company, and Colonial Pipeline are midstream operators with no retail outlets.
“Retail companies with no antecedents of handling pipeline contracts should not be winning contracts for million-dollar pipeline projects in Nigeria. It gives room for exploitation,” the source said.
Another senior oil executive who spoke to BusinessDay said the new pipeline deals showed the transition from state monopoly under the NNPC to private monopoly as some parts of the country may be underserved.
“The market has a concern that in the event of any supply shortfall, these retail operators with pipeline contracts may have preferences for their own retail outlet which is not good for the market,” another industry source told BusinessDay.
BusinessDay’s findings revealed the country’s oil behemoth selected the four companies as preferred bidders on a LOT basis for the rehabilitation of the country’s idle pipelines.
It was learnt that Oilserv Limited emerged as the preferred bidder for LOT 1, which comprises the Bonny-Port Harcourt Crude Oil pipeline (54.8km), Port Harcourt-Aba–Enugu Products Pipeline (210km), Port Harcourt depot, Aba Depot and Enugu Depot. Port Harcourt Refinery–Bonny Export Terminal Products Pipeline (35km) Bonny Export Terminal–Loading Jetty Products Pipeline (32km), Bonny Export Terminal facilities.
A.A Rano won the bid for LOT 2, which comprises Escravos–Warri Crude Oil Pipeline (60km), Warri-Benin Products Pipeline (90km), Benin-Ore Products Pipeline (110km), Warri Depot, Benin Depot and Ore Depot.
Macready Oil & Gas Service Company Limited was selected for LOT 3, which comprises Warri-Kaduna Crude Oil Pipeline (604km), Kaduna-Kano Products Pipeline (224.3km), Kaduna-Jos Products Pipeline (166.4km), Kaduna-Suleja Products Pipeline (170.8km), Kaduna Depot, Kano Depot, Jos Depot and Suleja Depot.
MRS Oil Nigeria Plc won LOT 4, which comprises Atlas Cove–Mosimi/Satellite Products Pipeline (72.8km), Mosimi–Ore Products Pipeline (151.3km), Mosimi–Ibadan Products Pipeline (79.1km), Ibadan-Ilorin Products Pipeline (168.9km), Atlas Cove Depot, Mosimi Depot, Satellite Depot, Ibadan Depot, and llorin Depot.
“LOT 4 is a fairly well-developed market with NNPC already incurring the capital cost for infrastructure before transferring to the preferred winner. From a competitive point of view, it gives the winner an advantage compared to others,” Tunde Adeniyi, an energy analyst familiar with the energy sector at BusinessDay said.
In 2021, MRS and AA Rano were among the companies selected for Nigeria’s crude-for-fuel swap contracts for one year.
The contracts, known as direct sale, direct purchase, are coveted since they are used to supply nearly all of Nigeria’s petrol needs as well as cover some of its diesel and jet fuel consumption.
Efforts to get responses from AA Rano and MRS as at time of publication proved abortive.
“I would have expected core engineering and procurement construction companies would be selected, not retailers,” he added.
NNPC’s pipeline network was designed to efficiently move crude oil from terminals located at Escravos and Bonny to Warri Refining and Petrochemical Company and Port Harcourt Refining Company, respectively.
However, poor maintenance and vandalism have left many government-owned fuel depots and pipelines idle for years, a development that has caused the country to increasingly resort to private tank farms and road tankers for the supply and distribution of products.
“There is a big concern about where NNPC will get the crude oil to supply the refineries that will get the fuel tankers off the road,” Niyi Awodeyi, CEO of Subterra Energy Resources Limited, said.
The administration of President Bola Tinubu has said that by next year, the country will be a net exporter of petroleum products with the rehabilitation of refineries in the country, starting with the Port Harcourt refinery. However, antecedents have led to a trust deficit between the public and the government.
In September 2022, Timipre Sylva, the then minister of state for petroleum resources, said the Port Harcourt refinery would become functional by the end of last year. Six months later, he said the plant would commence refining activities before the end of the second quarter of 2023. This is the third quarter of the year and the projection moved by another quarter.
“To be candid, in the short term, the drive to ramp up production immediately is security to ensure zero loss to theft and vandalism. And I wonder if the government can achieve that,” said Jide Pratt, country manager of Trade Grid.