Sell these 25 assets now

…Oil and gas industry chieftain lists properties Nigeria must give up to get out of recession

No, Nigeria’s stake in the Nigeria LNG Limited is not one of them “because it is not a drain on Nigeria’s coffers”. But, several are in the oil and gas sector.

Months after a debate raged in the public space over the news that the Federal Government planned to sell some of Nigeria’s national assets to bail the country out of recession, an oil and gas industry chieftain has offered a detailed list, with justifications, of what assets to sell or concession.
Austin Avuru, chief executive officer of Seplat Petroleum Development Company Plc, a major player in the oil and gas industry, in a December 3 article for African Oil & Gas Report, based his choices on three criteria, namely: 1) Assets that are currently a drain on the economy; 2) Assets whose sale will make them operationally more efficient; and 3) Assets whose sale will generate foreign exchange.
“Put simply,” he noted, “if this nation loses nothing by selling a particular asset, but in the process generates much-needed foreign exchange and the asset becomes better performing, why would anyone argue against the sale of such asset?”
Atop the list of the assets he proposes to be sold are petroleum refineries managed by the Nigerian National Petroleum Corporation (NNPC) – two in Port Harcourt and one each in Kaduna and Warri. (Avuru worked in NNPC for 12 years as Wellsite Geologist, Production Seismologist and Reservoir Engineer).
His justification: They have been a drain on the national purse. Their sale will not only generate critically-needed foreign exchange but will actually stop the drain and make them more efficient in performance.
“NNPC’s own financial reports in the last 10 years show that about 80% of the losses they have been reporting come from operations of two major segments of their business: Refineries and the PPMC (Petroleum Product Marketing Company). So, what does the country honestly lose today by selling the refineries? They have been a drain on the national purse. They have operated at less than 40% average capacity over the last 10 years,” he writes.
The other assets are Petroleum Product Depots/Storage Tanks.
Rationale: “This country has a network of nineteen depots and interconnected pipelines. Apart from, occasionally, the Mosimi depot (in Southwest Nigeria), none of them has functioned in the past five years. Some of them (like the Enugu depot in the east of the country) are a disgraceful sight as the tanks have all rusted. Because this distribution grid does not naturally function, all petroleum product tankers in the country have to find their way to Lagos, Port Harcourt (in the east) and Warri (in the western Niger Delta), where they are either loading imported products or the small volumes produced by the largely malfunctioning local refineries.
“This is why Apapa (the port of Lagos) and Ogere in the north of Lagos have become a gridlock of petroleum tankers in the last three years. So why wouldn’t these depot/pipeline network be sold to people who can properly maintain and run them, and in the process, stop the menace of petroleum tankers all over the city, but also generate the needed forex in the short term?”
Next items: the Escravos-Lagos Pipeline System (ELPS) and the East-West pipeline, known as Obiafu, Obrikom, Oben, OB3 gas pipeline. The ELPS was built in 1989 to supply gas from Escravos in the Niger Delta to Egbin power plant on the outskirts of Lagos while the OB3, expected to start operation in 2017, is to boost domestic gas supply from 1.5 billion standard cubic feet per day (bscf/d) to 2bscf/d).
“If Nigeria’s critical natural gas backbone infrastructure is capitalised today into an international company and 60% of it is sold to world class operators of gas pipelines around the world, you’d be sure of the efficiency in the long run while generating immediate cash today. And such a company can raise additional internal funding that will take the backbone further north into Kano and Eket in the south,” Avuru writes.
He also proposed the sale of 37.5% of NNPC’s stake, currently 57.5%, in the Joint Ventures (JVs). His rationale: “Of the total revenue accruing to the Federation account from every barrel produced by the JVs, about 88% comes from rent (Tax, Royalty, Concession Rental and Fees). So the extra income accruing to government from NNPC’s 57.5% share of the JVs is only 12%. Put simply, even if the NNPC sold the entire 57.5% it holds in the JVs today, the loss of revenue will only be 12% of what it currently earns.
“In the face of the traditional difficulties of the JV; i.e. cash call payment arrears, long decision cycles and general political interference, which have the effect of giving rise to cost escalation, the loss of revenue from this cost escalation is probably higher than the 12% that the NNPC earns on its 57.5% shareholding. So, if you reduce this equity even to 20%, chances are that the earnings to government will not be adversely affected, because the increase in efficiency will make up for the reduction in the 12% profit earning.
“This is why everybody refers to the NLNG model, without realising that the only difference is that the JVs suffer from political interference in their operations because of the high equity of government in the JVs whereas the state’s share of the NLNG is less than the three partners put together.”