NNPCL and Dangote Refinery Limited (Part 1)

THE Dangote Petroleum Refinery was expected by many Nigerians to be the end to petroleum importation and petroleum product scarcity in Nigeria. Sadly, the actualisation of this expectation has been an up-hill and almost an insurmountable task. This is because of the position of the Nigerian National Petroleum Corporation Limited (NNPC Ltd.) on the refining and sale of petroleum products from the Dangote Refinery Limited.  First, NNPC limited was reluctant to supply the crude oil needed to operate the Dangote Refinery. Dangote Refinery had to import crude oil from the United States of America and Brazil (an unprecedented event in the history of Nigeria), and was even in negotiation with some African countries for the importation of crude oil to Nigeria. By September, Dangote Refinery had imported 57 ship loads of crude oil into Nigeria. The NNPC limited only agreed to supply crude oil to Dangote Refinery after the intervention of the Federal Government.

Second, NNPC delayed in lifting Premium Motor Spirit (petrol or PMS) from Dangote Refinery, even after the product was ready for circulation. Dangote Refinery informed the press at the time that it was waiting for NNPC limited to lift the PMS for distribution in Nigeria.  Third, NNPC delayed in announcing the price of the PMS from Dangote Refinery. According to the representative of Dangote Refinery, only the NNPC limited can fix the price for the product since the NNPC controls price of petroleum products.  All these puts NNPC limited at the centre of the petroleum production, pricing and distribution in Nigeria thus establishing a monopoly. This is the hypothesis that has been created by the prevailing events between NNPC ltd and Dangote Refinery over the past three months.  This article puts this hypothesis to the test in view of extant laws. Consequently, the provisions of the Petroleum Industry Act, 2021 will be considered in relation to the role that the NNPC has played so far in the ‘NNPC-Dangote rift’ as the press describes the relationship between the NNPC ltd. and Dangote Refinery.

To put the question into context, this article will examine whether the NNPC ltd has the power to: 1. Supply crude oil to local refineries, 2. Determine the price of petroleum products, and 3. Act as the sole purchaser and distributor of petroleum products in Nigeria.

The Petroleum Industry Act, 2021

The Petroleum Industry Act, 2021 (PIA) is the act which regulates and governs the Nigerian petroleum industry. It prescribes the powers of the major actors in the petroleum sector in Nigeria.  The PIA empowers the Minister of Petroleum to incorporate the NNPC limited. The PIA further prescribes the powers of the NNPC ltd. These are that the NNPC limited is to:

(a) carry out petroleum operations (this refers to various processes involved in the exploration, extraction, refining, transportation and marketing of petroleum products) on a commercial basis, comparable to private companies in Nigeria carrying out similar activities. (b) Be the concessionaire of all Production Sharing Contracts (PSC), Profit sharing Contracts and Risk Sharing Contracts as the National Oil Company on behalf of the Federation. A production sharing contract is the contract for the exploration, development and production of petroleum on the terms that the financial risk-bearing party shall recover costs and receive a share of the profit based on a share of production as established in the contract).

(c) Lift and sell royalty oil (fixed percentage of the crude oil conceded to Nigeria under the PSC) and tax oil (30% of the total production allocated as full payment of any and all royalties and taxes payable to the government) and on behalf of the Nigerian Upstream Regulatory Commission for an agreed commercial fee and in case of profit oil (the amount of oil explored above the expected extraction quota under a Production Sharing Agreement) and profit gas payable to the concessionaire.  (d) Carry out test marketing to ascertain the value of crude oil and report to the Nigerian Upstream Regulatory Commission.

(e) Be vested with the rights to natural gas under production sharing contracts entered into prior to and after the effective date of this Act (f) Carry out the management of production sharing contract for a fee, based on the profit oil share or profit gas share in accordance with paragraph C. (g) Assume the working interest of the NNPC in all its joint operating agreements (h) Engage in the business of renewables and other energy investments  (i) Promote the domestic use of natural gas through development and operation of large-scale gas utilisation industries. (j) Maintain the role of NNPC under section 54 of this Act. (k) Carry out task requested by the commission or authority on a fee basis and engage in activities that ensure national energy security in an efficient manner, in the overall interest of the Federation. (l) Carry out such other tasks as may be determined by the Board of the NNPC Limited, and  (m) Make NNPC limited supplier of last resort for security reasons.

(See generally section 64 of the PIA)

The Nigerian Midstream and Downstream Petroleum Regulatory Authority

In relation to the hypothesis being tested by this article, there is another agency of interest. This agency is the Nigerian Midstream and Downstream Petroleum Regulatory Authority created by section 29 the PIA. This authority was empowered by section 31 of the PIA to: a) Regulate midstream and downstream petroleum operations, including technical, operational and commercial activities. b) promote a competitive market for midstream and downstream petroleum operations c) promote the supply and distribution of natural gas and petroleum products in midstream and downstream petroleum operation and the security of natural gas supply for the domestic gas market d) ensure compliance with applicable laws and regulations governing midstream and downstream petroleum operations e) ensure crude oil supply for domestic refineries f) promote, establish and develop a positive environment for international and domestic investment in midstream and downstream petroleum operations g) develop and enforced a framework on tariff and pricing for natural gas and petroleum products See generally section 31(c), (d), (e), (f), (g), (j) and (l) of the PIA.

Section 32 of the PIA provides for the function of the Nigerian Midstream and Downstream Petroleum Regulatory Authority. These include:

1. a) providing pricing and tariff frameworks for natural gas in midstream and downstream gas operations and petroleum products based on the fair market value of the applicable petroleum products b) regulating the bulk storage, distribution, marketing and transportation pipelines of petroleum products.
2. c) ensure security of supply, development of the markets and competition in the markets for natural gas and petroleum products. d) promote the interests of consumers with regards to midstream and downstream petroleum operations e) promote the principles of economic development of infrastructure with regard to midstream and downstream petroleum operations. f) promote competition and private sector participation in midstream and downstream petroleum operations See generally section 32(e), (f), (h), (n), (s) and (u) of the PIA.

Private Sector Involvement in the Midstream and Downstream Petroleum operations

In furtherance of the intendment of the PIA to welcome and sustain private sector participation in petroleum operations in Nigeria, privately owned refineries like the Dangote Refinery have the statutory liberty to obtain licenses or permits from the Minister of Petroleum on the recommendation of the Nigerian Midstream and Downstream Petroleum Regulation Authority – section 111(1) of the PIA.  (To be continued).

This is dependent on whether the applicant:

1. meets technical standards required for petroleum operations based on good international petroleum industry policies.
2. has its facilities in a location and on an area of land acceptable to the Authority.
3. provides proof that the facility meets the health, safety and environmental standards as may be determined by the Authority.
4. provides for the efficient and economic use of facilities and pipelines.
5. Shows that the facility does not involve excessive capital or operating expenditures.
6. Shows decommissioning and abandonment plans and funds to implements the plans presented
7. Provides for the elimination of routine natural gas flaring in its facility
8. will not conflict with existing licenses
9. has a detailed programme for the recruitment and training of Nigerians in all phases of petroleum operations it handles, and for the provision of scholarship schemes, internships, continuous professional development and other training requirements.

AARE AFE BABALOLA, OFR, CON, SAN, LL.D (Lond.)

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