Tuesday, January 15, 2013

Remodeling the Management of Nigeria’s oil Pipelines

Nigeria has a good infrastructure for the transportation of refined petroleum products- a 5,120km pipelines network connecting 21 oil depots and 19 pump stations. Regrettably, the pipelines are not in maximum economic utilization. This is due to mainly three factors- incessant illegal tapping by oil thieves, sabotage and the method of managing the pipelines. However, if the latter is remodeled; illegal tapping and sabotage would be tackled effectively. It is noteworthy that the poor management of these pipelines is not due to incompetence on the part of personnel involved but the management system itself which lacks provisions for tackling the contemporary challenges facing the nation’s refined petroleum products pipelines.

Pipelines and Products Marketing Company (PPMC), the firm responsible for the running of Nigeria’s refined petroleum products pipelines appears to be having difficulties in managing its vast network of pipelines. The reason is traceable to the fact that; from its set up, the PPMC was not designed to tackle the current challenges. From the economic perspective, only pipeline companies that are designed to generate revenue from their pipelines can effectively run pipelines transportation business under such circumstances Nigeria’s pipelines are subjected to.

The daily business activities of the PPMC are highly skewed toward petroleum products business to the detriment of the pipeline transportation business. Thus, it does not generate revenue from its network of pipelines as it owns the products being transported and the pipelines. In countries where pipelines management is profit-oriented, pipeline companies do not usually own the products they transport. They are simply intermediaries that move the products for their customers. So running the pipelines business is their flagship which gives them comparative advantage in many areas- maintaining an effective security against sabotage, illegal tapping and quick detection of leaks and in-line equipment failure, and most importantly, continued innovation in the business. Though, these are difficult to achieve, pipelines companies that are profit driven have shown they are possible. The United States Federal Energy Regulatory Commission recent annualreport data showed that the top 10 U.S. Oil pipeline operators' net income in 2011 soared to over $6.1 billion.

Remodeling the management system of the Nigeria’s refined petroleum pipelines can be achieved in two ways- lease or concession the pipelines to private companies or create independent firms out of the PPMC solely for pipelines business. For example, Russia has what it calls "Pipeline Troops", who are trained to build and maintain pipelines.

Whichever of the two methods is adopted would for sure bring a paradigm shift in the management of Nigeria’s pipelines. Nonetheless, how feasible are these recommendations? PPMC has a good structure that segments its network of pipelines into ‘systems’- System 2B transports petroleum products from the Atlas Cove to five oil depots in the southwest- Mosimi, Ibadan, Ilorin, Satellite(Ejigbo) and Ore. System 2E&2EX connects Port Harcourt Refinery with depots in Calabar, Aba, Enugu, Markurdi and Yola. System 2C&2CX connects Warri Petro-Chemical Refinery with depots at Benin, Suleja and Minna, while System 2D &2DX connects Kaduna Refinery with depots in Kano, Gusau, Jos, Gombe and Maiduguri. All these systems are interconnected. With such a good segmentation, it becomes easy to set up four companies to run each of the system or lease them to private businesses to run them profitably. With such arrangement, the pipelines would be run efficiently and profitably. The multiplier effect would be economically beneficial- reduction in the cost of bridging petroleum products from one part of the country to another. For instance, at present, the cost of transporting a litre of petroleum product by truck from Lagos to Maiduguri is N16.98 per litre. Through pipelines it would reduce substantially. Other benefits Nigeria stands to gain from efficient running of the pipelines are: promotion of competition, value chain addition and construction of new lines (particularly multi-product pipelines); new oil depots would spring up, all of these naturally translate to creation of more jobs. The government would benefit significantly as the country would have proper protection for its pipelines network and the pressure exerted on roads by heavy trucks moving petroleum products for long distances would decrease as trucks would transport products for only few distances. Moreover, the Petroleum Equalization Fund (PEF), petroleum marketers and transporters would gain a lot.

Whichever of the two methods of managing the pipelines suggested above is adopted, it does not shield petroleum pipelines business from its major challenges in Nigeria- illegal tapping, sabotage, right of way incursions including slow detection of leaks and in-line equipment failure due to inaccessible sites. However, the good news is, there are advanced technologies that can successfully tackle these problems: SCADA- Supervisory Control and Data Acquisition, Fiber Optic Cable (FOC) and Go-devils /scrapers or Smart pigs (also known as intelligent pigs). SCADA or FOC provide advanced warning in real time which helps pipelines companies to take quick action to protect long-stretch of pipelines network, even if it is located in inaccessible areas where visual inspection might be difficult. The impressive aspect of the SCADA and FOC technologies is that they sense and locate interference before the pipelines damage takes place. While Smart pigs are used to detect anomalies in pipelines or other mechanical damages. As for right of ways incursion, experts argue that the best way to tackle it is via community involvement through sustainable CSR projects and programmes.

Globally, pipelines transportation is a money-spinning business. Pipelines business has such potentials in Nigeria. When the Petroleum Industry Bill 2012 is finally enacted into law, there are provisions in the Bill that would facilitate the remodeling of the management of Nigeria’s refined petroleum products pipelines either by leasing or concession of the country’s refined petroleum pipelines network to private companies or creation of independent firms out of the PPMC solely for pipelines business. This new approach would transform the pipelines business into an important vehicle for economic development. The cost of distribution of petroleum products in the country would significantly reduce; it would ensure the safety of this national asset, the environment, the right of ways and the people. More importantly, pipelines business would be profit driven with potentials for expansion, improvement in technologies and promotion of Nigerian content including tackling the greatest problem facing the pipelines: illegal tapping by oil thieves and sabotage.

Zayyad I. Muhammad writes from Jimeta, Adamawa State, zaymohd@yahoo.com, 08036070980

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