The Framework and cost of Petroleum and Petroleum Products

importation in Nigeria.
By
Musa Mohammed Haske
(GT, General Engineering)

Introduction

Over Sixty-three (63) years after the discovery of crude oil in Nigeria, the Nigerian downstream
sector (i.e., petroleum product refining, storing, marketing and distribution) is still evolving and
yet to reach its full potential. Ranked as the 13th largest crude oil producer in the world with an
average daily output of about 2 million barrels per day, one would expect that the downstream
sector would be abuzz with significant investments and activities. Unfortunately, this is not the
case. The sector is currently bogged down with numerous challenges, such as inappropriate
product pricing, bridging product supply, insecurity, irregular gas supply, pipeline vandalism,
inadequate pipeline infrastructure, non-functional/ under-functioning refineries (KPMG
Newsletter, 2019).

As a result of these challenges, Products are sourced from various parts of the world to meet the
demand of the large population of the African giants.

Since the importation of products is a long procedure with a lot of logistics, various costs are
built up which leads to the nation’s high cost of products; PMS currently selling at NGN162.

It is important to understand how this product is sourced and how these costs are built up.

How Nigeria meets its domestic fuel needs.

Nigeria has used four methods in recent years to meet its domestic fuel needs:

1. National oil company NNPC refines crude oil at its three refineries and sells most of the
output to privately-owned fuel marketing companies. Small amounts are sold through
NNPC Retail Ltd., its network of retail filling stations.
2. NNPC, through subsidiary PPMC, imported products using traders. The traders
delivered the products to PPMC in exchange for cash (called “open account” imports).
PPMC sold the products mostly to fuel retailers and various types of intermediary
companies. The open account system ended in 2011.
3. Private marketers import products under permits issued by the Petroleum Product
Pricing and Regulatory Authority (PPPRA) and sell them to a range of wholesale and
retail buyers. NNPC is not involved with these imports.
4. NNPC imports and sells products through “swaps,” deals in which crude oil is bartered
for petroleum products, rather than sold for money. (Sayne et al., 2015)

Product Sourcing

Companies Eligible for products importation

 Pipelines and Products Marketing Company Ltd (PPMC).

 Major Petroleum Products Marketing Company (e.g, Mobil producing unlimited, MRS,
Total-Elf, etc.
 Independent Petroleum Marketing Companies, i.e., Depot and Petroleum Products
Marketing Association (DAPPMA), companies with current licensed receptacle/storage
facilities (jetties/depots. like Mainland oil and Gas Ltd, Northwest petroleum. (Greatman,
2015)

However, due to the Paucity of Forex, PPMC remains the major importer of Petroleum Products.

Crude oil Marketing Department (COMD)

The COMD sourced refined products on behalf of PPMC based on an agreement between the
COMD and PPMC.

Refined products are been bartered in equivalence to crude oil based on the DSDP agreement.

PETROLEUM PRODUCT SUPPLY AND DISTRIBUTION TO NIGERIA

COMD

DSDP Consortiums mother vessels to bring products to the Waters of Nigeria.

Marine Logistics

Marine Logistics Shuffles Daughter Vessels to take products from the high sea to the Shores on
the Jetty.

Nigerian Pipeline and Storage Company (NPSC)/ Private Depots Owners PDO
Nigerian Pipeline and Storage Company (NPSC)/ Private Depots Owners PDO provide coastal
storage tanks to hold custody of its products.

NPSC Pipelines
NPSC pipelines move products from Coastal depots to inland Depots.

Third-Party Trucks
Third-party trucks decant products from coastal depots to inland depots.

NPSC Depots
PPMC depends on NPSC inland depots to sell products to marketers.

PETROLEUM PRODUCTS COST BUILD-UP

 PPPRA PRICING TEMPLATE (GUIDE)
AVERAGE (SIMPLE) PRICES
Figure Explanatory notes Basis for Cost Element
Cost Elements: Naira/Liter
Product cost - The cost of product as quoted on Platts Dependent on and Varies
(FOB) (Global Energy Information/ data provider). with applicable Platts free
The reference spot market is FOB on Board (FOB) quoted
Rotterdam Barge. product price and
Naira/USD Exchange Rate.
Freight Rate - The average clean tanker freight rate. It is Dependent on and Varies
the Average cost of Transportation (30kt) with applicable Platts
cargo from North West Europe to West Freight quoted price and
Africa (WAF). Naira/USD Exchange Rate.
Lightering - STS/ Local Freight Charge is the cost Dependent on and Varies
Expenses incurred on the transshipment of imported with applicable Naira/USD
petroleum product from the mother vessel Exchange Rate.
into the daughter vessel, to allow for the
easy navigation to the Jetty.
Insurance Cost - Cost of insuring Cargo from Load port to 0.15% of Free on Board
(0.15%) discharge port. (FOB) price.
Dependent on and Varies
with applicable Naira/USD
Exchange Rate.
NPA - It is the Statutory cargo dues and other Partly dependent on and
related expensed charged by the NPA varies with applicable
Naira/USD Exchange rate.
NIMASA - It is the Statutory cargo dues charged by Dependent on and Varies
charges NIMASA. with applicable Naira/USD
exchange Rate.
Jetty throughput 0.60 This is the tariff paid for the use of facilities Fixed.
Charge at the Jetty by Marketers, to discharge and
move products from the Jetties to storage
depots.
Storage Charge 2.00 Storage Margin provided for cost of product Fixed
storage and related charges by the depot
owners.
Financing - It refers to cargo financing (cost of fund) for 15% of Free on Board
the imported products. (FOB) price Plus Freight
cost. Dependent on and
Varies with Applicable
Naira/USD Exchange Rate.
Wholesalers 4.03 Allowable margin for suppliers of fixed
Margin Petroleum Products.
PETROLEUM PRODUCTS COST BUILD-UP
PPPRA PRICING TEMPLATE (GUIDE)
AVERAGE (SIMPLE) PRICES
 Figure Explanatory notes The basis for the cost of
Elements
B Other Distribution Cost:
1 Admin. Charge 1.23 Statutory Administrative Charge Fixed
collections for downstream sector
commercial regulation.
2 Transporters Allowance 3.89 Allowances for local transportation Fixed
(NTA) (within the PEF (M) B Zones).
3 Retailers Margin 6.19 The allowable margin for retailing Fixed
of petroleum products
4 Bridging fund 7.51 Statutory provision for ensuring Fixed
uniform pricing of PMS nationwide.
5 Marine Transport 0.15 Fund for transportation of PMS to Fixed
Average floating mega stations in the
Riverine area.
Average Exchange Rate (USD): Naira/ USD Exchange rate, using Average FMDQ (I&E
the applicable CBN window. window) Foreign
exchange rate.
Adapted from http://pppra.gov.ng/pricing-templates with slight modification.
Additional charges for LPG include:
0.60 naira per liter of LPG Jetty throughput and 10,500 naira per metric ton storage
charge.

References
 Greatman D., Y (2015). Imports Guidelines, Procedures, and Documentation for
Importation of Petroleum Products into Nigeria and to the Terminals.
http://pppra.gov.ng/pricing-template
KPMG (2019). Downstream oil and gas sector watch. Newsletter September Edition
Sayne A., Gillies A., and Katsouris C., (2015). Inside NNPC Oil Sales: A Case for
Reform in Nigeria. Natural Resource Government Institute.