Controversy Swirls in Oil Sector as NNPC Awards Pipeline Contracts to MRS, AA Rano Once Again – The Nigerian National Petroleum Company Limited (NNPC) has ignited a maelstrom of criticism from industry operators after awarding pivotal pipeline rehabilitation contracts to four companies, including the oft-favored downstream firms MRS Oil Nigeria Plc and A.A RANO Nigeria Limited. The other beneficiaries of the new contracts are Oilserv Limited and Macready Oil & Gas Service Company Limited.
These four firms were selected as the preferred bidders to maintain and rehabilitate Nigeria’s extensive pipeline network, a project that will be executed through a build, operate, and transfer financing model. The network in question comprises 4,315km of multi-product pipelines and 701km of crude oil pipelines, strategically interconnecting 22 fuel depots, four refineries, and the crucial jetties at Atlas Cove and Warri.
However, industry experts are sounding the alarm, suggesting that this development might provide an unfair competitive advantage to the retail companies that have won the pipeline contracts. According to these insiders, this situation is at odds with global standards where pipeline operators and retailers are distinct entities. For instance, in the United States, major pipeline companies like Kinder Morgan and Williams Company do not operate retail outlets.
A seasoned business leader in Nigeria’s energy sector voiced their concerns, stating, “Retail companies with no history of handling pipeline contracts should not be securing million-dollar projects in Nigeria. This situation creates opportunities for exploitation.”
The transition from a state monopoly under the NNPC to a potential private monopoly also raises red flags, as there are worries that certain regions in the country might be underserved. Industry sources fear that retail operators with pipeline contracts might prioritize their outlets in the event of supply shortfalls, which could destabilize the market.
According to BusinessDay’s findings, the NNPC awarded the contracts based on a LOT system for the rehabilitation of the country’s long-idle pipelines. The specifics of the LOT allocations to Oilserv Limited, A.A Rano, Macready Oil & Gas, and MRS Oil Nigeria Plc have been detailed, with each company responsible for different segments of the pipeline network.
Kelvin Atafiri, CEO of Cavazanni Human Capital Limited, pointed out that LOT 4, awarded to MRS Oil Nigeria Plc, provides the company with a significant competitive advantage since the NNPC has already incurred the capital costs for infrastructure.
In 2021, both MRS and AA Rano were chosen for Nigeria’s coveted crude-for-fuel swap contracts, known as direct sale, direct purchase contracts. These contracts are crucial for supplying the majority of Nigeria’s petrol needs and covering some of its diesel and jet fuel consumption.
As the controversy unfolds, the NNPC’s decision to award contracts to retail companies instead of core engineering and construction firms raises eyebrows and exacerbates concerns regarding the future of Nigeria’s oil sector. With the country grappling with poorly maintained and vandalized government-owned fuel depots and pipelines, private tank farms and road tankers have become increasingly important for supply and distribution.
However, doubts linger over the NNPC’s ability to supply the crude oil necessary for refineries, as emphasized by Niyi Awodeyi, CEO of Subterra Energy Resources Limited. Amid shifting timelines and projections for refinery functionality, there remains a trust deficit between the public and the government, casting a shadow over President Bola Tinubu’s promise that Nigeria will become a net exporter of petroleum products next year. Industry observers like Jide Pratt, country manager of Trade Grid, remain skeptical about the government’s ability to ramp up production securely and efficiently in the short term.