The downstream sector encompasses the refining, storage, distribution and marketing of petroleum products:
•Refining Process: Crude oil is processed and refined into more useful products;
•Storage: The products from the refining process are stored at depots via pipeline, land (trucks & rail) and sea (barge/vessel). These storage facilities are also called tank farms or terminals
•Distribution and Marketing: Petroleum products are distributed from storage locations to the end-user directly or through retail outlets
The major products produced by a refinery are, Kerosene, Premium Motor Spirit (“PMS” - Gasoline), Automotive Gas Oil (Diesel), Fuel Oils, Liquefied Petroleum Gas (LPG), Lubricating Oils, Naphtha and Tar
Figure 1. - Schematic Representation of the Downstream Business
The Nigerian Downstream Sector
The Federal Government of Nigeria (“FGN”) participates in the activities of the oil industry (upstream and downstream) as well as actively supervising it due to its strategic importance to the economy.
In the downstream industry, FGN regulates and participates through the following agencies / bodies:
Nigerian National Petroleum Corporation (“NNPC”) –NNPC has powers and operational interest in refining, petrochemicals, product transportation and marketing. NNPC has nine wholly-owned subsidiaries, two partly owned subsidiaries and nineteen associated companies that manage the upstream and downstream activities. Those relevant to the downstream business are the Pipeline & Products Marketing Company (“PPMC), Kaduna Refining & Petrochemicals Company Limited (“KRPC”), Warri Refining & Petrochemicals Limited (“WRPC”) and Port Harcourt Refining & Petrochemicals Limited.
Department of Petroleum Resources (“DPR”) – DPR is an arm of the Federal Ministry of Petroleum Resources and has responsibilities for the following:
•Issuing of permits and licenses for all activities connected with petroleum exploration, production, refining, storage, marketing, transportation and distribution;
•Acting as an agency for the enforcement of the provisions of the petroleum Act, NNPC Art or any other enactment.
Petroleum Products Pricing Regulatory Agency (PPPRA) – The PPPRA came to being from a Special Committee that was set up to review Petroleum Products Supply and Distribution (SCRPPSD) drawn from various stakeholders and other interest groups to look into the problems of the downstream petroleum sector. The functions of PPPA are:
•To determine the pricing policy of petroleum products;
•To regulate the supply and distribution of petroleum products •To create an information databank through liaison with all relevant agencies to facilitate the making of informed and realistic decisions on pricing policies •To moderate volatilities in petroleum products prices, while ensuring reasonable returns to operators •To establish parameters and codes of conduct for all operators in the downstream sector.
Petroleum Equalisation Fund (PEF) – The PEF fund board was established to equalize the transport cost arising from the distribution of petroleum products to all parts of the country i.e. the cost of transporting products from source to point of sales. This is to ensure that petroleum products are made available in all retail outlets at uniform prices in Nigeria, and to avoid shortage of petroleum products.
Petroleum Subsidy Fund (PSF) – is a pool of funds budgeted by FGN to stabilise the domestic prices of petroleum products against the volatility in international crude and products prices. CBN is the custodian of the fund, while PPPRA administers it. Claims from / payment into the fund is subjected to duly verified volume of products lifted out of the approved depot and sold in-line with recommended open market prices.
The Nigerian downstream industry is comprised of two groups of marketing companies: