NNPCL Is Broke: Nigeria Seeks Public-Private Partnerships to Revamp Nigeria’s Crumbling Oil Pipeline Infrastructure

The Federal Government of Nigeria has acknowledged the dire state of the country’s oil pipeline infrastructure, revealing that the Nigerian National Petroleum Company Limited (NNPCL) lacks the financial capacity to undertake the necessary repairs and upgrades.

This admission was made by the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, during the 2024 Energy and Labour Summit organized by the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) in Abuja.

Lokpobiri highlighted the critical need to overhaul Nigeria’s oil pipeline network, which has suffered decades of neglect and corrosion. Most of these pipelines, constructed in the 1960s and 1970s, have far exceeded their intended lifespan, making them highly vulnerable to vandalism and leaks.

The minister noted that even if Nigeria were capable of increasing its crude oil production beyond 1.7 million barrels per day (mbpd), the deteriorating state of these pipelines poses a significant challenge to evacuating the oil to export terminals.

“The reason why pipeline vandalism is very easy to do is because the pipelines have all expired; they are completely corroded, and so, anybody can just go and tap it and the thing is busted,” Lokpobiri explained.

He noted that while more advanced and secure pipeline technologies exist, they are significantly more expensive, requiring a shift in the country’s approach to managing its oil infrastructure.

NNPC’s Financial Constraints and the Need for PPP

Lokpobiri candidly stated that the NNPC does not have the financial resources to fund the extensive repairs and replacement of the old pipeline network.

“The NNPC, that is our joint venture partner, do they have the money to be able to replace these pipelines? I think NNPC will speak for themselves whether they have the money to be able to do that, and I don’t think they have,” he declared.

Given these financial constraints, the minister called for public-private partnerships (PPP) as a viable solution to address the infrastructure deficits. He urged for the involvement of the private sector, noting that successful investments would require restoring investor confidence, which has been lacking over the past decade due to various challenges, including security concerns and regulatory uncertainties.

The minister also addressed the ongoing issue of fuel smuggling, attributing it to the pricing policies of the NNPC, which imports Premium Motor Spirit (PMS) and sells it below the landing cost. This pricing discrepancy, he said, creates a lucrative opportunity for smugglers, who illegally transport fuel to neighboring countries where it commands higher prices.

He disclosed the difficulty in curbing this illicit activity, noting the complicity of some security agents at Nigeria’s borders.

“Nigeria plays a very critical role in the energy security in Africa. That is why whatever PMS we import into Nigeria finds its way to the whole of West Africa. That is why smuggling cannot stop,” Lokpobiri remarked, stressing the importance of a strategic approach to achieving energy security in the region.

Local Refining and Production Goals

The minister expressed concerns about the ability to supply crude oil to local refineries, including the Dangote Refinery, unless Nigeria significantly ramps up its production levels. While the Federal Executive Council has resolved to prioritize local refining by ensuring a steady supply of crude to domestic refineries, Lokpobiri noted that meeting these obligations remains a challenge.

“Our ambition is to ramp up production. It is only when we ramp up production that the midstream and the downstream can also be successful,” he stated. The minister highlighted the importance of attracting investors to explore and produce more crude oil, which would not only satisfy domestic needs but also allow for continued exports to generate foreign exchange.

Lokpobiri concluded by affirming the government’s commitment to supporting local refineries, both large and small, by ensuring a fair and competitive environment. He reiterated that the government’s goal is to secure sufficient feedstock for local refiners while maintaining a balance between domestic supply and export demands.

The Challenge of High Cost of Governance

However, the revelation that Nigeria lacks the funds to undertake pipeline replacement is seen as a sobering reminder of the nation’s fiscal challenges that further highlight the pressing need for the government to re-evaluate its spending priorities.

The pipelines, which are crucial for transporting Nigeria’s crude oil, are not just outdated—they are dangerously corroded – having been constructed in the 1960s and 1970s, painting a troubling picture as oil remains the major source of the country’s revenue.

While the development highlights the ugly situation of the NNPC, which has been operating at a loss until recently when it announced profits, it points to a major issue that has been eating the country deeply – the high cost of governance and corruption.

The government’s inability to finance the pipeline repairs is believed to be a reflection of a broader issue that has plagued Nigeria for years: the misallocation of resources. While the government struggles to fund essential infrastructure, it has continued to engage in extravagant spending that drains the national coffers. Critics have long argued that the government’s lavish expenditures on non-essential projects and the perks of public office have left vital sectors, like oil and gas, severely underfunded.

Last month, BudgIT, a civic tech organization, revealed an alarming allocation of N732.5 billion for vague empowerment projects in Nigeria’s 2024 budget.

This is against the backdrop of criticism of Nigeria’s government maintaining an oversized political class, with a bloated number of ministries, agencies, and special advisers. The cost of governance is among the highest in the world, with public officials enjoying luxurious lifestyles funded by taxpayers.

The national budget routinely allocates enormous sums for the purchase of exotic cars, renovations of government offices, and frequent foreign trips under the guise of diplomatic engagements. These expenditures continue despite calls for austerity and fiscal discipline, especially given the country’s economic realities.

In 2024, the National Assembly budget was pegged at N344.85 billion, covering expenses that include lawmakers’ salaries, allowances, and other perks, such as constituency projects that have often been criticized for their lack of transparency and impact. This amount stands in stark contrast to the allocation for critical sectors such as health, education, and infrastructure, which continue to suffer from underfunding.

This pattern of spending is not new. Under previous administrations, the government’s focus on maintaining a lavish lifestyle for the political elite often took precedence over investing in the country’s infrastructure and economic development. Former President Muhammadu Buhari’s administration, for example, was frequently criticized for approving spending demands from the national assembly amid revenue deficiency that impacted developmental projects.

Thus, many see Lokpobiri’s admission that the NNPCL does not have the funds to replace the old pipelines as a wake-up call for the government to reassess its priorities. While the minister calls for PPP, admitting that the NNPCL cannot fund the repair of the pipelines alone, experts have noted that the success of such partnerships hinges on creating a conducive investment climate—a challenge in a country where confidence in governance has been eroded by years of mismanagement and corruption.

These challenges, make it increasingly clear that the government must curtail its excessive spending to free up resources for critical economic development projects. Economists have warned that the country cannot afford to continue on its current path, where the wealth of the nation is squandered on luxuries while vital infrastructure crumbles.