2002

Technology Transfer and Acquisition in the Oil Sector and
Government Policy in Nigeria

R.I. Chima
E.A. Owioduokit
R. Ogoh

ATPS WORKING PAPER SERIES No. 32

Published by the African Technology Policy Studies Network, P.O. Box 10081, 00100
General Post Office, Nairobi, Kenya.

© 2002 African Technology Policy Studies Network (ATPS)

PUBLISHED BY IDEAS & PLACES
P.O. BOX 00100-30706, NAIROBITEL/FAX 445777

ISBN: 9966-916-29-6

ABOUT THE AFRICAN TECHNOLOGY POLICY STUDIES NETWORKThe African Technology Policy Studies Network (ATPS) is a multi-disciplinary network of researchers,
policymakers, actors in the private sector and other end users interested in generating, promoting
and strengthening innovative science and technology policies in Africa. With a regional secretariate
in Nairobi, the network operates through national chapters in 17 countries, with an expansion plan tocover the entire sub-Saharan Africa.
One of the objectives of the network is to disseminate research results to policy makers, legislators,
the organized private sector, civil society, mass media and farmers’ groups through ppublications,dialogue and advocacy. Among its range of publications are the Working Paper Series (WPS), Research
Paper Series (RPS), Special Paper Series (SPS) and the Technopolicy Briefs.
Papers published under the Working Paper Series (WPS) shall be those produced from the ATPS
small grants process or from regional projects but do not meet the strict requirements set out under
RPS. Failure for these papers to meet the standards of RPS will not suggest that they do not havesignificant policy or methodological contribution to make to the work of ATPS. The Board supports all
efforts aimed at improving the WPS, such as building skills that will make most of the ATPS research
outputs to be published under the RPS. Researchers will be encouraged to produce their final drafts
in a publishable manuscript form that is shorter and easier to read. The format will be established by
the Secretariat.
ATPS is supported by a growing number of donors including the International Development ResearchCentre (IDRC), the Carnegie Corporation of New York, the Rockefeller Foundation, the World Bank,
the OPEC Fund, Ford Foundation, Coca-Cola Eastern Africa, the African Development Bank, and theRoyal Dutch Government.

Contents

Chapter One:

Introduction

Chapter One:

Methodology

Chapter One:

Background

Chapter One:

Case Study: Research Findings and Data

Chapter One:

Conclusions

ReferencesAbbreviations and Acronyms
BPSD
EPCL
GCE
HND
IDSL
ITF
KRPC
LNGC
MOC
NPIMS
NEC
NETC
NGDC
NLNGC
NNPC
NPDC
NUPENG
OND
OPEC
PHRC
PPMC
PTI
PENGASAN
PTDF
SSCE
STD
TAM
TSR
UNCTAD
UOP
WAEC
WRPC

Barrels Per Stream Day
Eleme Petrochemical Company Limited
General Certificate of Education
Higher National Diploma
Integrated Data Services Limited
Industrial Treaining Fund
Kaduna Refinery and Petrochemical Company
Liquefied Natural Gas Company
Multinational Oil Companies
National Petroleum and Investments Management Services
Nigerian Expansion Council
National Engineering and Technical Company
Nigerian Gas Development Company
Nigerian Liquefied Natural Gas Company
Nigerian National Petroleum Corporation
Nigerian Petroleum Development Corporation
Nigerian Union of Petroleum and Natural Gas
Ordinary National Diploma
Organization of Oil Exporting Companies
Port Harcourt Refinery Company
Pipelines and Products Marketing Company
Petroleum Training InstitutePetroleum Natural Gas and Allied Services Association of Nigeria
Petroleum Technology Development Fund
Senior School Certificate Examination
Staff Training and Development
Turn Around Maintenance
Teaching Staff Return
United Nations Conference on Trade and Development
Universal Operating ProcessingWest African Examination Council
Warri Refinery and Petrochemical Company

List of Tables
Table 1:
Table 2:
Table 3:
Table 4:
Table 5:
Table 6:
Table 7:
Table 8:
Table 9:
Table 10:
Table 11:
Table12:
Table 13:
Table 14:
Table 15:
Table 16:
Table 17:
Table 18:
Table 19:
Table 20:
Table 21:
Table 22:
Table 23:
Table 24:

The Petroleum Technology Development Fund Scholarship Awards
Total Scholarships Awarded by the Oil Sector 1984 – 1988
Professorial Chairs Endowed by the Oil Companies in Nigerian Universities
Nigerian Universities and Petroleum Technology-Related Courses Offered
Percentage of Engineering Technology Graduates to Total Number of Graduates
Categories and Qualification of Teaching Staff of PTI
Staff Training and Development and Teaching Staff Return at Petroleum
Training Intitute
Number of Graduates of PTI by Department and Qualification Obtained
Schedule and Content of Training at PTI
Technology Process Units of the Warri Refinery
Proportion of Nigerians to Expatriate Staff Involved in Oil Sector Operations
NNPC Priority Projects (in Naira Millions) 1994 – 1996
Petroleum Products Daily Production
Product Mix and Annual Domestic Consumption Levels Metric Tons
Installed Capacity of Refineries
Capacity Utilization of Refineries '000 Barrel/Day
Crude Oil Production Supply to Refineries and Exports
Cruse Oil Processed and Refined Products by Refinery
Petroleum Prices for Nigerian Consumption 1979 – 1990 (in kobo/litre)
Petrol Pricing and Margins 1991 – 1995
Petroleum Refining Costs (in kobo/litre)Federal Budgetary Support for NNPC 1990 – 1994
Nigerian National Petroleum Corporation (NNPC) Capital Financing (in Naira
Millions) 1994 –1996
NNPC Capital Investments (in Naira Billions) 1991 – 1996

Abstract
The analysis presented in this report shows the level of development and upgrading of the coretechnological capabilities in the Nigerian oil industry since independence in 1960. The study examines
the nature of technological capabilities formed in the Nigerian oil industry and the effects of government
policy on technological capability building in the oil industry. The study is focused on Nigerian National
Petroleum Corporation (NNPC) and its four refineries in Nigeria. It evaluates the strategy and effort oftraining adopted by the Nigerian government as a means of transferring the acquisition of oil technology
by Nigerians. The study also evaluates the impact of technical change on the production andfinancial performance of the NNPC. Surveys were conducted on NNPC and its refineries. The surveys
relied mainly on the published and unpublished reports of the NNPC.
Assessments of the nature of the transfer and acquisition of oil technology in the Nigerian oil industry
shows that learning of technology was initiated and achieved through the Petroleum Technology
Development Fund (PTDF). The fund provided scholarships for Nigerians to study engineering andtechnology courses within the country and abroad. The oil companies also supported the developmentof engineering-based programmes in the Nigerian universities as a result of the Petroleum Decree of1969. The establishment of the Petroleum Training Institute (PTI) was a major step towards thedevelopment of technological capabilities in the oil industry. The result of these post independence
training effort and the accompanying learning experience was the significant technical change that
occurred in the industry in the following decades. The firm history assessment of the NNPC showsthat the nature and magnitude of investment, equipment and engineering profiles of the NNPC and its
subsidiaries, reveals the prospects of significant technical change. This manifests in the production
and financial performances of the NNPC. The future of the oil industry is perceived to be dependent
on the development and upgrading of these technological capabilities and government responses tothe technology needs of the oil industry. Government policy on technology shifted from technologicalcapability building to actual divestiture and the sale of equity to oil firms that have the required
technology for a modern oil industry.

Chapter One
Introduction
When oil was discovered in Nigeria, the country had very little human resource to manage andoperate a sizeable modern petroleum sector. The foreign oil companies and the government played
major roles in establishing the prerequisites for the establishment of linkage and minor change
capabilities, especially in developing human resources for the petroleum industry. At the onset, the oilcompanies supported the establishment of departments and appropriate curricula for the training ofNigerians in oil-related technological, science and engineering disciplines in Nigerian universities.
Scholarships were awarded in significant numbers for overseas study and training in these disciplines. Assistance was given for relevant programmes of training in technical schools. This was also
extended to in-house training programmes within the oil companies. Training centres of oil companies offered both non-technical and technical training, especially in drilling, production, transport,
maintenance and repairs. The pioneering effort of Shell and British Petroleum initiated the training of
mechanics, drilling and derrick men, seismic operators, rig-moving staff, crane drivers, laboratory
technicians, core sampling experts and a host of other specialists. Government decisions and policies, especially those targeted at the petroleum industry, influence the strategy of human resource
development in Nigeria’s oil industry. Degree level courses in petroleum-related disciplines were
established in Nigerian universities. The Multinational Oil Corporations (MNOCs) helped establish
professorial chair in geology, while institutional cooperation in petroleum-related disciplines were
undertaken between the universities of London and Nigeria. By the 1980s no fewer than eight Nigerian universities offered degree level courses in geology and allied sciences related to petroleum.
The government’s effort to alleviate the shortage of technicians led to the creation of an industrial
training fund (ITF) to promote and encourage the acquisition of skills in the industry. Since thecreation of the ITF, encouragement was given to a broad industrial training effort integrated into
companies’ manpower plans and work places. In addition, the Petroleum Technology Development
Fund (PTDF) was established in 1973. It was an offshoot of the aid to education grant offered to
Nigeria by Gulf Oil Company in 1962. The gulf scheme was subsumed into the PTDF. The fundreceived contributions from the petroleum inspectorate, and several personnel currently working in
the oil industry at various levels, owe their training to the support from the PTDF. These efforts
consolidated the establishment of minor change and linkage capabilities in the Nigerian National
Petroleum Corporation (NNPC). Two important policies of government influenced the developmentof these capabilities in the oil industry.

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TECHNOLOGY TRANSFER AND ACQUISITION IN THE OIL SECTOR AND GOVERNMENT POLICY IN NIGERIA

Government imposition of regulations on the oil companies to employ Nigerian
personnel rather than expatriate staff. This was enforced through the refusal bygovernment to issue work permit to certain levels of expatriate staff. This compelled
the MNOCs to quickly train Nigerians to take over certain core petroleum engineeringand management jobs. This was given further emphasis by the promulgation of thepetroleum decree No.51 of 1969.
•
The establishment of the Petroleum Training Institute (PTI) in 1975. The institute is
located at Effurun, Warri in Delta State within the locality of the Warri Refinery andPetrochemical Company. It was established to train technicians and skilled personnel
required for oil production. Its activities have improved the provision of research facilities
in oil technology.

•

The development of production and strategic marketing capabilities is evident in the extent to which
Nigerians have adapted to petroleum technology. Substantial investment capabilities are evident in
the activities of the NNPC, particularly in respect of petroleum contract negotiations and bargains for
petroleum technology — machines, equipment and expert personnel. This is also evident in project
execution — civil engineering and associated oil services.
Production capabilities are evident in the way Nigerians undertake production-engineering processes in both upstream and downstream oil operations, especially with respect to organizing internal Turn Around Maintenance (TAM) of the refineries. These include the general maintenance andrepairs of refining equipment in Nigeria’s four refineries. Strategic marketing capabilities are noted in
respect of the improvements in product mix, quality and diversification. Major change capabilities are
not immediately evident in the activities of NNPC, especially in respect of new ideas, patents andmethods of production. This study has evaluated in detail the core capabilities identifiable in the
NNPC since the discovery of oil and the start-up of upstream and downstream oil operations in
Nigeria. It has identified five core capabilities in the NNPC, production, investment, minor change,
linkage and strategic marketing capabilities, while major change capabilities are not identified. The
study relied on survey data and information from the NNPC and all its subsidiaries, especially therefineries. A considerable level of capacities has been developed in the NNPC.
Statement of the Problem
Nigeria depends on the export of crude petroleum for economic growth and development. Importantly, the production of oil in Nigeria has been profitable for the international oil companies. These
companies initiated oil exploration and production in Nigeria and have dominated the industry formany years. Considering the role of oil in national development, the struggle for indigenous control ofactivities in the industry has persisted over the years. Among oil exporting countries like Mexico and
Libya, this struggle has culminated in apparent revolution, which ultimately forced out foreign oil firms
from the industry and made way for national control of oil operations. However, the foreign oil firms
generally have isolated the host country from the technology of oil operations. Governments have also
taken alternative approaches to counter this isolationist policy of the MNOCs. These approaches

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include the offer of a network of incentives and attempts to achieve economic stability through reforms. Beyond the revolution and alternative approaches adopted by governments, there is a criticalproblem. Put differently, after the foreign firms have left the oil fields and returned to their homecountries, who takes charge of future oil operations in the host country? The answer to this question
brings to the fore the issues about the acquisition, development and upgrading of technologicalcapabilities in the oil industry. Technological capabilities involve the entire spectrum of technologicalknowledge acquired through technological learning and advanced through industrial training andwork experience. The main concern of this study is to examine the nature and magnitude of technological capabilities acquired by or transferred to Nigeria’s oil monopoly, the NNPC. In contracting theservices of foreign oil companies for exploring and developing indigenous petroleum resources, ahost developing country has two main goals:
a. To secure the investment risk and the technical and managerial expertise necessary forthorough and rapid exploration of the controlled area.
b. To develop any commercial discovery in such a way as to ensure maximum production andeconomic benefits (Zakariya, 1982).
In the transfer of technology, there is divergence of interest between the host country, government andthe foreign oil companies. In order to prolong their lucrative role, the foreign oil companies keep thehost developing country in a state of dependence on their services. It is certainly not in their bestinterest to contribute positively to any process that would eventually enable the host country to dispense with their services partially or completely. This divergence of interest is always borne in mind
when contractual clauses pertaining to transfer of technology are negotiated or when they are being
monitored during implementation.
The product of this divergence of interest is the emergence of aberrations of what might be considered as a real transfer of technology. It is instructive to note that as far as petroleum operations areconcerned, the mere importation of the necessary tools and human skills by the foreign firms for theirown purposes does not constitute in any real transfer of technology. This is merely a relocation ofequipment and human skills to create temporarily, an artificial enclave of technical knowledge andsophistication, in isolation from the rest of the economic and social life of the community. Ideally, areal transfer of technology lies in the ability of the host developing country to purchase or hire directly
the most advanced technical means of petroleum exploration and development, at a reasonable
price. Furthermore, it lies in the development of the mental skills of the citizens in order to utilize thesetechnical means with minimum or without supervision. The grievance of oil producing developing
countries is that foreign oil operators in the territories have not been as instrumental as they should inbringing about a real transfer of oil technology. It is common knowledge that the MNOCs havedominated both the petroleum industry, and the search for and development of the technology for the
petroleum industry throughout the world. However, over the years indigenous oil companies haveadopted various strategies and training efforts tailored towards the eventual acquisition of petroleum
technology for both upstream and downstream activities. Generally, the ability of any country to acquire oil technology depends on the degree of its openness to the inflow of foreign technology. It also
depends on the tuning of the strategy of training adopted to develop the needed capacity to meet the10

TECHNOLOGY TRANSFER AND ACQUISITION IN THE OIL SECTOR AND GOVERNMENT POLICY IN NIGERIA

peculiar need in that country to acquire oil technology transfer (through purchase, imitation, stealingor smuggling). Training is usually tailored to meet the specific technological needs of oil firms. Thismeans that whatever training strategy is adopted by the oil industry at any time, the focus is ontechnological learning which forms the basis for the development of technological capabilities.
Broadly, the achievement of technological development in the oil industry depends on the pattern oftechnological capacity building in the oil industry and the identifiable prerequisites for building up
capabilities in the oil industry. It also depends on the impact of government policies on the incentive
system, and the capacity of the oil industry to acquire, develop and upgrade their technologicalcapabilities. In these respects, this study is guided by the following specific research questions that
aim at determining the nature, magnitude and impact of technological capabilities in the Nigerian oil
industry, NNPC:•••

What are the sources and identifiable prerequisites for the development of technologicalcapabilities in Nigeria’s four refineries and gas plants operated by the NNPC?
To what extent are increasing technological capabilities of Nigerians reflected in increased
innovation and technical change in these refineries and gas plants?
To what extent has technological learning and technical change influenced the performance of these refineries and gas plants?

Objectives of the Study
The broad objectives of this study are to:• characterize the core capabilities in NNPC (production, investment, linkage, minor change,
major change and strategic marketing).
• study the historical experiences of NNPC in acquiring and developing these capabilities.
• study the impact of technical change and government economic policy on the performance,and capacity of NNPC to acquire, develop and upgrade these technologies.
Specifically this research is aimed at investigating the:• strategy of training in NNPC.
• historical practices of NNPC to nationalize the core skills in various aspects of petroleum
operations.
• changes in financial performance, productivity and level of capacity utilization of NNPC
• impact of government economic reform policy on the development of technological capabilities in NNPC.
Significance of the Study
Oil production in Nigeria is dependent on the foreign technology transferred into the country byforeign multinational oil companies. After independence in 1960, the Nigerian government initiated a
programme of development in oil exploration, refining and transportation. Part of this initiative was
the introduction of training and subsequent expansion of the training effort to create an absorptive

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ATPS Working Paper Series No. 32

capacity to acquire oil technology provided by the foreign multinational oil companies, through oil
exploration and production contracts. This study is premised on the need to evaluate the transfer andacquisition of oil technology in Nigeria through the effort of the government and the oil companies.
The study reviews the technology transfer literature and the political economy, and provides evidence
on the nature of the inherent conflict in the transfer process. Furthermore, the study attempts tocharacterize the technology, and identifies the level of technological capabilities in the Nigerian oil
industry. The focus of this characterization is the NNPC, which owns several subsidiaries, including
four refineries. The study evaluates the level of technical change due to the training effort in theindustry and the impact of the technical change on production and financial performance of the
NNPC.

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Chapter Two
Methodology
Conceptual Framework
The framework adopted in this research follows the firm level technological capabilities defined in
Ernst, Mytelka and Ganiatsos (1994), and applied in Gee and Kuo (1994), Wie and Pangestu (1994)
and Poapongsakron and Tonguthai (1994). The definition of technological capabilities is based on
the concept of technological learning. Technological learning comprises of formal, non-formal andinformal learning. Formal leaning is defined as a planned and evaluated sequential programme,
leading to certificate, degree or diploma. Non-formal learning if defined as organized learning that is
usually not graded, non-sequential and or part-time, characterized by on-the-job training and professional development. Informal learning is defined as a lifelong process by which people who work inforeign affiliates or in domestic companies, which closely interact with transnational corporations,
may acquire values, attitudes and beliefs embedded in the organizational culture of transnational
corporations, through daily experience, observation and exposure to indoctrination. Technologicallearning involves the challenge of acquiring technological knowledge. Generally, it is argued that two
main components of technological knowledge that firms need to acquire and absorb are the public
and tacit knowledge elements of technology. The public knowledge component includes such items
as engineering blue prints and designs, and the underlying genesis of scientific knowledge. It also
includes management manuals, handbooks describing system features, performance requirements,
material specifications and quality assurance criteria, and the organizational methods and routines
required for the implementation of these codified items. Furthermore, it includes individual practitioners’ knowledge of the way such scientific, engineering and organizational principles are applied or
the knowledge about how things work in practice. Tacit knowledge is derived from and tied to the
localized and collective learning experience of a given company through technological capabilities,
into six capabilities: production, investment, minor change, strategic, linkage, and major change.
Production capabilities include the knowledge and skills used in plant operation, where shop floor
experience and learning-by-doing, continue to play an important role, despite the growing science
intensity of industrial manufacturing. Three broad types of activity are included in this category. They
are production management and engineering, and repair and maintenance of physical capital. The
first involves organization and control of the production process and interaction with upstream, downstream and ancillary activities. Production engineering includes raw materials’ control, production
scheduling, quality control and trouble-shooting. Repair and maintenance of production equipment
influence the production process. Investment capabilities refer to the knowledge and skills utilized in

ATPS Working Paper Series No. 32

the identification, preparation, design, and establishment and commissioning of a new industrial
project, or the expansion or modernization of existing ones. This includes pre-investment capabilities and project execution capabilities. Pre-investment capabilities include all activities prior to andincluding feasibility studies, site selection, and the scheduling of investment to the search for sourcesof technology, negotiation of contracts, scheduling of investment and bargaining for suitable transfer
conditions. Project execution involves civil engineering and associated services, selection and procurement of equipment, detailed engineering, training and recruitment of workforce and start-up
operations. Minor change capability is a firm’s ability to improve and adopt continuously its products
and processes. It covers adoptive engineering, organizational adjustments involved in the moremental upgrading of product design, performance features and process technology. It includes theaccumulation of the deeper forms of knowledge, skill and experience, required to generate continuing parts of more mental change. These improve on the original performance standards of thetechnology in use, and modify its inputs, outputs and processes, in response to changing input andproduct markets.
Strategic marketing refers to knowledge and skills required for collecting market intelligence, thedevelopment of new markets for the establishment of distribution channels and the provision ofcustomer services. Linkage capabilities relate to the knowledge, skills and organizational competence associated with the transfer of technology at three levels within a firm. These levels are fromone enterprise to another, between the firm and the domestic scene and technology infrastructure.
Within a firm, linkage capabilities refer to the capacity to manage interaction and information sharing
among divisions and business functions, such as research and development, design, engineering,procurement, production, marketing, sales and customer services. Inter firm linkages encompass
activities such as the procurement of materials, parts and components, services, related exchange of
information with suppliers, and the sharing of marketing and distribution activities, joint developmentof product design, production technology and related scientific knowledge. Linkage with the country’s
science and technology infrastructures relate to a firm’s capacity to attract, absorb and upgrade theavailable pool of human resources, and to screen and scan new technology developments andestablish close interactions with applied and basic science. Major change capabilities refer to theknowledge and skills required for the creation of new technology, that is, major changes in the designand core features of products and production processes. These include in particular new productideas, applied and scientific knowledge, and the ability to develop patents. Major change capabilities
are derived from sources such as in-house research and development, universities, and public or
private research and development laboratories. However, besides identifying the formation of thesecapabilities in the firm, a fundamental argument is that technological capabilities are not free andeasy to achieve.
They are developed through conscious and sustained efforts by both firms and governments. Generally, the essential prerequisites for technological capability building include:• The need to bring awareness to develop capabilities, willingness to do so and macroeconomic stability,• The incentive system or the combination of the array of government policy instruments

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TECHNOLOGY TRANSFER AND ACQUISITION IN THE OIL SECTOR AND GOVERNMENT POLICY IN NIGERIA•

which affect firm level innovation strategies directly or indirectly, market forces and historical
practices,
The broad strategies adopted by firms to develop technological capabilities and the various
channels they have used to acquire technology.

Method of Data Collection
This study is conducted through surveys. Extensive archival studies were carried out in addition to
direct observation and spot assessment of factual information and data on technical change andtechnological capabilities at the four NNPC refineries. The archival studies concentrated on annual
reports, audited accounts, engineering reports, memoranda, statistics of NNPC, rolling plans andannual national budget documents. The surveys covered broad aspects of the study as follows:
1. Technological Learning: The surveys were directed at the linkage and minor change capabilities in NNPC, the training effort of NNPC, sponsorships for training in and out of Nigeria,
linkages with research and development institutions in and out of Nigeria, type of training byspecialization and mode of selecting trainees.
2. Firm History: The surveys were directed at the investment and production capabilities of
NNPC. These include the profile of technology involved in NNPC activities, the schedule ofequipment and main assets of the refineries, local technology and fabrication used in therefineries, the proportion of Nigerians to expatriate staff involved in oil operations periodically, NNPC projects schedule and prioritization.
3. The Impact of Technical Change on Performance: The surveys were directed at the majorchange and strategic marketing capabilities in NNPC and specifically the impact of technical change on production andfinancial performance as follows:a) Productivity of the refineries, growth of output, product mix, quality and diversification.
b) Capacity utilization and installed capacity of refineries, unit-time utilization andannual average production level of petroleum products.
c) Financial performance, product sale, unit cost, total sales cost, operating costs,
federal budgetary support for NNPC, NNPC’s capital financing and sources offunding.

15

Chapter Three
Background
Overview of the Nigerian Oil Industry
Oil exploration in Nigeria began in 1908. A German company, the German Bitumen Corporation
started, exploration in the Araromi area of present Ondo State of Nigeria. It was the first attempt tosearch for hydrocarbons in Nigeria. Unfortunately, this pioneering effort did not last long and thecompany terminated its operations at the outbreak of the First World War in 1914. Another major effort
was embarked upon in 1937 by an Anglo-Dutch consortium, Shell D’Arcy (the forerunner of thepresent Shell Petroleum Development Company in Nigeria). This was after being awarded soleconcession rights covering the whole territory of Nigeria. Shell D’ Arcy’s operation, were interrupted by
the Second World War and exploration did not resume until 1947. After many years of search and an
investment of over Naira (N)30 million, a commercial discovery of petroleum was recorded at Oloibiri
in the Niger Delta in 1956. In 1958, shell started oil production and export from Oloibiri field in thepresent Rivers State at 5100 barrels per day. In 1959, the sole concession rights over the wholecountry granted to Shell were reviewed. Exclusive exploration rights were extended to companies ofother nationalities in line with the policy of increasing the pace of exploration, while at the same timeensuring that the country was not too dependent on one company or nation.
The success of Shell encouraged other companies to join in the exploration and in 1961 Mobil, Gulf,
Agip, Statrap (now Elf), Tenneco and Amoseas (now Texaco/Chevron), had joined the explorers foroil in both on and off shore. Discovery was made by Gulf on the Okan field of former Bendel State in1964. Many new companies also made significant discoveries. The initial interest of the Nigerian
government in the oil industry was limited to collecting the royalties and other dues, which the oilcompanies offered to pay to it, and making laws to regulate the activities of the industry. Immediately
after the Nigerian civil war in 1970, oil became predominant and more strategic to the economy of
Nigeria. Nigeria also joined the Organization of Oil Exporting Countries (OPEC) in 1971 as theeleventh member. In the same year, the NNOC was established by decree 18 of 1971. It was charged
with responsibilities for upstream and downstream activities in the industry. There was a ministry of
petroleum resources operating concurrently with NNOC. Its functions were mainly regulatory and did
not involve any participation. However, in 1977 the NNOC and the Ministry of Petroleum Resourceswere merged to form the NNPC by decree 33 of 1977. The functions of NNPC necessarily combined
the commercial objectives of the NNOC, namely, exploration, production, transportation, refining,processing, marketing and research, including the regulatory functions of the former Ministry ofPetroleum Resources.

TECHNOLOGY TRANSFER AND ACQUISITION IN THE OIL SECTOR AND GOVERNMENT POLICY IN NIGERIA

The public sector of the Nigerian oil industry started as a section of the mines division of the Ministryof Lagos Affairs in 1958. It was originally a one-man unit. The responsibilities of that unit increased
very quickly as oil operations expanded. In 1963, with oil becoming relatively more significant in thenational economy the hydrocarbon section of the Mines Division was upgraded to a division within
the Ministry of Mines and Power. As the development of oil resources increased, the department of
petroleum resources was further upgraded to a full-fledged ministry in 1975. The Ministry of Petroleum Resources and Energy later became the Ministry of Petroleum and Mineral Resources. With
the establishment of the NNOC in 1971 and subsequently the NNPC in 1977, the corporation became an integrated national oil company engaged in exploration, production, processing, transportation and marketing of crude oil, gas and their derivative. The affairs of the NNPC were being
managed by a board of directors, appointed by the President of the Federal Republic of Nigeria. The
board was made up of an alternate chairman, a managing director, and the permanent secretaries of
the Federal Ministries of National Planning, Finance and three other members selected from theprivate sector. In accordance with sub section 4 (2) of the NNPC decree of 1977, a review of thestructure of the corporation was made after a year of its operation. In October 1985, the corporation
was also reorganized into six service units headed by coordinators. The aim of these changes was toencourage innovation, efficiency and effectiveness in the management of the oil industry. The six
units were oil and gas, refineries, petrochemicals, pipelines and products, marketing and petroleum
and inspectorate. The inspectorate, which had been an integral arm of the NNPC, was later transferred to the supervising Ministry of Petroleum Resources. It is currently a directorate in the ministry,
vested with regulatory functions. In 1988 NNPC was reorganized with a commercial objective. The
new structure of the corporation included:• corporate services (finance, administration, public affairs, personnel, technology and corporate/legal matters),• operations (exploration and production of gas and petrochemicals, and international marketing), and• national petroleum investments (crude oil marketing and joint venture activities in exploration and production sector of the industry).
Furthermore, eleven subsidiary companies of the NNPC were established under the operations armof the corporation as follows:
1. Nigerian Petroleum Development Company (NPDC),
2. Integrated Data Services Limited (IDSL),
3. Warri Refinery and Petrochemical Company (WRPC),
4. Kaduna Refinery and Petrochemicals Company (KRPC),
5. Port Harcourt Refinery Company (PHRC),
6. Pipelines and Products Marketing Company (PPMC),
7. Nigeria Gas Development Company (NGDC),
8. Eleme Petrochemical Company (EPCL),
9. Nigerian Engineering and Technical Company (NETCO),
10. Nigerian Liquefied Natural Gas Company (NLNGC), and
11. National Petroleum Investments and Management Services (NAPIMS).

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ATPS Working Paper Series No. 32

Government Policy on the Oil Industry
Government policy on the oil industry is propagated through various legal and contractual arrangements, which guide operations and activities within the industry ( Olisa, 1987; Omorogbe, 1986;
Osunbor, 1988; and Onwioduokit, 1994). These legal relations include:
1. The concessions, which require the oil companies to solely bear all risks and costs of
exploration, development and production. The concession is stated as oil mining lease in
the Petroleum Act and the oil companies were liable for all royalty and petroleum profit tax
payments.
2. The joint ventures, which are defined in terms of four legal arrangements, namely:a) The Participation Agreements,b) The Operating Agreements,c) The Head of Agreements andd) The Memorandum of Understanding. The government has acquired 60 per centparticipating interest in the concession held by Shell, Gulf, Agip, Mobil, Phillips, Elf,
Texaco, Pan-Ocean and Chevron. Under the participation agreement, respective
rights of partners to the joint venture are set out. The interest paid for and acquiredby the government through NNPC is known as “participating interest” in:i. oil mining;ii. fixed and movable assets of the company in Nigeria in areas of exploration, development, production, transportation, storage, delivery and export operation and associated assets, such as offices, housing andwelfare facilities; andiii. working capital application to the operation of the mining leases.
The heads of agreement provide that there will be undivided interest in the rights grantedwith respect to petroleum. Each interest owner may lift only as much its full equity shareof crude oil; a make-up right shall accrue to the interest owner to nominate the balanceof its equity in the future. The operation agreement spells out the legal relationships
between the owners of leases or concessions and lays down the rules and proceduresfor the joint development of the area concerned and the property owned by the twoparties. In this respect, joint property is defined to include expenditure for practically all
the activities and services of the oil company (Olisa, 1987).
3. The Production Sharing Contract. This is an arrangement in which the output from thecontract is shared by the parties in predetermined proportions (Omorogbe, 1986). Emphasis here is placed on the contractual status of the oil company by making NNPC the concession holder and by specifically excluding the company from claiming any title over the
produced crude oil.
4. The Service Contract. It is designed as an improvement on the Production Sharing Contract. The distinguishing feature of the service contract is that no title to or right over the
production of crude oil, is given to the contractor. The contractor is paid for services rendered either in cash or kind, although there are contractual provisions that give the contractor a first option to buy the crude oil produced. These contracts of work with the government,

18

TECHNOLOGY TRANSFER AND ACQUISITION IN THE OIL SECTOR AND GOVERNMENT POLICY IN NIGERIA

bear all the risks which are termed as “Pure Service Contracts”. However, when all risks andinvestment are placed on the contractor, as is the case in Nigeria, they are referred to as Risk
Service Contracts (Onwioduokit, 1994).
However, historical evidence shows that the most significant legislation on oil during the period
before 1971 were the Mineral Oils Act of 1962 and the Petroleum Profits Tax Ordinance of 1959
(Asiodu, 1979 and Olisa, 1987). Under the Nigerian tax law, the government adopted a practice inwhich petroleum profits were shared at 500% basis with the oil companies.
Another important legislation of the Nigerian government, is federal decree in 1969, requiring the oilcompanies to establish posted prices, expense royalties and other payments. The expending ofroyalties meant that such payments were to be created as expenses and not as part of the 50 per centshare of the government in the profits from petroleum. All companies including foreign oil companies(MNOCs) operating in Nigeria, were required to be incorporated under Nigerian laws. Furthermore,
the major comprehensive legislation in the period before 1971 was the Petroleum Decree of 1969,
which:• redefined petroleum to exclude gas;
• reduced the length of the concession period to 20 years;• set out clearly the period and stages of surrender of acreage granted under concessions;and• required that within 10 years of operation the MNOCs must employ Nigerians in the senior
positions up to 75 and 100 per cent for other cadres. It further required MNOCs to produce
schemes for the exploration of gas associated with their petroleum production. Government
policy after 1971 centered on deepening indigenous participation and control. Various participation agreements were signed, which began with a minimum of 35 per cent participation in all concessions and programmed to 51 per cent by 1981. It is expected that over time,
Nigeria would take over 100 per cent of all oil concessions in the petroleum industry. AlreadyNigeria is controlling 60 per cent participation through NNPC, with all MNOCs in the oil
industry (Olisa, 1987, Omorogbe, 1986, Onwioduokit, 1994).
Mainstream Arguments on the Transfer and Acquisition of Technology
Four major factors in literature are considered to be the determinants of the transfer and acquisitionof technology as follows:
1. Technology market imperfection and barriers between the developing country buyer and thedeveloped country seller.
2. The prevalent host government industrial policy and the package of incentives to investors.
3. The policy of MNOCs in response to host country economic, industrial and technology policies.
4. The existing political relations among the different social and political classes that compete fordominance in the determination and direction of state matters in the host country.

19

ATPS Working Paper Series No. 32

The Imperfect Technology Market Argument
Substantial United Nations Conference on Trade and Development (UNCTAD) literature on thetransfer of technology concentrates on the technical questions of unequal information between thebuyer and seller, the nature of the bargaining situation, the technology package, costing and generalimperfections in the technology market (Turner, 1980; Ewing, 1976; UNCTAD, 1975; UNCTAD,
1976; UNCTAD, 1978). The basic assumption is that poor country governments are seriously striving
to obtain technology on the best possible terms. The view in literature is that patents, trademarks andrestrictive practices that govern the channels of technology transactions, determine the kinds oftechnology bought and sold. They could directly be in the form of knowledge or indirectly embodied
in goods, and account for the high cost of acquiring technology as well as inhibiting in different ways
the adaptation and generation of technology by developing countries. It also led to negotiations for thefundamental reform of the industrial property system embodied in the Paris convention and towards
an international code of conduct on the transfer and development of technology. It renewed attention
on the policies and institutions in developing countries, which govern, or are capable of governing theacquisition of technology (Ewing, 1982). UNCTAD has largely been associated with works that border on the diffusion of technology, change in technology and its effect on growth and development.
UNCTAD is of the view that the capacity to acquire and transfer technology, depends on the capacity
in a country or an enterprise, to generate and understand what to acquire.
Indigenization/Nationalization Argument
According to Turner (1982), foreign contractors are well established, experienced and familiar. They
may be owned in part or in full by the Oil Company or may be based in its country of incorporation. In
this situation, companies have little incentive to encourage the establishment of local contracting
capacity or to patronize those contractors that exist, except in very peripheral areas such as grounds
maintenance, transport, food supply or minor civil engineering. As a result, the transfer of oil technology for much of the actual operation does not occur without government intervention. Technology
connected with the exploration and production phase is not, however, monopolized and unobtainable. The government oil authorities of some OPEC member states have successfully separated thevarious aspects of the technology package and indigenized the capacity to obtain, use and generatevarious aspects of technology used in the extractive phases of the industry; the case of Algeria is
instructive (Anez, 1975). Sonatrach, the Algerian State Oil Corporation set up in 1963, had establishedpartnerships with nine oil field service firms since 1966. The terms ensure that in the period during
which the foreign firms realize their profits, about 15 years later, technology and know how should be
localized. By first nationalizing the technical structure serving the oil industry, Algeria was able toacquire 100 per cent ownership of the exploration and production companies by 1974 and achievealmost total control of operations. Dependence on foreign sources of essential exploration andproduction technology was reduced or eliminated. Sonatrach developed the capacity to hire foreign
contractors to do specialist jobs (Turner, 1980; Anez, 1975; and Nore, 1980).

20

TECHNOLOGY TRANSFER AND ACQUISITION IN THE OIL SECTOR AND GOVERNMENT POLICY IN NIGERIAThe Displacement and Globalization Argument
Foreign oil company management resists the transfer of technology for use in the processing of
crude and gas into petroleum products as part of its efforts to avoid displacement in the upstream anddownstream areas. If an oil exporting government establishes an export refinery, not only do the oilcompanies lose a portion of their crude supply and get displaced in the refining industry, but theirinternational product markets may be penetrated and taken over by the “newcomer” state oil company. This threat to market control is especially serious since state oil corporations have access tocrude at no more than the set production, and therefore can afford to engage in price competition.
Consequently, oil companies strive to block entry into downstream operation. A major means of doing
this is to create obstacles to the transfer of technology required in the processing of crude oil. During
the acute oil shortage of 1973, producer governments, crude-short oil companies, independentsources of oil technology including the major oil companies and importers, offered technology inexchange for hydrocarbons, in order to ensure adequate supply of crude oil.
Furthermore, MNOCs resist the acquisition of oil technology expertise by nationals, as part of wider
company imperative to retain control of operations. The coordination, flexibility, size and organizationof huge multinationals depend very much on the communication between management at various
levels. Communication usually occurs most readily among those who share a common cultural
background. Reliability and loyalty are further ensured by common class and status affiliation, as well
as long years of corporate training and service. While the foreign oil companies do train low andmedium level technical assistants, administrators and some engineers, they limit the career development of local oil men to the extent they can do so, given local consciousness and political demands.
A few showcase indigenes move in the top echelons as window dressing, while the oil companies
deliberately avoid and resist the transfer of technical know-how. Expatriates strive to remain in chargeof key functions and in those jobs essential to the actual work of producing oil. Expatriates usually do
the supervision of contractors and the maintenance of equipment, when the oil companies have a
choice. Foreign oil companies have accommodated nationalist sentiments by recruiting and training nationals for management positions. The majors, in particular the European firms, British Petroleum and Shell, do such to minimize their loses by adapting to, foreseeing and guiding social andpolitical change, while simultaneously encouraging commitment by an indigenous stratum to theinstitutions and values of capitalism (Turner, 1980).
Political Economy Argument
Turner (1980) argues that if the government can bring about transfer of technology and know-how,
how can one explain the absence of considerable progress in the acquisition of oil technology inmany oil exporting developing countries. Essentially, the class struggle is between a compradorial
bourgeois class, which is a product of colonial mercantilism, and technocrat class is propagatedthrough persistent military rule and authoritarian military dictatorship. The ownership of oil is vested
in the sovereign state and explanation of the underdevelopment and foreign domination of the industry in most developing countries must start with an examination of the political economy of the state.

21

ATPS Working Paper Series No. 32

It is argued that the comprador nature of the Nigerian state for example, prevents it from organizing
the transfer of oil technology and more broadly, from initiating the development of capitalist production. In Nigeria, the Comprador State is based on the local commercial class. Middlemen are more
numerous and influential as a result of the oil boom, the policy of import substitution and the state’s
policy of intervention to foster economic development. As government expenditure and bureaucracy
grew, the number of bureaucratic compradors establishing triangular relations with middlemen andforeign suppliers, increased. The logical ally of the technocrat cadre, a local capitalist class of
producers, does not exist in Nigeria. Without such support, technocrats lack significant influence in
the Nigerian State and the comprador state is unsteady, because it has been unable to override
specific capitalist interests in favour of broader considerations of national policy.
Comprador authority within institutions of state, derives from the senior and usually administrative
positions held by members of the group. Professionals and technocrats have been in subordinate
posts in the bureaucracy since the colonial period. Technocrats in the oil administration are marginally more influential than those elsewhere, due to their knowledge of the world oil and the support theyreceive from OPEC policies and oil technocrats in other exporting countries. However, the base work
notable with respect to future actions of Nigeria oil technocrats, is those oil companies which seek tocompete with the firms that have a more weighty role, and one in which oil is managed by a sector
clearly isolated from the rest of the state apparatus. Oil technocrats may be amenable to coexistencewith the foreign oil companies on more organized and nationalistic terms, especially if companies
support them in resolving the non-antagonistic contradiction between themselves and compradors.
Apparently, oil technocrats resemble a stratum, which seek to become a national bourgeoisie. The
scope and force of technocrat oil policies are more probably symptoms of their powerlessness than
indications of their commitment to replacing foreign oil companies with integrated state corporations. However, it is observed that middleman comprador alliance has been successful in suppressing the technocratic function within the state. Along with this suppression goes the possibility of any
significant state transfer of technology (Turner, 1976).
Generally, although these determinants to a large extent explain the differences in the levels oftechnological development among developing countries, yet, countries that present favourable indices of these determinants have also remained technologically backward. It is obvious that thesedeveloping countries, in spite of their success in conditioning their environment for the inflow oftechnology, do not have the capacity in terms of trained manpower to acquire and develop technology. The result is the free entry and exit of foreign firms in the economy of these countries and the
beginning of fresh negotiations for economic independence from the powerful organizational network of multinational corporations.

22

Chapter Four
Case Study: Research Findings and Discussion
Technological Learning and Technical Change
Assessments of technological learning and technical change in the NNPC were performed using
three broad surveys. First, is a survey of sponsorships by NNPC and the oil sector in general, fortraining in universities and polytechnics within and outside Nigeria. The Petroleum Technology
Development Fund (PTDF) was established in 1973 to motivate technological learning and develop
a local absorptive capacity for both upstream and downstream petroleum operation in Nigeria’s oil
industry. The fund provided scholarships for the training of Nigerians in various aspects of petroleum
technology and management. Scholarships were initially limited to core engineering studies such as
chemical, civil, electrical, mechanical and petroleum engineering and geology. Scholarships for
petrochemical and environmental engineering, and corrosion science, began in 1979. The fundsupported a total of 535 Nigerian trainees in various special areas of petroleum technology andmanagement between 1973 and 1983. This amounts to an annual average of 33 awards per year.
However, there were no endowments made out of the fund, which lasted untill 1983. Furthermore, theoil companies operating in the oil sector provided a total of 911scholarships for the training of Nigerians between 1984 and 1988. These scholarships emphasized the engineering sciences. Between
1989 and 1995 Shell Petroleum Development Company provided a total of 593 scholarships for the
training of Nigerians in engineering sciences and management. The shell petroleum development
company scholarships have increased over the years and are usually evenly spread across the statesof the country.
Second, is a survey of oil industry linkages with research and development institutions outside theindustry, namely, universities, polytechnics and research institutes. The rapid development of oil
industry operations in Nigeria paved way for the introduction and strengthening of capacities inengineering studies in Nigerian universities and polytechnics. The oil companies established six
professorial chairs in six universities among the 34 universities in Nigeria. These endowments were
attributable to the contributions of Shell and Mobil. However, while the number of endowments werelimited, Nigerian universities offered a total of 120 petroleum engineering-related courses, out of the1342 courses offered. The federal universities offer the largest number of petroleum related courses
among the different categories of universities. The product of this development is the slow, but
progressive increase in the number of engineering graduates produced by the universities annually.
As a percentage of total number of graduates produced by Nigerian universities annually, petroleum

ATPS Working Paper Series No. 32

engineering-related courses increased from 4.3 per cent in 1981 to 5.7 per cent in 1992. This
increase shows the slow rate of growth of the required absorptive capacity and technological learning in the oil sector.
Table 1: The Petroleum Technology Development Fund Scholarship Awards
1973

1974

1975

1976

1977

1978

1979

1980

1981

1982

1983

Chemical Eng.

4

20

10

10

1

2

14

2

2

1

2

Civil Eng.

4

6

2

6

-

-

10

-

-

-

-

Electrical Eng.

4

8

10

4

-

-

16

-

-

-

1

Mechanical Eng.

13

13

10

11

2

1

10

8

-

1

1

Petroluem Eng.

10

12

8

5

1

-

4

-

10

8

4

Corrosion Science

-

-

-

-

-

-

1

1

2

3

2

Petrochem

-

-

-

-

-

-

9

-

9

6

2

Environmental Eng.

-

-

-

-

-

-

1

1

4

-

-

Geology

5

2

4

8

-

-

5

5

5

-

4

Computer Science

-

-

2

2

-

-

-

3

-

-

2

Survey

-

-

1

5

-

-

-

-

-

-

-

Acct.

-

4

3

1

-

-

-

2

2

-

-

Mgt/Administration

-

-

-

8

-

-

-

4

1

-

1

Economics

-

-

-

8

-

-

-

4

1

-

1

Micro Biology

-

-

1

5

-

-

-

-

2

-

0

Industrial Engineering

-

-

-

-

-

-

-

-

2

1

2

Geophysics

-

-

-

-

2

1

2

6

4

-

3

Natural Gas

-

-

-

-

-

-

0

0

6

6

1

Total

40

65

51

73

6

4

72

32

49

16

25

Source: NNPC Annual Report, 1983

Table 2: Total Scholarships Awarded by the Oil Sector 1984-1988
Year

1984

1985

1986

1987

1988

Award

120

143

150

288

210

Source: NNPC Annual Report, 1988

24

TECHNOLOGY TRANSFER AND ACQUISITION IN THE OIL SECTOR AND GOVERNMENT POLICY IN NIGERIA

Table 3: Professorial Chairs Endowed by the Oil Companies in Nigerian Universities
Professorial Chair

University

Oil Company

Geology

University of Nigeria

Shell

Petroleum Engineering

University of Ibadan

Shell

Geophysics

Obafemi Awolowo University

Shell

Environmental Studies

Rivers State University of Scienceand Technolgy

Shell

Mechanical Engineering

Ahmadu Bello University

Shell

Petroleum Geology

University of Clabar

Mobil

Source: Estimated from Annual Reports of the Nigerian Universities Commission (NUC) different Years.

Table 4: Nigerian Universities and petroleum technology Related Courses Offered
Status of
University

Number of
Universities

No. of Petroleum
Technology Related
Courses offered

No. of non-Petroleum
Technology Related
Courses Offered

Total Number of
Courses Offered

Federal University

16

59

766

825

Federal Universityof Technology

15

21

123

150

Federal Universityof Agriculture

3

4

63

67

State University

7

14

187

210

State Universities
of Technologies

3

16

83

99

Total

34

120

1222

1342

Source: John Admission and Matriculation Board (JAMB) Brochure, 1996/97

Table 5: Percentage of Engineering Technology Graduates to Total Number of Graduates

Source: Estimated from Annual Reports of the Nigerian Universities Commission (NUC) 1981-82.

25

ATPS Working Paper Series No. 32

Third, is a survey of linkages with research and development institutions within the oil industry. The
Nigerian Petroleum Training Institute was established through the Petroleum Training Institute Act
no.37, 1972, amended by Act no. 52, 1975. This was in consonance with the requirements of thePetroleum Drilling and Production Regulations contained in the Petroleum Act No. 51, 1969. According to the Petroleum Act, “the licensee of an oil prospecting license and the licensee of an oil mining
lease, shall within 12 months of the grant of license, submit for the minister’s approval, a detailed
programme for the recruitment and training of Nigerians in all phases of petroleum operation”. The
Petroleum Training Institute is located at Effurun in Warri, Delta State of Nigeria. The Institute wasestablished with the objective of providing the required research and development support for technological learning and technical change in the oil industry of Nigeria. It was established to train
Nigerians in core oil industry operations such as petroleum, petroleum processing and marketing,and electrical electronics, mechanical, and environmental and safety engineering, and welding andunderwater operations. Apart from training, the institute engages in adaptive research towards thedevelopment and fabrication of tools for petroleum upstream and downstream operations. The staff
profile of the PTI shows that at inception, the pioneer staff of the PTI were mainly, expatriate Russian
tutors and later Nigerians with very high qualifications in engineering and petroleum-related studies.
The minimum qualification for a lecturer I at the institute is a bachelor’s degree in petroleum-related
engineering courses, with at least 10 years post-qualification experience in the oil industry.
Over the years, PTI has improved the quality of its training through staff training and development
programmes. Table 7 shows the number of PTI staff sent on training each year. The Staff Training
and Development (STD) scheme is open to all PTI staff. However, the teaching staff returns, showthat a large percentage of the staff are mainly technical staff who do not make up the teaching forceof the institute. The proportion of teaching staff sent on training increased as the pioneer expatriate
staff of the institute gradually reduced. The Teaching Staff Return (TSR) also shows remarkable
improvements in the number of the teaching staff of the institute between 1978 and 1992, with staff
returns of 50 and 140, respectively.
The PTI graduates’ profile shows progressive increase in the number of Higher National Diploma(HND) and the Ordinary National Diploma (OND) graduates of the institute over the years from 1978
to 1992 and a decline in 1994. Usually the trainees spend two academic sessions in addition to one
year on industrial attachment, to complete the 3 -year initial training, leading to the award of the OND.
Also, trainees spend an additional two academic sessions and one year on industrial attachment, tocomplete the required 3 years of additional training leading to the award of the HND. The industrial
attachment is spent with the oil firms and is designed to allow the students to alternate between thefirms and the classroom. This is possible, because most of the firms are located near the PTI. The oilcompanies regard the PTI diplomas more highly than any other diploma from the polytechnics inNigeria, because the training is very specialized and adapted to the technical requirements of oil
industry operations. This is reflected in the remuneration of these technical staff. The discrepancy is
due to the fact that PTI graduates having trained with the oil companies, have undergone specialized
training in oil industry technology, while diploma holders from the polytechnics would have to be
retrained and reoriented to participate effectively in the oil industry technical operations. Apparently,
the PTI does not prepare students for higher studies. The institute rather produces technicians for the26

TECHNOLOGY TRANSFER AND ACQUISITION IN THE OIL SECTOR AND GOVERNMENT POLICY IN NIGERIA

Table 6: Categories and Qualification of Teaching Staff of PTI
Category

Minimum Qualification

Minimum Experience

Lecturer I

Bachelors Degree

10 years

Lecturer II

Bachelors Degree

7 years

Lecturere III

Bachelors Degree

5 years

Lecturere IV

Bachelors Degree

3 years

Chief Instructor

Bachelors Degree

1 yearAssistant Chief Instructor

Higher National Diploma

5 years

Principal Instructor I

Higher National Diploma

3 years

Principal Instructor II

Higher National Diploma

2 years

Senior Instructor

Higher National Diploma

1 year

Instructor I

Higher National Diploma

1 year

Instructor II

Higher National Diploma

1 yearPrincipal Lab. Technologist I

Higher National Diploma

2 years

Principal Lab. Technologist II

Ordinary National Diploma

2 years

Senior Lab Technologist

Ordinary National Diploma

1 yearLab Technologist/Technician

WASC/GCE O/Level

2 years

Source: PTI Annual Report, 1990

oil firms. Since the establishment of the institute in 1975, the PTI has admitted 10,706 students andgraduated 5,720 by the end of the 1994/95 academic sessions.
Type of Training by Specialization
The training programme of the PTI comprises seven specialized courses. These are Electrical/
Electronics Engineering, Petroleum Processing, Mechanical Engineering, Petroleum Engineering,Geosciences, Environmental Sciences and Safety, Welding and Underwater Operations. These
courses are conducted in line with oil industry standards. These standards are driven by quality ofskills imparted to the trainees. The standard is often measured and maintained by the availability of
the required training facilities for specialized oil industry technical training for downstream and upsteam
operations. These include laboratories, workshops, and equipment for seismic operations refinery
work, crude and refined petroleum oil marketing. The profile of facilities for the respective specialized
courses is listed in Table 9.

27

ATPS Working Paper Series No. 32

Table 7: Staff Training and Development (STD) and Teaching Staff Return (TSR) in PTI1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992
STD

-

29

45

-

19

179

58

199

182

106

41

39

-

-

24

TSR

-

-

50

-

63

66

-

46

-

77

79

90

90

-

140

Source: PTI Annual Report, 1978-1992

Mode of selecting students/trainees
The entry requirements for any course of study in the institute is a minimum of four credit passes in theWest African School Certificate, the General Certificate of Education (GCE) or the Senior School
Certificate Examinations (SSCE), organized by the West African Examination Council (WAEC) andthe Nigerian Examination Council (NECO). This is usually at not more than two sittings and thesubjects required are those of the physical sciences, namely Physics, Chemistry and Mathematics.
This holds for the OND courses. Entrance examinations are conducted for the selection of qualified
students. Successful candidates are screened, based on their credit passes at the WASC/GCE/
SSCE examinations. The minimum admission requirement for the PTI HND programme is the PTI
OND certificate with one year industrial experience in an oil firm.
Firm History
The main assets of the NNPC are: NPDC, IDSL, WRPC, KRPC, PHRC, PPMC, NGDC, EPCL, NETCO
and NAPIMS. The NNPC has 100% ownership of all Nigeria’s refineries except Alesa Eleme and Port
Harcourt, where it has 50% ownership. Nigeria has two types of refineries based on the type of crude
they process: the ordinary fuel and integrated fuel refineries. The primary fuel refineries refine only
light crude, while the integrated refinery refines both light and heavy crude. The integrated refinery
produces fuels and non-fuels simultaneously. Out of the four refineries in Nigeria, there are three
primary fuel refineries, the Warri refinery and the two refineries in Alesa Eleme (Port Harcourt), andKaduna is an integrated refinery. The Warri refinery operates with the technological units shown in
Table 10.
The refinery produces all its steam and electricity requirements from a very modern power plant. It
incorporates a highly sophisticated waste water treatment and contains two modern oil jetties, twowharves, a computerized trunk loading station and connections to products’ pipeline. The total
capacity of the finished product storage within the Tank Farm is 400,000 cubic m. The process units
represent a vital part of the refinery. The unit processes crude in order to obtain semi-finished products rather than finished products that are ready for commercial use. The process units consist of
two processes, the primary and secondary. The primary process separates crude into different fractions. These fractions are ready for secondary processing, to improve the quality and obtain othervaluable products. The primary processes are atmospheric distillation and vacuum distillation. The
secondary processes are catalytic cracking, catalytic reforming, hydro-desulphurization, and alkylation and polymerization.
28

TECHNOLOGY TRANSFER AND ACQUISITION IN THE OIL SECTOR AND GOVERNMENT POLICY IN NIGERIA

Table 8: Number of Graduates of PTI by Department and Qualification ObtainedYear

Diploma

EEE

PPD

MED

PEGS

PMBS

ESS

WUW

Total

1978

HND
OND

15

-

15

12

-

7

-

49

1979

HND
OND

53
-

23

30

15

20
-

22
-

75
-

170
68

1980

HND
OND

-

-

-

-

-

-

-

-

1981

HND
OND

10
59

10
25

14
85

91

-

10
-

53
-

97
240

1982

HND
OND

22

-

26

-

26

26

17
28

17
128

1983

HND
OND

10

48

4

30

10

5

67
34

67
141

1984

HND
OND

38

-

15

10

-

-

31
20

31
83

1985

HND
OND

8
47

5

17
35

12

36

36

21
-

46
171

1986

HND
OND

10
33

-

81

31

10
-

8
26

44
120

72

1987

HND
OND

111

-

20
59

6
-

43

60

38
121

1988

HND
OND

99

7
62

155

13
13

21

12
31

49
22

1989

HND
OND

25
64

19
-

19
48

4
27

14
-

-

70
46

1990

HND
OND

26
73

20
40

28
136

9
50

14
62

14
103

116
85

1991

HND
OND

36
202

11
19

27
102

7
47

12
69

17
23

76

1992

HND
OND

40
43

32
21

50
35

24
40

19
24

26
40

49
28

1993

HND
OND

38
23

24
68

21
23

21
34

21
20

29
36

18
30

1994

HND
OND

47
22

16
8

50
13

32
13

14
25

24
28

26
34

Source: PTI Annual Report, 1978-1994; EEE - Electrical Electronics Engineering Department; PPD = Petroleum Processing
Department; MED = Mechanical Engineering Department; PEGS = Petroleum Engineering and Geosciences Department;
ESS - Environmental Sciences and Safety; and WUW = Welding and Underwater Operation

29

ATPS Working Paper Series No. 32

Technical Change
The occurrence of technical change in NNPC is observed in the local technology and fabrication
used, and the internal Turn Around Maintenance (TAM) operations in the refineries.
Local Technology and Fabrication Used in the Refineries
The PTI has designed and constructed a five tons overhead crane used for moving heavy machineryin the refineries and the workshops, a prototype mechanism of the blower used for raising andlowering burner buckets in the refinery, a crude-treater for emulsion crude at the refineries, multipurpose centrifugal blower, lubricant filling machine and a modified wheelbarrow. The indigenous
Table 9: Schedule and Content of Training at PTI
Training Specialization

Training Facilities

P e t r o l e u m

Exploration Laboratory
D r i l l i n g W o r k s h o p
P r o d u c t i o n W o r k s h o p
D r i l l i n g a n d P r o d u c t i o n
W e l l C o n t r o l S i m u l a t o r

P e t r o l e u m

E n g i n e e r i n g

P r o c e s s i n g

W o r k s h o p

U n i t e O p e r a t i o n L a b . / P r o c e s s
P l a n t
C r u d e O i l P r o p e r t i e s L a b o r a t o r i e s

S i m u l a t o r

P e t r o l e u m M a r k e t i n g /B u s i n e s s S t u d i e s

P e t r o l e u m p r o d u c t s T e s t i n g W o r k s h o p
M i n i M a r k e t
Petroleum products Distribution Station

Electrical/
E l e c t r o n i c sElectrical Machine Laboratory
Light Current Laboratory
Instrumentation& Control Laboratory/Simulator
P i p e l i n e F l o w S i m u l a t o r
E l e c t r i c W o r k s h o p
N u m e r i c P r o c e s s S i m u l a t o r

M e c h a n i c a l

E n g i n e e r i n g

E n g i n e e r i n g

Environmental
Engineering

W e l d i n g a n d
O p e r a t i o n s&

SafetyU n d e r w a t e r

M e c h a n i c a l T o o l s W o r k s h o p
A u t o m o t i v e W o r k s h o p
T h e r m o F l u i d s L a b o r a t o r yMaterials Science Laboratory
R e f i n i n g E q u i p m e n t W o r k s h o p
F a b r i c a t i o n W o r k s h o p
E n g i n e e r i n g D r a w i n g R o o mPhysics Laboratory
Analytical Chemistry Laboratory
Biology Laboratory
Non Destructive Testing Laboratory
G a s W e l d i n g W o r k s h o p
M a n u a l A r c W e l d i n g W o r k s h o p
T I G W e l d i n g W o r k s h o p
P l a s t i c W e l d i n g W o r k s h o p
M I G / M A G W e l d i n g W o r k s h o p
F a b r i c a t i o n W o r k s h o p
M a c h i n e T o o s W o r k s h o p
S w i m m i n g P o o lDive Tank
T h e r a p e u t i c C e n t r e w i t h 1 8 0 0 c c D o u b l e
C h a m b e r

C a b i n

D e c o m p r e s s i o n

Source: PTI Annual Report, 1978-1992

oil service companies mainly provide other local technologies used in the oil industry. These technologies include the design and fabrication of metering stations for oil companies, calibration of oiltools and instruments such as flow meters, proner-loops and furnace for melting steel and alloys.
Other local oil contractors provide civil and mechanical engineering support services. There areabout 50 indigenous oil contractors in Nigeria’s oil industry. These developments enhanced the30

TECHNOLOGY TRANSFER AND ACQUISITION IN THE OIL SECTOR AND GOVERNMENT POLICY IN NIGERIA

proportion of Nigerians employed in oil sector operations. Table 11 shows a rather laudable increasein the number of Nigerians working in the oil industry. The various operations are categorized according to labour and skill. In spite of the large number of Nigerians in the oil sector, what is more crucial
for our purposes is the relative percentage of Nigerian to expatriate staff within the professional cadre.
The professional cadre includes mainly the core engineering technology staff. Within this category,
the ratio of the number of Nigerian to expatriate staff has increased over the years, albeit slowly.
Table 10: Technological Process Units of the Warri Refinery
Processing Units

Design Capacity

Crude Oil Distillation Unit

100,000 MTD

Naphtha Hydrotreater Unit

17,000 MTD

Catalytic Reformer Unit

17,000 MTD

Kerosene Hydrotreater Unit

8,800 MTD

Vacuum Distillation Unit

32,000 MTD

Fluid Catalytic Cracker Unit

25,000 MTD

Liquefied Petroleum Gas Recovery Unit

3,000 MTD

Liquefied Petroleum Gas and Gasoline
Merox Extraction Units

600 MTD

Sweetening Unit

2,000 MTD

Source: PTI Annual Report, 1996

However, in 1980 and 1981, the expatriate quota decreased drastically. This gradual reduction in
expatriate quota should have reflected the desired changes in the level of oil industry technologicallearning accumulated by the Nigerians. This expectation failed and in 1982 the quota for expatriates
was increased to facilitate oil industry operations, especially in respect of oil exploration, services andrefining. Table 11 shows that most Nigerians employed in the oil industry operations are involved
mainly with managerial, clerical and general labour (skilled or unskilled).
The main projects of the NNPC are largely aimed at repairs of existing refinery facilities and theconstruction of new pipelines and petroleum depots. Other projects include the construction of the
NNPC office and housing scheme at the new federal capital of Nigeria, Abuja; the construction of atank farm in Jos, Plateau State; and repair of the Apapa Jetty and the Port Harcourt housing scheme
for NNPC staff. Among all these projects, there was no effort at either consolidating technologicalknowledge gained through training or the upgrading of technical knowledge gained through informal
and non-formal processes.

31

ATPS Working Paper Series No. 32

Turn Around Maintenance (TAM) Programme of the Refineries
The aim of TAM is to reduce shut down due to failure of equipment or plants. TAM aims at increasing
efficiency and improving performance. TAM is therefore required at four levels of maintenance:
1. Preventive maintenance, which is an operation aimed at maintaining the operating
apparatus in order to prevent unexpected failure.
2. Maintenance operation following a breakdown as damage to actual plant.
3. Shut down maintenance when plant or equipment is partially or totally shut down. Usually the techniques for this kind of maintenance must permit an optional utilization of
resources during the shut down period.
4. Maintenance to improve certain features of equipment, which are carried out to makemaintenance easier.
5. Investment maintenance, which involves the extension of plant works and the installation of new equipment.
TAM work in Nigeria’s refineries, is mainly shut down maintenance. The refineries require mandatory
and periodic rehabilitation to replace obsolete components and overhaul of massive operating systems made up of delicate units such as the fluid catalytic cracker unit, crude distillation unit andVacuum distillation unit. The standard practice in the refinery industry is that every 2 years, refineries
should be closed down for 45 to 60 days for TAM to be carried out. The operating units of the refining
plant should function efficiently according to its designed capacity. However, this has not been so with
Nigerian refineries, because TAM is not done on schedule due to lack of funds, appropriate spareparts, corruption and political interference in the investment decisions of NNPC. TAM in Nigeria’s
refineries is categorized into internal and external TAM. Internal TAM refers to mandatory periodic
overhauls of refining equipment and operating systems by maintenance engineering staff of therefineries undertaken. It involves a temporary shut down of the refinery and does not last more than 21
to 30 days. It is carried out with available spare parts in the stores of the refinery. Since 1987, internal
TAM had been an average of five times at most, of the refineries. However, external TAM involves
foreign technicians and the replacement of damaged parts with new spare parts procured frommanufacturers abroad. It requires the closure of the refinery for about 45 to 60 days. Since 1992
external TAM was not carried out for 5 years at the Warri and Kaduna refineries.

32

TECHNOLOGY TRANSFER AND ACQUISITION IN THE OIL SECTOR AND GOVERNMENT POLICY IN NIGERIA

Table 11: Proportion of Nigerians to Expatriate Staff Involved in Oil Sector Operations
Management

Professional

Intermediate
ClericalSupervisors

Unskilled
LabourOthers

Ng

Ex

Ng

Ex

Ng

Ng

Ex

Ng

Ex

Ng

1972

140

207207 8186471302 551

2566 84031 13191 -

616-

12604 1414

1973

164

203

986

643

1430 5302622 64060 22996 -

493-

12751 1384

1974

172

197

1271 604

1693 309

2974 -

4221 82123 -

564-

13018 1118

1975

194

172

1386 621

1834 321

3010 -

4582 102752 -

401-

14159 1124

1976

180

156

1444 536

1872 237

3055 -

4635 122334 -

317-

13837 941

1977

240

267

2095 939

2722 882

5679 -

7259 67079 -

1633 -

26707 2029

1978

271

126

1722 354

2208 226

3065 -

4857 -

2013 -

522-

14558 709

1979

160

139

2115 521

2591 393923 -

6098 109 4064 -

590-

19541 808

1980

236

178

2597 457

2701 236

4363 -

6348 141809 -

509-

18563 912

1981

262

102

2463 507

2923 352

4038 17987 30

2634 12725 22303992
32

1982

309

130

2172 497

3445 478

4045 28575 -

3853 11197 223605 1110

Year

Ex

Ng

SkilledLabour

Ex

Ng

Ex

Total

Ex

Source: NNPC Annual Report 1996, Ng= Nigerians, EX = Expatriates

Impact of Technical change on NNPC Performance
Production performance
The oldest of Nigeria’s four refineries was the first refinery in Nigeria located at Alesa Eleme near Port
Harcourt, Rivers State. The refinery commissioned in 1965 was built with an initial crude processing
capacity of 35,000 barrels per stream day (BSPD). It was primarily to produce fuel for domestictransportation, gasoline and diesel fuel, which hitherto were imported from Western Europe. The
products of the refinery, however, also included liquefied petroleum gas (LPG) and Kerosene. The
decision to establish the refinery, followed the discovery of oil in commercial quantity in Nigeria. The
federal government decided in 1954 that when daily crude oil production in Nigeria reached 50,000
BPSD, the construction of a refinery would be inevitable. This target crude production level was
actualized in the 1959 preliminary surveys around the Port Harcourt and a Shell-BP Petroleum Refinery Company was established to construct and run the refinery at Alesa Eleme.

33

ATPS Working Paper Series No. 32

Table 12: NNPC Priority Projects, 1994-1996 (in Naira Millions)

1994

1995

1996

Total

Pipelines and Depots phase III

1250

1565

0

2815

Abuja Office and Housing

1055

840

289

2183

Butanization phase I & II

1130

796

0

1926

Gas Supply to ALSCON

600

1127

50

1777

WRPC Rehabilitation

560

'728

384

1672

Rehabilitation of Atlas Cove

76

734

360

1170

Bonny Export Terminal

220

462

440

1122

Apapa Jetty

214

265

0

479

KRPC Rehabilitation

108

166

44

318

KRPC FCC Repairs

308

0

0

308

Calabar Jetty Phase II

185

97

0

281

Okirika Jetty

200

0

0

200

Port Harcourt Housing

68

60

0

128

Old Port Harcourt Refinery
Rehabilitation

85

0

0

85

NNPC Office

21

20

0

41

Jos Tank Farm

35

0

0

35

ELP Gas

24

0

0

24

Source: Federal Government of Nigeria, NNPC, 1996

Later in 1962, the government acquired 50% equity holding in the 35,000 BPSD refinery. This paved
way for the incorporation of the Nigerian Petroleum Refinery Company Limited. The refinery met
domestic petroleum demand for white petroleum product. Its raw materials include the “Umecham
crude” and the “Obigbo north blend”, which was locally produced crude. After the civil war, the refinery
was rebuilt with a production capacity of 60,000 BPSD. However, since industrial development was
slow at the moment, the production of fuel oil from the hydroskining refinery was in excess of national
requirement, such that uncracked low sulphur fuel from the refinery was exported to Western Europe
at a very low price. Following the rapid industrial growth and the increased economic activities in
Nigeria, Premium gasoline and gas recorded annual average growth of 30%. Acute fuel shortages of34

TECHNOLOGY TRANSFER AND ACQUISITION IN THE OIL SECTOR AND GOVERNMENT POLICY IN NIGERIA

the early 1970s compelled the government of Nigeria to refine Nigerian crude abroad in Rotterdam
and later re-import the refined petroleum to the country to serve domestic fuel needs. This development paved way for the establishment of a second refinery in Nigeria. This was the Warri refinery
established in 1978, to process two types of Nigeria’s crude oil. These are the NNPC and Shell
Ughelli Control Centre Crude and the NNPC and Gulf Escravos Crude Oil. These crude brands wereblended in the ratio of 7:3 with a crude distillation unit of 100, 000 barrels per stream day. The refinery
operation at full capacity is designed to produce theproducts shown in Table 13.
The operation of the two refineries did not produce adequate supply of refined crude for domestic
consumption, hence, the Kaduna refinery was established in 1981. The refinery was to process bothlight and heavy crude from domestic and external sources. The lubrication plant of the Kaduna
refinery processes imported heavy crude (paraffin-based), for producing lubricating oils, bitumen,asphalt, sulphur, waxes and greases. With the third refinery, total refining capacity reached 260,000
BPSD. However, demand-supply balance showed that demand for refined products outstripped supply from the three refineries throughout the 1970s and 1980s (the oil boom years) (Table 14). The
demand-supply imbalance led to the expansion of the installed capacity of the Warri and Kaduna
refineries. The Kaduna refinery was expanded from 100,000 to 110,000 BPSD, while the Warrirefinery was expanded from 100,000 to 125,000 BPSD (Tables 15 and 16). Furthermore, as thedomestic demand for petroleum products increased beyond the production capacities of the existing
three refineries, the government embarked on the construction of a fourth refinery in Port Harcourt in
1989. The fourth refinery operated with a processing capacity of 150,000 BPSD and was designed toprocess fuel in order to end fuel importation and create opportunities for exports (Tables 17 and 18).
The fourth refinery, combined with refining capacity of Nigeria’s refineries was 445,000 BPSD.
Financial performance
NNPC finances are closely related to that of the federal government. The NNPC export revenues arereflected in the Central Bank of Nigeria account, jointly controlled by the government and the NNPC.
The government decides how much of this revenue will be passed on to the federation account. It
also decides the amount to be allocated to the NNPC in the form of cash calls in order to cover
upstream obligations of the NNPC’s Joint Venture Companies and how much will be directed topriority investments by means of dedicated oil accounts. The government owns crude oil producedby NNPC, which purchases crude oil at government prices and refines and markets petroleum atgovernment-controlled prices. However, increasing exploration, low product pricing, poor maintenance in the oil fields and the refineries, are noted to cause poor financial performances due to hugefinancial losses and arrears of payments to Joint Venture Companies. Inadequate upstream financing compels the reduction in oil production and employment. Between 1992 and 1994, NNPC did
not deposit expected domestic sales proceeds of N20 billion to the federation account This would
have been 14% of the budgeted federally collected revenues. In 1994, planned payment of NNPC
arrears to Joint Venture Companies would have reduced potential revenues by about N11 billion.
Usually, the main source of financing for the NNPC is the cash calls. It is the NNPC’s share of35

ATPS Working Paper Series No. 32

upstream joint venture exploration and production costs. The cash calls are funded from offshore
petroleum export revenues. Furthermore, petroleum refining offers the NNPC and the federal government another source of revenue.
The key issues in this regard is that the price for refined products at the pump, the transfer price of
crude sold to the refineries, tax rates, the negotiated margin for distributors and marketers and theresidual margin accorded to NNPC, are determined by the federal government. Prior to March 1991,
retail price of premium gasoline increased from N0.60 to 70 per litre, less the marketers’ margin of
N0.18 per litre. This yielded an ex-depot price of N0.52 per litre with an implicit subsidy rate valued at
81%. In 1993, the pump price of petrol was increased to N3.25 per litre and in November 1994, it wasincreased to N11.00 per litre. However, in spite of the increase in pump price of petrol, the residual
margin accorded to NNPC covered only less than half of its estimated minimum costs of refining fornearly 3 years between 1991 and 1993. The new price structure introduced in November 1993
increased the margin to N2.22 per litre, which only covered the minimum costs. The reduction in themargin in October 1994 to N1.70 per litre, covered only 53% of minimum costs in 1994 and 50% in
1995 as shown in Table 19. Other sources of funding for NNPC include dedicated accounts, budgetary allocations from the federal government, external loans and occasionally the sale of equity. Extrabudgetary allocations from oil revenues to NNPC are established in about six dedicated accounts.
Table 13: Petroleum Products Daily Production
Petroleum Products

Daily Production (Tons)

Fuel Gas

306

LPG Propane

187

LPG Butane

459

Gasoline

5015

Dual Purpose Kerosene

2380

Automatic Gas Oil

4522

Fuel Oil

3808

Source: NNPC Annual Report

36

TECHNOLOGY TRANSFER AND ACQUISITION IN THE OIL SECTOR AND GOVERNMENT POLICY IN NIGERIA

Table 14: Product Mix and Annual Domestic Consumption Levels (Metric Tons)

Year

Liquefied
Petroleum
Gas

Premium
Motor
SpiritDual
Purpose
Kerosene

High
Pour Fuel
Oil

Low
Automotive
Pour
Gas OilFuel Oil

Lubricating
Oil

BitumenandAsphalt

Others:Grease,Wax,
Base Oil

1977-

18616187359491228395

345005---6600001978-

22915149436451765275

744510---4172791979-

2515789

1020224

1707544656315---574742

1980-

52845701823958

2676605

875776---639112

1981-

6573007

2161368

3131634

1153683---892831

1982-

43006471551484

2604160

1232826---5496291983-

4244798

18119143035824

1187663---

4311361984-

4012041

1724021232601827217---338091

1985-

3787895

1520777

18328191113837---516969

1986

88717

3597356

1928190

1854275

507188626271

146936113050700854

1987

10411436252202017336

1755580

473057704506144910123942121680

1988

74482

3103079

1554391

1573996495350867235179449144164

66049

1989

64457

3256442

1583488

1496644154773798608172198

95417

78940

1990

60373

3302808

15468481495739

139569808725157336100825

81050

1991

55661

33800491311893233101834134

77380327616785685

403790

1992

48907

3969576

1612075228012521888

75078717778364310

1866354

1993

36262

33362151427784205442465197

688072

144844140913775412

1994

20610

3015634

1131057

159626940406

67084611217237736

1385317

1995

11390

2735700

1023579

133441842497

47275410777520445

773810

1996

53264

3454326916204

15732915681417153852812346918

784486

1997 136760
2442926 938531
9373842465752
373183
Source: Central Bank of Nigeria Statistical Bulletin, Vol. 8, No. 2, December 1998

71308

49087

21174937

ATPS Working Paper Series No. 32

Table 15: Installed Capacity of Refineries
Refinery

Installed Capacity

Operating Capacity
Barrels Day

PHRC (Old)60,000-PHRC (New)

150,000

120,000

WRPC

125,000

100,000

KRPC

110,000

80,000

Total

445,000

300,000

Source:NNPC Refinery Reports, 1998

Table 16: Capacity Utilization of Refineries (‘000 Barrels/Day)
Refinery

1989

1990

1991

1992

1993

PHRC

110

104

131

118

130

WRPC

80

35

59

95

60

KRPC

44

55

70

64

70

Total

233

244

260

277

260

Source:NNPC Refinery Reports, 1998

Table 17: Crude Oil Production, Supply to Refineries and Exports
Periods

Total Crude
Production

Supply toDomestic
Refineries

Supply to OffShore Refineries

Exports

1988

50997138

4298869124881050781705

1989

55860044

743994659659550023551

1990

60317163

73454259254565134418

1991

57627496

8715204

89985053322586

1992

61416121

8523460-

52235188

1993

64193129

7668321289451253371276

1994

64212703

3075255398482960274883

1995

64716076

6711913-50311190

1996

71119440

3198807-69095788

1997

72168462

5411819-70165730

1998

65825215

3319100-

62179877

Source:NNPC Refinery Reports, 1998

38

TECHNOLOGY TRANSFER AND ACQUISITION IN THE OIL SECTOR AND GOVERNMENT POLICY IN NIGERIA

Table 18: Crude Oil Processed and Refined Products by Refinery (Selected Periods)
Periods

Crude Oil Processed

Refined Products

PHRC

WRPC

KRPC

PHRC

WRPC

KRPC

1985

660925945769911647648153898661

727982

1986

583912442347518073561266264094446171

1987

39443410981528812093771679314756759501988

66444611890257965706399591046965673328

1989

641082889855555230428297822561450173

1990

1630230

7969217408241464148733364603068

1991

1545623110838311323310977551038977116945

Source:NNPC Refinery Reports, 1992

These accounts were set up to earmark revenues for special projects. These are:1.
an account for NNPC’s priority projects,
2.
an account for NNPC’s Liquified Natural Gas Project,
3.
a fund managed by the Central Bank of Nigeria on behalf of the presidency,
4.
a loan recovery fund,5.
solid mineral fund, and6.
a strategic reserve fund. The cash calls are also referred to as dedicated accounts.
The federal government allocated to NNPC N98 million in 1990, N100 million in 1991, N80 million in
1992 and N57 million in 1993. These funds were used for independent exploration, the bonny export
terminal, gas supplies for various industries, the butanization programme, products distribution andinfrastructures development. However, in 1994, the increasing costs of refinery breakdowns andTAM, coupled with worsening foreign exchange crises, compelled the federal government to retrench certain capital expenditures. The 1994 capital expenditure plan shows that NNPC expected
to finance the Eleme Petrochemicals Project and a portion of its independent upstream and downstream exploration activities from external loans. The total external finance for these projects was
US$225 million. Another financing option for the NNPC is the sale of equity in its joint venture companies. In 1989 the NNPC sold 20% of its equity stake in one of its joint venture companies for US$2billion.
In 1993 it sold 5% in its holdings for US$500 million. It also reduced its stake in the LNG and Oso
Phase II projects from 60 to 49% in 1994 and 1995, respectively (World Bank, 1996). NNPC capitalfinancing programme shows the profile of its investment programme and the various sources offinance: mainly cash calls, dedicated accounts, budgetary allocation and loans (Tables 22 and 23).
In 1994 it is evident that investment commitments were always above available funding and left large
financing gap in all categories of investment. Its total investment finance gap for 1994 in both upstream, downstream and other investments such as loan repayment and NAPIMs overhead, amounted
to N20,024 million, which is estimated to be 20% of total investment costs (World Bank, 1996).

39

ATPS Working Paper Series No. 32

Table 19: Petroleum Prices for Nigerian Consumption, 1979-1990 (in kobo/litre)
Product

1979

1980

1981

1982

1983

1988

1989

1990

LPG

32.32 32.32 32.32 32.32 32.32 32.32 40.00 40.00 40.00 40.00

40.00

40.00

DPK

10.50 10.50

10.50 15.00

15.00

40.00

Auto Oil

11.00

11.00 11.00

11.00 11.00 11.00

1.00

29.50 29.50 35.00

35.00

50.00

High PF

2.30

2.30

2.30

2.30

2.30

2.30

2.30

19.50

19.00

30.00

30.00

50.00

Low PF

5.43

5.43

5.43

5.43

5.43

5.43

5.43

19.50

19.00 19.00

19.00

50.00

Prem. Sp.

15.30 15.30

15.30

20.00 20.00 20.00 39.50 39.50 39.50 42.00

42.00

60.00

ATK

10.50 10.50

10.50 10.50 10.50

10.50 10.50 10.50

1984

1985

1986

10.50 10.50 10.50

10.50 10.50 10.50

1987

10.50 113.60

113.60 113.60

Source: NNPC Corporate Reports, 1990.

Table 20: Petrol Pricing and Margins, 1991-1995
Domestic Prices in Naira per litre(Premium grade)Mar. 1991Oct. 1993

Nov. 1993Sept. 1994

As at Oct.
1994

As at Nov.
1995

Crude transfer price, pretax

0.14

0.55

2.35

2.35

Crude transfer price, post tax

0.14

0.55

8.00

8.00

Ex-depotr product price

0.52

2.77

9.70

9.70

Retail petrol price

0.70

3.25

11.00

11.011.000

Estimated Refining Cost
Based on International cost of comparable
refineries. It includes capital costs and pipeline
operating costs.

0.85

2.31

3.19

3.40

Actual NNJPC Margin as percent of total
refining cost

44

96

53

50

Internal Prices in Naira per litre valued at period
average market exchange rates.
1. Ex-refinery, FOB Rotterdam
2. Freight, Europe to West Africa
3. Import Parity Price (CIF) (1+2.)
4. PPMC/NNPC distribution costs
5. Ex-deprt product price (5+6)
6. Product Price of Imported

2.15
0.10
2.25
0.47
2.72
0.54

5.32
0.40
5.72
1.31
7.03
1.50

9.98
0.78
10.76
2.12
12.87
2.42

11.21
0.85
12.06
3.54
15.60
4.04

Retail Price of Imported Petrol (5+6)

3.26

8.53

15.29

19.64

Crude Oil Export Price (FOB) Naira/litre

1.47

4.19

8.08

8.24

Source: Federal Government of Nigeria National Petroleum Corporation, 1996

40

TECHNOLOGY TRANSFER AND ACQUISITION IN THE OIL SECTOR AND GOVERNMENT POLICY IN NIGERIA

Table 21: Petroleum Refining Cost (Kobo/Litre)
Refinery

1993

1994

1995

1996

1997

WRPC

73

185

143

51

59

KRPC

34

86

143

71

50

PHRC

36

72

72

109

260

Wt. Average Refining Cost
Kobo/Litre

46

103

104

73

83

Source: Oladele (1999) Petroleum and Stabilization of the Nigerian Economy, 20-21 April, Enugu.

Table 22: Federal Budgetary Support for NNPC, 1990-1994
Cost Items

1990

1991

1992

1993

1994

Exploration and Production

28

23

0

0

0

Bonny Export Terminal

70

57

0

0

0

Gas Supply for Industries

0

20

0

0

0

Butanization Programme

0

0

80

57

0

Product Distribution

0

0

0

0

1000

Insfrastructure

0

0

0

0

1000

Total

98

100

80

57

2000

Source: Federal Government of Nigeria, Nigeria National Petroleum Corporation, 1996.

41

ATPS Working Paper Series No. 32

Table 23: NNPC Capital Financing (in Naira Millions) 1994-1996
Projects

Cost Call

Cash
Account

Dedicated
Total

Budget

Loans

Total
Financed

Gap

Upstream Exploration and
Production
1. Petroleum
a. Joint Venture (cash calls)b. NNPC
2. LNG Project

62612
60368
59233
1135
2248

59233
59233
59233
0
0

2248
0
0
0
2248

0
0
0
0
0

550
550
0
550
0

62031
59783
59233
550
2248

585
585
0
585
0

Down Stream Projects
1. Eleme Petrochemicals
2. Refinery Repairs
3. Product Distribution
4. Gas Supply
5. Natural gas/NAFCON II
6. Infrastructure
7. Priority Projects

15778
4608
697
2431
281
266
1356
6138

0
0
0
0
0
0
0
0

6318
0
0
0
0
0
0
6138

2000
0
0
1000
0
0
1000
0

4400
4400
0
0
0
0
0
0

12538
4400
0
1000
0
0
1000
6138

3240
208
697
1431
281
266
356
0

20596
2857
10413
4765

0
0
0
0

4397
0
0
4397

0
0
0
0

0
0
0
0

4397
0
0
4397

16199
2857
10413
368

2561

0

0

0

0

0

2561

98990

59233

12783

2000

4950

78966

20024

Other
1. Loan Repayment
2. Debt Carry Over3. NAPIMS
4. Direct Exploration
Services
Total

Source: Federal Government of Nigeria, Nigeria National Petroleum Corporation, 1996.

42

TECHNOLOGY TRANSFER AND ACQUISITION IN THE OIL SECTOR AND GOVERNMENT POLICY IN NIGERIA

Table 24: NNPC Capital Investments (in Naira Billions) 1991-1996
1991

1992

1993

1994

1995

1996

Upstream Exploration and
Production
1. Petroleum
a. Joint Venture (cash calls)b. NNPC
2. Geophysical and Geological
3. Gas (LNG Export Project

20207
18634
18464
169
26
1547

40971
38380
38196
184
42
2550

48625
45687
44832
855
0
2938

62616
60368
52933
1135
2248

72857
70448
66988
3459
2409

71800
69391
68701
690
2409

Down Stream Projects
1. Eleme Petrochemicals
2. Refinery Repairs
3. Product Distribution
4. Gas Supply
5. Natural Gas/NAFSCON II
6. Infrastructure
7. Priority Projects
8. Laboratory Equipment
9. Petroleum Research Centre
10. Other

4990
2297
313
191
763
319
13
1
792

14630
7871
1233
3082
856
667
9
0
967

12224
7179
297
3702
452
505
44
20
26

15778
4608
697
2431
281
266
1356
6138
-

17295
1192
1378
2724
829
2696
1615
6860
-

5209
30
456
828
277
777
1276
1567
-

Other
1. Loan Repayment
2. Debt Carry Over3. NAPIMS overhead
4. Direct Exploration Services

0
-

-

00
-

20596
2857
10413
4765
2561

64.6
2857
367
1564
1617

885
2857
1001
1661
1366

Total

24897

55601

60894

98990

96557

83895

Source: Federal Government of Nigeria, Nigeria National Petroleum Corporation, 1996.

43

ATPS Working Paper Series No. 32

NNPC capital investment targets in both the upstream and downstream have continued to increasesince 1991 as shown in Table 24. Total investments increased from N24,897 to N60,894 billion in1991 and 1993, respectively. Between 1994 and 1996, it declined from 98,990 to 83,895 billion. Thisis caused by drastic cuts in downstream investments in 1996. Downstream investments were targeted at 17 priority projects valued at N14,567 billion. These projects are listed among NNPC priority
projects. Investments in these projects declined towards 1996. However, investment decisions were
not taken by NNPC. NNPC and its subsidiaries could not perform as creditably as they would, because the federal government took pricing and investment decisions. Furthermore, attempts to increase investment funding from the oil revenues would also reduce government expenditure. Therefore, investments were expedient only when they do not interfere with planned budget expenditure of
the federal government.

44

Chapter Five
Conclusions and Recommendations
Technological learning and broad gauged training effort are important prerequisites for the formationof technological capabilities in the Nigerian oil industry in the decade following independence in
1960. Government policy initiated through the Petroleum Decree No.51 of 1969 was the bedrock of
its political commitment to technological capabilities formation in the Nigerian oil industry. Furthermore, massive investment through the issue of petroleum contracts and the control of such contracts
through the NNPC, paved way for the transfer of oil technology. The product of the initial technologicaltraining and learning was the development of some capacity in Nigeria to acquire the oil technology.
The consequent technical change resulting from the increased investments, and engineering andequipment profiles of the NNPC, resulted in the enhanced performance of NNPC. Technologicalcapabilities building and upgrading in Nigeria’s oil industry is not only necessary for the developmentof the industry, but also an important indicator of the survival of the industry and the future of theeconomy of Nigeria, which depends largely on the success of the oil sector. Evidently, some corecapabilities have been formed in the industry. These capabilities showed tremendous impact on
production and financial performance of the industry.
The success of the oil industry in the early years after 1975, are attributable to these initial capabilities
that were developed in the industry. The failure of the industry and the consequent domestic energy
crises in Nigeria in the last decade are attributable to the weathering of these capabilities. The futureof the oil industry will depend on further development and deepening of technological capabilities in
the oil industry. Government response to the technology needs of the oil industry is to restructure theindustry. Initial efforts at restructuring the NNPC began in 1988 and 1989. However, these efforts werefrustrated with controversies within and outside the federal service. One successful achievement was
the approval in March 1989 of management contract with Universal Operating Processing (UOP) at
Port Harcourt II, which was to be paid a management fee, but would not share in the refinery profits orlosses. UOP has sustained good performance with the Port Harcourt refinery over the period, at
reduced operating costs and capacity utilization over and above the rest of the refineries. In 1994/
1995 the Kaduna refinery and other refineries deteriorated, because of poor maintenance and lack offunding for the usual TAM (internal and external). These developments compelled the federal government to announce in 1995 that the refineries, PPMC, NPMC, NGC and the LNG project, could beleased to private firms, domestic or foreign, for a period of 10 years, with an option of renewal. Leases
were to retain a share of the profits and be expected to supply the necessary funds for maintenanceand capital depreciation. The deteriorated state of the refineries suggests that a phased programme

ATPS Working Paper Series No. 32

of divestment be initiated to return the refineries to profitable operation and to avert the crisis of petrol
scarcity in the country. This begins with rehabilitation and repairs of the refineries. Once rehabilitationis completed, they can be maintained and consideration of divestment should also require an appropriate compliance by the private operators to supply and transfer modern technology. The prospectsof restructuring the NNPC are dependent on the current democratic government.
The scope of this study is limited to the Nigerian oil industry and has opened several agenda for future
further investigations in the industry. Some of these agenda have been identified and would benefit
from this study. The agenda for future research include:
1. The role of indigenous oil contractors in the technological development of Nigeria’s oil
industry. This study will involve the determination of the technology profile of theseindigenous contractors. The study shall provide a detailed classification of their operations in the upstream and downstream areas of the oil industry.
2. The comparative analysis of the technological developments in the oil industry of otheroil producing countries. This entails a detailed review of technological developments insome selected oil companies of oil producing countries. The significance of this study
is the streamlining of the experiences of these countries with technological capability
building.
3. The study of the role of foreign MNOCs in the technological development of oil industries. This is a verification of the operational and management practices of the foreign
oil companies in their host countries.
4. The study of the oil technology market. This entails an evaluation of the sources of oiltechnology supplies. The costs of acquiring such technology and the transfer process
for countries in need of such technologies, especially, the oil producing countries.

46

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49

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