5 April 2016

Nigeria: Energy Crisis Threatens Economy

Crusoe Osagie highlights the endless challenges the severe shortage of petrol and electricity pose to the Nigerian economy

To say the Nigerian economy is in dire straits is putting it mildly. The largest economy in Africa is literarily shutting down.

Individuals, families and businesses are feeling the pinch in a nation whose economy is severely threatened by supply crisis in both the electricity and petrol sectors.

The markedly elevated cost of movement of people, distribution of products as well as the cost of power generation is taking its toll on the country already in peril from the sharp decline in crude oil earning, its main source of revenue.

Analysts believe that the nation is losing over N5.8 billion per day in terms of impaired productivity over the fuel crisis which has become clearly intractable.

The challenge of fuel shortage is made worse by the simultaneous shortage of power supply, making efficient business operation extremely difficult.

Vice President of the Nigerian Association of Chambers of Commerce and Industry Mines and Agriculture (NACCIMA), Mr. Dele Oye, told THISDAY that: "The endless petrol challenge is impacting negatively on the efficiency of the economy, resulting in over N5.8 billion in losses every 24 hours.

For the micro businesses which make up over 80 per cent of businesses in the country, the situation is extremely as they have to depend on the very scarce petrol to power their offices due to the lack of municipal power supply.

He noted that unless urgent long-term steps are taken by government to end the crisis, and quick emergency interventions made the country may be sliding into an economic abyss.

"We are not experiencing the best of times in the Nigerian private sector. Government needs to take urgent steps. Petrol must be made regularly available in order to prevent an imminent shut down of many micro and small businesses in the country," he said.

Power Unavailable

Power statistics from the System Operator indicated that at a point late last week, Ikeja Disco, Ibadan, Abuja, Port Harcourt, Benin, Jos, Kaduna,Yola, Eko and Enugu all got zero allocation from the generation companies.

Most parts of the country were consequently in darkness as many who could even afford to power their small and medium sized generators were unable to lay their hands on petrol due to the severe scarcity of the product.

Commenting on the issue, the General Secretary of National Union of Textile Garment and Tailoring Workers of Nigeria (NUTGTW‎N), IssaAremu, said the situation would further worsen Nigeria's industrial situation as it would make Nigeria's products less competitive. "The situation had always been bad, but, this time around, it would further impoverish Nigerian workers whose income would be worsened further. There is no doubt our government needs to put an end to all these crises," he said.

MSME Losses put at N30bn

The President of the Abuja Chambers of Commerce and Industry Mines and Agriculture (ABUCCIMA), Tony Ejinkeonye, last week stated that Micro Small and Medium Enterprises (MSMEs), have recorded losses of up to N30 billion in the last one month owing to the lingering fuel scarcity.

He noted that the continuous fuel scarcity was gradually bringing the nation's business activities to a standstill.

According to him, "Businesses, especially MSMEs have lost over N30 billion as a result of inadequate supply of petroleum products. Productivity is low as employ¬ees have stayed off work since the hike of fares by providers and when they come, they are always late. Businesses and the economy are being battered from all sides- forex, energy supply, infrastructure and security concerns. The list is endless."

Questioning the ban on sale of petrol in kegs, Ejinkeonye likened it to 'treating symptoms instead of addressing the real issue'.

"The issue of unavailability of petroleum products and its importation portray our country in bad light. It portrays us as incompetent managers of our resources. The NNPC from the comments of its officials may have given up. We may seriously need to privatise our refineries," Ejinkeonye said.

LCCI Proffers Solution

Expressing concerns over the current fuel scarcity, which has crippled business activities in the country, the Lagos Cham‎ber of Commerce and Industry (LCCI), has listed steps to put an end to the scourge.

According to the LCCI, the government needs to urgently liberalise the downstream petroleum sector for unfettered private sector participation and investment, subject of course to an appropriate regulatory framework, adding that there should be a level playing field for all operators, including the Nigerian National Petroleum Corporation (NNPC).

The Organised Private Sector (OPS) said if this wasdone, it would put an end to the perennial problem of fuel scarcity in the country and the hardships suffered by citizens to fuel scarcity.

"This would also attract more investment, generate more jobs and reduce the pressure on the country's foreign reserves," LCCI said.

LCCI advised that the role of the NNPC needs to be clearly defined, saying that NNPC should not be an operator and still have regulatory powers while calling for a model that would allow for a level playing field for all operators including the NNPC to be adopted.

The chamber however called for the urgent need to review the current policy framework for the petroleum downstream segment of the oil and gas industry, adding that the consequences of the current policy regime will lead to recurring and protracted fuel scarcity‎, considerable loss of man-hours as a result of long fuel queues and associated traffic issues on the highways and financial commitment to subsidy payment, even at a time of dwindling government revenue‎.

‎LCCI expressed concerns over lack of clarity on the deregulation and liberalisation of the sector, pointing out that the policy lacuna has put many investments in the sector at risk; while many other investment decisions have been put on hold.

The statement added that the concentration of petroleum products supply in the NNPC remains a major cause for concern, stating that the arrangement is an inherent entrenchment of the dominance of the NNPC to the detriment of private investors in the sector.

"The downstream petroleum sector currently suffers from over regulation which has profound negative consequences for growth, investment and job creation in the sector.Evidently, the current model of managing the downstream petroleum sector is not sustainable. It is at variance with the present administration's vision to diversify the economy and create jobs," LCCI said.

The chamber stated that the situation perpetuates the phenomenal of rent economy and detrimental to economic competition, stressing that it is important to stress that the citizens are the ultimate beneficiaries of a competitive market environment.

LCCI noted that the weak compliance with the regulated price of Premium Motor Spirit (PMS) in parts of the country is largely a symptom of much deeper problems and distortions in the petroleum products supply chain, saying that the Department of Petroleum Resources (DPR) has been spending valuable time and energy fighting the symptoms of a problem, rather than addressing the fundamentals.

"The roles of the DPR and the PPPRA need to be better defined. There are currently several instances of overlapping and duplication of activities and responsibilities. This poses a problem for investors in the sector," LCCI said.

The private sector body said refineries should be operated as commercial business entities while the NLNG model which allows for private sector management should be adopted for the refineries, saying that this would improve efficiency and reduce the burden of the refineries on the nations' treasury.

"The pipelines should the concessionedfor a more efficient management and reduction of road haulage for fuel and ‎the Central Bank of Nigeria (CBN) needs to ensure a more transparent process in the allocation of foreign exchange to petroleum products marketers. It should also ensure the payment of matured letters of credit (LCs) to their offshore fuel suppliers," LCCI said.

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