28 December 2017

Nigeria Staggers Into Another Circle of Fuel Subsidy

Barely one and half year after the government announced what it called a partial liberalisation of the downstream sector of the oil and gas market with a view to encouraging independent petroleum marketers to import products, the dynamics of economic focus have made nonsense of the policy. The Nigerian National Petroleum Corporation (NNPC) has become the sole importer of premium motor spirit and the result is fuel queues at filling stations even as the federal government insists on price regulation. FESTUS OKOROMADU writes on the facts behind the return of queues.

Many Nigerians especially those leaving in urban cities like Abuja and Lagos will not forget in a hurry the horrifying experience of trying to get fuel for their vehicles and generators in some cases in the last three weeks. What started like a child's play has degenerated into something critical as people now spend hours at filling stations to queue to purchase the essential premium motor spirit (petrol) while the federalgovernment and its agencies continued to blame panic buying, hoarding, trafficking, diversion of products etc for the situation.

While government and its agencies continue to through blames they refused to acknowledge the fact that the crisis is a display of the dynamics of economic reality. Simply put the economic forces of demand and supply is at work.

However, the true picture of the situation was revealed by the group managing director (GMD) of the Nigerian National Petroleum Corporation (NNPC), Dr Maikanti Baru while addressing a press conference in Abuja on Sunday December 24, 2017.

According to him, the landing cost of petrol as at Friday December 22, was N171.40 per litre, this is in addition the high exchange rate of naira to other currencies, thus forcing the Corporation that was supposed to be the importer of last resort to become the sole importer of PMS.

His words, "NNPC is the sole supplier of PMS as a result of the inability of oil marketing companies to import due to higher landing cost and exchange rate."

Prior to the latest development the private sector operators where deeply involved in the importation such that members of depot and petroleum product marketers association (DAPPMA) imported about 65 per cent of the nation's total fuel consumption. Major Oil Marketers Association of Nigeria (MOMAN) imports about 15 per cent while the Petroleum Products Marketing Company/NNPC imports the balance of 20 per cent.

But in October this year the market dynamics changed basically because the global price of crude oil has continue to appreciate selling at above $60 per barrel. The implication is that the cost of importation became higher thus discouraging the private sector operators.

Unfortunately, the federal government is insisting that the product must be sold at the approved retail price of N145 per litre fixed in May 2016 when the price of crude was less than $35 per barrel.

This point is further clarified when Baru confirm that the oil marketers' who refusal to import PMS still went ahead to accessed the Central Bank of Nigeria (CBN) window for forex to rise over $600 million to import aviation fuel, diesel, kerosene and other petroleum products whose prices are not regulated.

But while Baru and the government refuse to speak on how the balance of N26 per litre incurred from importing petrol at a landing cost of N171.40 per litre excluding the cost of transportation it is obvious that the government is subsidizing. So Nigeria is back to the era of subsidy, the only difference for now is that NNPC is solely responsible and by implication will remain so until the landing cost is reduced.

Unfortunately, the impact of this subsidy is enjoyed only by city dwellers as report shows that the commodity is already selling at over N200 per litre outside the major cities where government agencies monitoring sales.

As usual, the prevailing circumstance has given room to the business of trafficking PMS across the nation's boarder and as rightly noted by Dr Baru, the petrol sells at least three higher than the regulated price in Nigeria in all the neighbouring countries, thus making a lucrative business to take it across boarder.

This explains why the nation's consumption rate has suddenly jumped from between 27 to 28 million litre per day to over 50 million yet the product is not available.

According to Baru, "Over the last two weeks, the national truckout capacity has been beefed up to an average of 1,500 trucks (52 million litres) per day, much higher than the normal consumption of 850 trucks per day across the various depots in the country." Yet, the product remains scarce forcing motorist and other users of petrol to buy at prices above the approved price.

How Long Will It Last?

Simple, until knew solution is proffered to tackle the situation, but unfortunately, the usual blame game of accusing marketers of hoarding, fire bridge approach of importing the massively, government officials and agencies going on monitoring as well as subsidizing for some smart persons to benefit from remains the tools being deployed.

These some strategies have been used in the past without yielding any meaningful results as they only end-up enriching some few individuals.

Thus those at the helm of the Nigeria petroleum industry must put on their thinking caps and find answers to the following questions: Why is it impossible for the nation's refineries to work? Two years after all the talks about getting foreign investors to take-over the existing refineries what happened to the prospective investors? Why is it impossible for government to support the private sector investors to set-up modular refineries? Who benefits from the petroleum product importation model? What is the government doing differently today to show its commitment to solving the problem other than issuing statements?

The New Cost Of Subsidy

Going by the NNPC GMD's statement which put landing cost of petrol at N171.40 and daily consumption rate of 52 million litres, government is spending N1.352 billion daily to subsidize PMS and at this rate it will require not less than N493.480 billion to sustain the venture for a year.

The Way Forward

Government most as a matter of urgency put together a team of expert that can facilitate the rehabilitation of the existing refineries and the privatization or commercialization of same. Create conducive environment for private sector player establishment of new ones. Encourage those already issued licenses to build refineries to do so. Allow market forces to determine the price of the commodity.

What is the wisdom of subsidizing petrol for urban dwellers while other Nigerians are paying as much N350 per litre for same product outside the cities? Is the government and its agencies only concern about Abuja and Lagos residents?

The need for permanent solution to this crisis cannot be overemphasize, moreso as many Nigerian small scale businesses are powered generator which in turn depends on PMS to run. Thus banning the sale of petrol in jerrican will affect such business negatively.

Already the cost of goods and service are heading northward as hike in transport fare trigger rise in the cost of everything else. The government will therefore do well to ensure that the economy does not return to recession by putting structures in place to resolve the problems.

Finally, Mr. President must put an end to the bitter revelry between the minister of state for petroleum resources, Dr Ibe Kachekwu and the GMD of NNPC Dr Baru. For instance since the fuel crisis began but men have not sat down together to proffer solution instead media war of accusation has become the order of the day.

In time past but men will sit together and address press conferences as well as issue directives as to how to end the unfortunate situation, but today, the situation is different. While Kachekwu is in Lagos monitoring the fuel situation alongside Vice President Yemi Osabanjo, Baru is in Abuja speaking on behalf of Mr. President. It is therefore not surprising that the enemies are taking advantage of the division in the house to milk Nigerian dry.

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