Nigeria: Why Unmonitored Borders, Fuel Subsidy Are Harmful to Nigerian Economy - Matrix Group CEO

Seme Border used to illustrate the story.
4 November 2019
interview

The recent closure of the Nigerian borders with its neighbouring countries appears to have recorded positive impacts for the economy, as the Petroleum Products Pricing Regulatory Agency (PPPRA) says the country’s national consumption level of petroleum products dropped by about 30 per cent since the policy began.

The Managing Director/CEO, MATRIX Group, an independent petroleum products marketing company, Adisa Aliu, hails the government over the decision and other policies. He spoke with Business & Economy Editor, Bassey Udo.

Excerpts:

PT: One will have to look as far back as 2016 to recall the last time the country had fuel queues at filling stations. Would you say the government has finally found the solution to fuel supply crisis?

ALIU: Absolutely! As a country and as a group (fuel marketers), we have learned from our mistakes in the past.

For a very long time, we have been having a very good working relationship with the government. Certain factors led to shortages in fuel supply in the past, ranging from inadequate planning to infrastructure challenges.

Before 2010/2011, virtually all the petroleum products in the country were coming from Lagos. That is why there has always been issues about logistics, because people from far locations like Uyo, Port Harcourt, Kano, Kaduna or Maiduguri were depending on Lagos for petroleum products.

Even where there were sufficient petroleum products, there were fewer storage facilities to receive them in Lagos.

Again, there were only two major roads into and out of Lagos – the Lagos-Ibadan and Lagos–Benin Expressways.

Imagine the whole 30 to 60 million litres of petroleum products consumed daily in the country coming from Lagos alone to all other parts of the country. So, it created a lot challenges and bottlenecks in the fuel distribution channels.

But, we see now that over the years, there have been new infrastructures by private investors all over the country.

For instance, at Matrix Group, we are the first private fuel marketing company to establish a private fuel depot in Warri, Delta State. Today, we have almost about 11 new such facilities.

If one goes to Calabar, there is North-west Petroleum and a few other fuel marketers.

So, what that means is that if one is in Calabar, one does not need to go to Warri or Port Harcourt for petroleum products. There is sufficient petroleum products everywhere to lift and supply.

Secondly, what one is seeing is that in the past most of the distribution vessels were owned by foreigners.

But, today, there are so many Nigerian-owned vessels. Matrix Group alone has four vessels that can load products Nigerians can consume for two days.

There is another company that has about 13 vessels. So, put together, in the past seven/eight years, one can count Nigerian companies with about 20 vessels, which the capacity to hold petroleum products the country can consume for about 15 days.

The same thing was happening with government fuel infrastructure in the past. NNPC depots in Yola, Gusau, Minna, and many other inland facilities were not having products.

When the country experienced minor fuel shortages, all what the government did was to open those strategic reserves across the country and the problem was resolved.

The depot in Yola has the capacity to service the entire Northern States for about one week. Matric Group was among the marketers that moved products with our trucks for the government from Lagos, Warri, Gombe, Kano, and Yola.

Those tanks are usually filled with products in case there is any problem, like workers’ strike action, or other issues that affect the movement of products from one location to another. These are things happening in the industry.

Today, the depot in Ilorin is opened. One will see NNPC-PPMC depot pumping products from Atlas Cove to Mosimi, Mosimi to Ibadan, and Ibadan to Ilorin.

The same thing is happening in other places. Government can easily pump products from Port Harcourt to Aba, Aba to Enugu. So, these are things that have affected the industry in a positive way.

Beyond that, before now we used to have challenges with inadequate supply of foreign exchange.

But, government made an arrangement with the international oil companies to make dollars available specifically for fuel imports. That has also helped the process in a very significant way. It has reduced the usual pressure on the Central Bank of Nigeria as the sole provider of foreign exchange.

Again, the NNPC came up with the crude oil swap arrangement called the direct sale-direct purchase (DSDP) programme.

Today, NNPC is the sole importer of petroleum products. But, it has been able to manage the DSDP programme in a way that has worked and impacted the industry successfully for more than two years.

What the NNPC does is this. If the country’s fuel requirement is about 30 cargoes of PMS (premium motor spirit) per month, The NNPC will ensure one or two additional cargoes are brought in.

This is because it does not want to keep fuel vessels outside the country. The NNPC fuel importation and supply programme is now well planned. It ensures that whatever constitutes man-made bottlenecks in the supply process are cleared and the system is allowed to work smoothly.

PT: Are you saying the marketers are involved only in the DSDP arrangement and not in the importation of petroleum products?

ALIU: How the DSDP arrangement works is this. The NNPC sells crude oil to the marketers that have the technical and financial capacity.

In return, instead of the marketer to collect cash, it will give the NNPC refined products.

So, NNPC will invoice the marketer for crude oil lifted, while the marketer will invoice the NNPC for refined products supplied. Then everything will be netted off between the two parties.

So, what NNPC does is to look at what the national requirement is, because consumption differs from January (during the rainy season), dry season (during ceremonial periods like December) or other festive periods, where the consumption of petroleum products is different.

What NNPC does is to select companies on the basis of technical capacity and financial competence to be involved in the DSDP programme.

As a company, we play two roles here. We are active in the area of fuel import sales to the NNPC as well as buying from the NNPC and selling to our customers to take to our filling stations across the country.

With our dual role, if there is going to be any shortfall in the market, we are in the best position to advise the NNPC that based on the way people are buying products, there is need for it to increase the volume it imports, although it is always proactive in doing that.

These are some of the things that have helped the industry to check fuel supply disruptions these past years.

PT: The new management of NNPC is talking about rehabilitating all the four refineries between now and 2022. Do you see this as an achievable target? Or do you see this arrangement as capable of helping stop the importation of petroleum products in the country?

ALIU: Absolutely! You know, the present Group Managing Director of the NNPC, Malam Mele Kyari, was, before now, the Group General Manager, Crude Oil Marketing Department of the NNPC. He is the brain behind the current DSDP programme.

Three years ago, when the previous DSDP lapsed about two months ago, it was a precondition that the marketers were going to partake in providing funding for the rehabilitation of the refineries.

So, it is something he did for more than two years. He knew where NNPC got it right and where the corporation could have done better.

Therefore, now that he is in charge of the entire corporation, with his wealth of experience in the area of crude oil marketing and trading, he knows the situation in the market and the value of refining petroleum products locally.

One cannot be producing raw oil and export it, pay for shipping from Nigeria to China or to Europe or America, before paying another vessel to bring the products back. There is no value added there. As a country, it is a good thing for Nigeria if the four refineries are made to work.

Malam Kyari has been in the NNPC system for a long time. He knows what must have led to the refineries not working properly. I believe him completely when he said all the refineries will work again by 2022.

It is a manifestation that he actually knows what is happening. Maybe there is somebody that would have said the four refineries will work by 2020. That will be unrealistic.

But, he knows exactly what the problems are. He knows that to make a refinery to work is not something that can be done in one year.

I strongly believe that by 2021, the four refineries will work. And if the four refineries work, and process about 450,000 barrels of crude oil per day, it will reduce the pressure on fuel importation.

Importation is not good for anybody, whether for us as marketers or as a country. It is even worse for the Nigerian youth. Importation is more or less encouraging the exportation of jobs abroad.

We need to create value here. If we can refine petroleum products here, it will reduce the pressure on the country’s economy. If the four refineries work, we will not need DSDP.

PT: You seem to have so much confidence in the new management in NNPC. What’s your assessment, in terms of the direction it is taking the industry?

ALIU: There is no doubt the new management in NNPC is taking the industry in the right direction. I mentioned earlier that the new GMD (Kyari) has been in the crude oil trading business for a long time.

He understands what it takes to lead the industry. In his inaugural speech, he said having worked with the previous GMD, he learnt a lot and knows the rudiments of what it takes to deliver value to the industry.

Come to think of it, he is a young vibrant man. He still has many years before retiring. I believe the best thing government has done is to have appointed someone that has four/five years to spend in office.

There is going to be stability in the system. It is not good for progress to keep changing GMDs every time. I have no doubt that those things he said he will do are achievable.

Malam Kyari is not the type that talks for talking sake. Again, most of the other members of his management team are all young men too. They have been part of the system and know what they are doing.

They have started well. They automated the crude oil bidding transaction and made every process open and transparent.

Marketers involved in the DSDP programme have been lifting crude oil in the last three years without any need to visit NNPC to know their schedule.

Each marketer knows when its turn to lift crude oil is. There is transparency in the process.

What Nigerians need is equal opportunity and transparency. If that alone is achieved, every other thing will fall in line. This is the strength of the current management at the NNPC to deliver what the country expects of them.

PT: Recently, the government ordered the country’s borders with its neighbours closed. How does this impact the petroleum products supply business?

ALIU: Nigeria is surrounded by so many countries. On the Lagos axis, there is the Benin Republic.

On the Northern part, there are Niger, Chad and Cameroun. Nigeria is the only country selling petrol at a subsidised price of N145 per litre in the entire sub-region.

In Saudi Arabia today, the population is about 80 million. They are producing 10 million barrels of crude oil per day. When the gas exports are added, may be they will be doing about 13 million barrels per day.

Yet, PMS in the country is sold at two Riyadh, which is an equivalent of about N210/N220 per litre.

Saudi Arabia is not importing petroleum products like Nigeria. They are refining what they consume. They are even exporting petroleum products. Then, look at Nigeria producing about 1.8 million barrels per day for a population of almost 200 million people.

But, we do not have good roads. Again, we do not have the kind of money the Saudis have. Yet, petrol is cheaper in Nigeria than Saudi. Clearly, government is subsidising.

On the other hand, we have a country like Niger Republic that is poor. Yet, they have a refinery that can only process 20-30,000 barrels of crude oil, and able to produce only 15 trucks of petrol a day.

The same country can only import from maybe Nigeria, Cameroun or Benin Republic.

When they import at today’s price, the landing cost will definitely be higher, because they will have to move products from Benin Republic to Niamey, Niamey to other areas in Niger.

At the end, the retail price will be around N350 per litre. So, where else should they go when the borders are porous?

What they usually do was to travel to Kano or Maiduguri, or other border towns in Nigeria to buy products, because the arbitrage is quite high, between the N145 per litre sold in Nigeria against N350 per litre sold in those other countries.

Basically, other countries rely on the petroleum products from Nigeria. Same way Benin Republic do not consume Parboiled rice, but more Parboiled rice is in Benin Republic than Nigeria. Where are those fuels, rice and other commodities going?

So, for government to close the borders is a welcome idea. There is no doubt that during the period the borders are closed, each country affected will be able to assess their gains and losses to be able to come up with a plan that will make each country to be independent or ask for help when needed.

Closing the borders, to me is the best thing that can happen. But, the government should not stop there. There are so many porous spots on the border where smuggling of petroleum products can take place.

The Customs and all the other security agencies should assist the government is ensuring while the border is closed, smuggling is checked.

PT: Fuel subsidy is still a contentious issue. How do you think the government can remove subsidy in the approved fuel pricing template?

ALIU: Frankly speaking, I do not have any recourse to subsidy. The NNPC imports products and claims the money from government directly from first line charge. What I think is right to do may not be the same as what the leadership feels. President Buhari is our President. We elected him.

If he says there should be fuel subsidy, and about N450 billion has been provided in the 2020 budget for subsidy, we have to find a way to live with it. Personally, I do not need fuel subsidy.

If you ask me, we can re-channel the N450 billion into roads construction. In Abuja, motorists do not spend much money on car maintenance, because the roads are good.

But, when one travels to a state like Niger, even if fuel is bought at the rate of N200 per litre and the roads are good, one will be better off than buying at N143/N145 per litre in the area with bad roads. One will spend more money on car maintenance. But, it’s a choice.

The masses believe fuel price should not be increased and that the government should bear the cost of subsidy. Yet, they want the government to do the roads and provide every other thing.

Even the school fees for children, people do not want to pay. Even to pay tax, they want a discount. It is a choice we have to make.

Do we want government to continue spending this money on fuel subsidy and continue to struggle to fix the roads? Or do we want infrastructure?

There are two ways to it. Government my feel it does not want to remove fuel subsidy, because the masses may not be able to afford it.

Or the masses on their own will say we elected the people in the National Assembly, and the labour leaders are also part of us, we can say please government remove fuel subsidy, use this money to do infrastructure. It is a choice.

To me personally I don’t believe in fuel subsidy. Subsidy is not good for us. Subsidy is harmful to our economy. Subsidy creates arbitrage. If it is possible, government should avoid fuel subsidy.

The most important thing is for us to have good roads. As a marketer, if government makes more roads, I will sell more bitumen. I will sell more products. I will make more money.

But, I want government to do more infrastructure. I want government to build more dams, expand the airports, do more runways and build more schools.

If government removes fuel subsidy, maybe the consumption of petrol will reduce. But, the choice is for Nigerians to make.

See What Everyone is Watching

More From: Premium Times

Don't Miss

AllAfrica publishes around 700 reports a day from more than 140 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.