Black market dealers signal Nigeria fuel crisis far from over

Chigozie Nnorom is a street hustler dealing in the informal or “black” market for refined petrol along the major thoroughfare leading to Nigeria’s international airport in Lagos.

“The fuel scarcity will return soon so we are replenishing our stock of petrol,” Nnorom said, as he attempts to sell a five litre keg of the product for N600 or about 37 percent above the subsidised rate of 87/litre.

“We are being tipped off by the petrol attendants. They say tankers are not loading and even if they begin to load, the prices at which they will buy from the marketers will soon rise,” he said.

The continued prevalence of street hawkers of fuel in most of Nigeria’s major cities is a signal that the recent fuel crisis is far from over.

While Nigeria is used to periodic bouts of scarcity of the fossil fuel mostly used to power generators and cars, in the past once normalcy returned to the supply chain, hustlers like Nnorom usually disappeared and tried their luck in other trades.

This time, they have refused to melt away and seem to be bidding their time for the next round of shortages.

Nigeria is the largest oil producer in Africa, pumping some two million barrels a day of crude. It is however forced to rely on imports to meet 70 percent of its domestic refined petroleum products demand, as most of the NNPC’s four refineries produce at less than 20 percent capacity.

The problem is made worse by subsidies on petrol whose costs have ballooned as the naira depreciates and demand increases.

“The fuel subsidy is a critical issue for the Buhari administration, as fuel marketers claim they are owed outstanding arrears, mostly in foreign exchange differentials,” the Economist Intelligence Unit (EIU) said in a recent report.

“There could be another stand-off if the Buhari administration refuses to pay.”

Nigeria’s new President, Buhari, has not made clear his plans for subsidies, which are paid by the Petroleum Products Pricing Regulatory Agency (PPPRA).

The Federal Government owes about N204 billion ($1bn) in subsidy arrears, according to documents seen by BusinessDay.

The subsidies are expensive, accounting for an average of 2.5 percent of Nigeria’s gross domestic product (GDP) each year, between 2006 and 2012 according to the IMF.

The government set aside N914 billion ($4.6 billion) for it in 2014.

A lack of clarity on fuel subsidy payments may lead to a return of fuel shortages soon, said Austin Avuru, CEO of upstream Nigerian oil firm, Seplat.

“In three weeks, the scarcity of petroleum products will resume, as very little importation is being done at the moment,” Avuru said in a June 25 conference in Lagos, saying “the current respite is being caused by some people who owe the government money, that are bringing in shiploads of products.”

If Avuru is right, it means long queues may begin to re-appear in filling stations across Nigeria’s major cities in about ten days.

Reports suggested last week, that parts of Abuja the political capital, had seen queues as a result of panic buying. Ultimately, the healthiest development for Nigeria would be to sell refined products to end-users at cost-reflective prices, according to Razia Khan, Standard Chartered Bank’s head of Africa Macro Global Research.