50% drops in PMS usage validates cross-border smuggling

The once-thriving petrol black market in West Africa has been topsy-turvy lately after Nigeria adopted full deregulation in the downstream sector.

The deregulation has upended an informal sector that is central to the region’s economic activity, cutting petrol consumption in Nigeria by 50 percent.

For decades, Nigeria’s heavily subsidised petrol prices have oiled the wheels of smuggling in the West African region.

Traders from neighboring countries such as Ghana, Benin, and Togo would flock to Nigeria to purchase petrol at a fraction of the cost and then smuggle it back across the border for a substantial profit.

This illicit trade not only deprives governments of tax revenue but also fuels corruption in the Nigerian National Petroleum Company (NNPC) and serves as a convenient excuse to explain away outrageous subsidy claims. This has made it impossible to determine Nigeria’s exact consumption.

Read also: Smugglers raked in N17m/truck before subsidy cut – Kyari

Industry data seen by BusinessDay showed Nigeria’s petrol consumption has dropped by 49.6 percent, from an average of 69.5 million litres as at May 2023 to 35 million liters as of September 2024.

“People smuggle because they have historically got the commodity cheaper here in Nigeria and can make a reasonable margin selling to neighbouring countries even after all costs are considered. Once there is full deregulation and there is a free market, the margins will not be such as to substantially encourage smuggling,” Tunde Leye, a senior energy analyst with the Lagos-based Center for Development Studies, said.

Leye said that when the product is delivered at the market rate and marketers are allowed to compete, smuggling will not be as attractive, considering haulage costs and other ancillary costs.

The NNPC and other marketers, on October 9, increased the price of petrol by 16 percent, the third increase in two months and weeks after it started purchasing the petrol from the giant Dangote oil refinery on the outskirts of Lagos.

The deregulation means that marketers are now free to determine their own prices without government interference.

Joe Uwakwe, former chairman, Society of Petroleum Engineers, Nigerian Council, said before full deregulation, the Nigerian economy had been losing 18 million litres of petrol daily to cross-border smuggling.

He explained that the subsidy at the fuel pumps ends up serving the interests of neighbours across the West African coast.

“If we continue to subside, we will continue to have leakages, and those leakages are not small. If you run those numbers, that is what you get and that is so wasteful. There is a need to communicate the message to Nigerians, that, even though the subsidy intervention was meant to serve Nigerians, it was serving everyone in neighbouring countries,” Uwakwe noted.

Mele Kyari, group CEO of the NNPC, in an interview on Channels TV on October 13, alluded to this, explaining that petrol smugglers could make as much as N17 million on one tanker of petrol, while an oil marketer in Maiduguri, Borno State capital, would only gain about N300,000 to N400,000.

Speaking on why smugglers preferred neighbouring countries, Kyari said these countries have “taxation on PMS.”

“We do not have tax here. So, in many of these countries, actual government revenue is dependent on the taxes that are coming on PMS,” Kyari said.

Read also: Over 1,800 fuel outlets shut in Nigeria’s northeast over smuggling dispute

This incentive has fuelled the widespread smuggling of subsidised petrol from Nigeria across West Africa. Investigations have shown that Nigeria’s petrol goes as far as Sudan.

Several efforts to check the smuggling of petrol from Nigeria have failed because the illicit activity involved highly placed Nigerians, including government officials.

This accounted for the setting up of several petrol stations in border communities in Nigeria, with as many as over a dozen in communities where there were barely 100 vehicles. These petrol stations would accept products transported from Lagos by fraudulent marketers, who in the night smuggled them across the borders in active connivance of compromised border protection agents.

By the NNPC’s own admission, over 20 million litres of petrol is smuggled outside Nigeria daily. The sale of smuggled petrol across the West African sub-region oils black markets and distorts the price mechanisms of these countries.

It also fuels corruption in the NNPC and serves as a convenient excuse to explain away outrageous subsidy claims. This has made it impossible to determine Nigeria’s exact consumption.

Anti-smuggling operations

Last June, nearly 2,000 petrol outlets were shut in Nigeria’s North-East to protest against an anti-smuggling operation that targeted some operators, according to Dahiru Buba, chairman of the Independent Petroleum Marketers Association of Nigeria (IPMAN) for Adamawa and Taraba states.

Buba said petrol stations stopped operations after the Nigeria Customs Service impounded tanker trucks and shut some fuel outlets on suspicion they were smuggling petrol to neighbouring Cameroon.

Under ‘Operation Whirlwind,’ the Customs initially impounded some tanker trucks belonging to IPMAN members and released them after the association protested. But more trucks were seized and several fuel stations were shut, forcing fuel station operators to close outlets en-masse in protest, said Buba.

“We wrote to them (Nigeria Customs) again but there were no responses, which is why we decided to go on strike,” he said, noting that over 1,800 outlets had ceased to operate.

“This is our business and we cannot be quiet when our members are treated this way.”

Mangsi Lazarus, Customs spokesperson for Adamawa and Taraba, said tanker trucks were seized because they were being used to smuggle petrol.

Prior to President Bola Tinubu’s confirmation that petrol subsidy was gone, Nigeria’s price peg of N195 per litre had hurt investments and created a boom for smugglers.