Motorists in Nigeria, a top oil producer, are approaching Christmas with the needless burden of having to spend nights at petrol stations on end hoping to fuel their cars. It is not the first time this is happening. It will not be the last if the country’s broken petrol supply arrangement is not scrapped for a new, sensible one, analysts say.
In 2022 alone, there have been two periods of severe supply disruptions, one following the importation of off specification petrol in February and the current one, which has been made worse by an old problem.
Below are reasons the petrol supply system in Africa’s most populous nation is broken and why the people should expect more chaos ahead:
Firstly, the state oil corporation charged with importing all the petrol consumed in Nigeria is broke, very broke and not many of its partners are still willing to do business on the basis of a promise to pay. This is not surprising. NNPC is owing in crude oil which it cannot lay its hand on following the sharp fall in Nigeria’s crude oil production and the corporation is also owing cash to suppliers who were persuaded to supply petrol in the fading hope of receiving cash in two months.
Although the country’s crude oil production levels are creeping upwards, there is no clear plan to resolve this debilitating debt position. Recall that when Nigeria decided to set aside 450,000 barrels of oil daily for domestic refining, this was meant to take care of both petrol supply as well as supply of diesel and other refined products. When domestic refining collapsed, NNPC resorted to exchanging this 450,000 barrels a day for the supply of petrol only and with the deregulation of diesel price, NNPC no longer takes responsibility for the supply of diesel and aviation fuel to the domestic market. No one has ever offered an explanation why this is the case.
The second reason is that Nigeria relies on a sole supplier, NNPC. Monopolies are discouraged or even fought all over the world because of the suffocating price and supply ineffectiveness that often arise. NNPC has demonstrated once again, that try as hard as you may, monopolies are cogs in the wheel of progress and worse if that monopoly is a government institution as is the case here.
Thirdly, Nigeria’s petrol supply and distribution system is a logistics nightmare. All the petrol comes in from abroad and in the absence of well-connected pipeline network, supply from the receptions point in mainly Lagos, is done by road, overwhelming the ports in Lagos and the roads through which the lorries must travel. Nigeria’s petroleum products pipeline network has become decrepit and the last time NNPC put petrol through them, the loss level rose to as much as 45 percent. Supply by road encourages products diversion that feeds into the massive petrol smuggling across the borders and leads to significant cost escalation.
There is a fourth reason for the collapse of Nigeria’s petrol supply arrangement, and it relates to the familiar matter of the bogus and corrupt subsidy regime that seeks to guarantee that petrol in Nigeria is cheaper than water. But all subsidy delivers are unending supply disruption and massive illicit gains for many who are involved at various points of the value chain. Nigeria’s petrol subsidy payments are wrecking the whole economy and not just the supply system. Subsidies mean massive leakage of products. Nigeria’s domestic consumption is rising faster than the economy is growing, surging from 28 million litres a day to an incredible 62 million litres daily today. Everywhere, Nigerians are discussing this matter, they mock the bogus consumption data they see as unbelievable.
Finally, Nigeria’s petrol supply system will remain bankrupt for as long as Nigerians expect to have petrol in their tanks without having to pay the full price. Everyday we go to the market to buy vegetables, we expect to find vegetables whether it is raining, or the sun is shining. The reason why the illiterate woman in the market can make vegetables available for us to buy is simply because the price is right. Nigerians delude themselves in expecting that the buying and selling of petrol can be different.
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