The cost of sustaining Nigerians’ addiction to cheap petrol funded through a government subsidy is digging deeper holes in the Federal Government’s already strained, shrinking wallet.
A recent set of data show that daily consumption hit a record high of 93 million litres in April 2021, translating to a daily spend of N7.10 billion on subsidy.
Petrol consumption in West Africa is estimated at 120.80 million litres daily and at 93 million litres daily consumption, this means that Nigeria alone accounts for 77 percent of petrol consumption, even though it has 52 percent of West Africa’s population and accounts for 65 percent of the sub-region’s gross domestic product (GDP).
The new consumption figure was gleaned from a recent presentation to stakeholders in the downstream sector by the Nigerian National Petroleum Corporation (NNPC), seen by BusinessDay.
In the presentation, the NNPC said Nigeria’s daily consumption of Premium Motor Spirit (PMS) popularly called petrol was at an unsustainable level at 93 million litres a day in April 2021 from an average of 61 million litres consumed in previous months.
Major depots including Nigerian Pipelines and Storage Company Ltd (NPSC) in Ejigbo, Mosimi, Emadeb Energy’s depot, Matrix Energy’s depot, AYM Shafa’s depot, Aiteo’s depot among others lifted a total of 43.90 million litres, accounting for 47 percent of Nigeria’s daily evacuation. Smaller depots around the country make up for the difference.
The NNPC, in the presentation said the quantity of petrol consumed locally is uncertain indicating the process has become unhinged.
Mele Kyari, NNPC group managing director was furious at the inexplicable high rate of petrol consumption and wondered where marketers supply the products when the national oil company solely imports, one source at the meeting told BusinessDay.
Kyari warned that the corporation can no longer bear the burden of under-priced petrol. He also suggested that marketers caught in any scheme to exploit the system would be handed over to the Department of State Security (DSS).
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Operators say the economics has been in favour of ditching the costly petrol subsidy but the politics behind keeping it has grown intense.
“There is no doubt that Nigeria’s present petrol consumption is embarrassing, due to smuggling which is currently a thriving business,” Mike Osatuyi, national operations controller, Independent Petroleum Marketers Association of Nigeria, told BusinessDay.
On the allegation that marketers illegally export petrol, Osatuyi asked why the five security agencies across the borders are unable to stop it.
Smuggling of petrol across the borders is becoming more intense as Nigeria inches closer to full deregulation, one stakeholder said. Despite over 95 million Nigerians in poverty, the country inadvertently pays for cheap petrol across West Africa.
“It means Nigeria is financing the economies of neighbouring countries,” Osatuyi said. “Nigeria should not be consuming more than 50 million litres per day.”
He noted that if Nigeria’s petrol price was at par with those of the neighbouring countries smuggling would not be attractive to both people who are taking it out and those allowing it to go out.
Daily subsidy now N7.1billion
Nigeria’s daily petrol consumption is about 93 million litres according to the NNPC.
The market price of petrol is N239.71 based on the Petroleum Products Pricing Regulatory Agency (PPPRA) latest pricing template.
This means Nigeria’s daily subsidy is now estimated at more than N7.10 billion.
Recall, PPPRA had in March released a pricing template that indicated petrol pump price was expected to range from N209.61 to N212.61 per litre. This was greeted with a widespread public outcry. The pricing template was later deleted by the agency from its website.
The template was based on an average oil price of $62.22 per barrel for February and an exchange rate of N403.80 to a dollar. This showed that the landing cost of petrol was N189.61 per litre.
However, the price of crude oil, which accounts for a large chunk of the final cost of petrol, has increased by 11percent to $69.38 per barrel as of Wednesday, May 5.
The rising price of crude oil means Nigeria’s landing cost of petrol is N189.61 per litre. This similar to the cost of petrol quoted on Platts at $642.25 per metric tonne (N193.39 per litre) in April from an average cost of $56.96 (N169.22 per litre) used by PPPRA for March.
The freight cost increased to $29.98 per MT (N9.03 per litre) from an average of $21.63 per MT (N6.51 per litre) used by PPPRA for March.
Other cost elements that make up the landing cost include lightering expenses (N4.81), Nigerian Ports Authority charge (N2.49), Nigerian Maritime Administration and Safety Agency charge (N0.23), jetty throughput charge (N1.61), storage charge (N2.58), and financing (N2.17) – all per litre.
The pump price is the sum of the landing cost, wholesaler margin (N4.03), admin charge (N1.23), transporters allowance (N3.89), bridging fund (N7.51), marine transport average (N0.15), and retailer margin (N6.19).
Based on the PPPRA template, the expected pump price of the product stood at N239.31 per litre while the current pump price of N162 per litre indicates a subsidy of N77.31 per litre.
Economics of smuggling
Nigeria, Africa’s largest oil exporter, imports all its refined petroleum products. This is a pain point for a government struggling with one of the worst macroeconomic environments in its recent history.
For clarity, Nigeria’s is a strange case where a big oil exporter reimports all its refined petroleum products needs. This creates value and employment for refining countries as Nigeria shoulders the cost of petrol subsidy. These misapplied funds could have gone to building pieces of social infrastructure such as public schools, hospitals and roads.
Nigeria’s 200 million citizens view cheap petrol as one of the few consistent benefits from a system where graft and inefficiency are ingrained.
With about N77.31 of subsidy on every litre of petrol sold in Nigeria, Cameroon, Benin, Togo, Chad and the Niger Republic are guzzling smuggled cheap petrol from big brother Nigeria. These countries form the length of Nigeria’s 17, 000 kilometres land borders.
This reflects in the higher consumption of petrol by some of the border states in comparison to other states with more economic activities or bigger Internally Generated Revenue (IGR).
For instance, Adamawa State has an IGR per head of N2, 610 and shares a border with Cameroon. It consumes 1.70 million litres of petrol, on average, daily.
Nevertheless, Ondo State consumes 843, 000 litres, on average daily, with an IGR per head of N7, 165.
Similarly, Ogun State has an IGR per head of N7, 140 in 2020 and shares borders with the Benin Republic. The state consumes 2.50 million litres daily. But Rivers State with an IGR per head of N22, 505 consumes an average of 2.20 million litres daily.
“Petrol smuggling has irritatingly become a cash cow in Nigeria. The country is losing so much to the smuggling cartels,” Charles Akinbobola, analyst Sofidam Capital said.
On March 19, the Nigerian downstream oil sector marked its one-year anniversary of a supposed liberalised sector and exit from payment of subsidy. This was supposed to mean that the forces of demand and supply would thenceforth determine the prices at which Nigerians will buy petrol at the pumps.
However, barely a year after the announcement, labour unions and the Federal Government have not been able to agree on how to go about deregulating Nigeria’s downstream oil and gas sector. Without full deregulation, fresh private investments would continue to elude sector.
