Fuel queues loom as government’s swap deals come under pressure

Long queues could soon return to petrol stations across Nigeria as the Pipelines and Product Marketing Company (PPMC), the downstream subsidiary of the Nigerian National Petroleum Corporation (NNPC), is finding it increasingly difficult to sustain the country’s unique arrangement where it is the sole importer of petrol and other refined products.

BusinessDay gathers from sources close to the NNPC that the strict enforcement of the production cuts ordered by OPEC under its price stabilisation mechanism has constrained the ability of PPMC to meet supply under the swap deals.

Added to this challenge is the pressure from Nigerian state governors who want the NNPC to fully account for all oil exported and to ensure the cash is remitted into the Federation Account, so it can be shared among the various tiers of government.

This leaves little wiggle room for the PPMC to continue the controversial crude for products swap deals, which have seen AA Rano emerging as clear leader in the pack of beneficiaries of the swap arrangement.
According to new OPEC output curbs, Nigeria can only pump about 1.4 million barrels per day. The PPMC swaps Nigeria’s crude for refined petrol under a problematic Direct Sales Direct Supply Programme (DSDP) as the sole importer of petrol.

The challenge for Nigeria is how much of the 1.4 million barrels per day it is restricted to, that can be sold for cash to run government programmes or swap for petrol.

Nigeria also has to answer to the IMF where part of the conditions to secure the $3.4 billion loan is a commitment to efficient use of government resources, which essentially abhors subsidies on petrol.
The implication of this is that fuel supply disruption is inevitable in the future unless private oil marketing companies step in and begin importing petrol to rescue the government.

“It is no longer a debate about whether or not subsidy should remain, it is a question of whether Nigeria will have fuel or not. If whoever is stepping in to import product cannot recover cost, Nigeria will go back to the days of long queues and madness at the filling stations,” said an official of the NNPC.

Given that the private firms will seek to fully recover their costs, prices of petrol could exceed N150 per litre given where international oil prices are headed.

BusinessDay learns that if products were imported into the country at N470/$1 and prices set using the average Platts for last month, the pump price of petrol today could be N174 per litre. But if the importer is able to source foreign exchange at N385/$1 it should be N151 per litre.

A pointer to what is in the offing is the PPMC’s ex-depot price of Premium Motor Spirit, also known as petrol, at N138.62 per litre.

The ex-depot price is the price at which depot owners sell the commodity to retail outlets. The ex-depot price per litre of petrol is often around N20 lower than the pump price, as the marketers would add cost of transporting the commodity from the depots to their retail outlets, in addition to other costs, such as marketers’ margin, among others.

In July, with ex-depot price at an average of N109.78 and N111.78 per litre to the marketers, the PPPRA announced a retail petrol price band of N140.80 and N143.80 per litre price, an increase of about N31 per litre.

There has been a number of meetings by key agencies responsible, but so PPPRA has been unwilling to release the retail price advice for this month. But with the ex-depot price now fixed for N138.62, the retail price of petrol could go as high as N152 per litre even if PPMC is able to continue the swap arrangements.
The Federal Government said “the price of PMS advised by Petroleum Products Price Regulating Agency (PPPRA), shall be the guiding retail price at which the product shall be sold across the country,” in paragraph 3, section 2 of the regulation dated March 20.

Relying on this regulation, the Federal Government claimed it had deregulated the sector but many in the industry disagree. “This is not really a full deregulation,” said Ayodele Oni, energy lawyer and partner at Lagos-based Bloomfield Law firm. “As long as they have a role to play in pricing, I don’t think you can talk about deregulation,” Oni said.

Oil marketers have stayed away from importing fuel to prevent precisely this situation the government has found itself in. This is why analysts say the recovery of oil prices will test the resolve of the government with regards to subsidies. It seemed that day is getting near. Benchmark oil price Brent, sold $45.55 yesterday and traders.