• Friday, March 29, 2024
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Fuel scarcity and price hike rumours

fuel subsidy

It was Bunmi’s first visit to Abuja, Nigeria’s Federal Capital territory, during the week ending April 13 and she was surprised to see a very long queue of over 50 vehicles at 7:14pm waiting to buy petrol at the NNPC mega station in Garki.

She was even more surprised when she landed in Lagos on April 13, the shuttle bus driver that conveyed her from Mile 2 to Festac first gate at 11:45am was complaining about how long it had taken him to buy petrol.

In addition, Bunmi overheard on the streets that the Federal Government was planning to increase the retail price of petrol. She started asking questions and realised there was a bigger problem when she spoke to some people with in depth understanding of Nigeria’s downstream oil and gas sector.

Earlier in March, President Muhammadu Buhari warned of tougher times for Nigerians, following his renewed mandate to pilot the affairs of the country in over the next four years.

“I think it is going to be tough because people are being forgetful,” Buhari said while receiving members of the Federal Executive Council (FEC) who came to congratulate him.

When rumours surrounding fuel scarcity resurfaced, Nigerians were already preparing their minds on what to expect following the President’s earlier statement as stakeholders believed the government would borrow heavily to fund subsidy and recurrent budget in 2019 and subsequent years.

Does government really want to increase pump price?

Rumours over increase in the pump price of petrol are commonplace in Africa’s biggest oil producing country, where the downstream and upstream oil market is still heavily regulated by government and government has to spend huge sums in subsidy payments.

Long queues were reported in filling stations in Ilorin, Port Harcourt and a few other states due to panic buying sparked by rumours of a looming fuel scarcity and likely hike in price of petrol.

Against the backdrop of long queues emerging at some filling stations amid the fears that fuel subsidy removal was imminent, Zainab Ahmed, finance minister reiterated government’s resolve not to remove fuel subsidy.

Ahmed spoke during a joint briefing with Governor of the Central Bank of Nigeria (CBN) Godwin Emefiele and Minister of Budget and National Planning Udoma Udo Udoma on the side lines of the 2019 International Monetary Fund and World Bank Spring Meetings in Washington DC.

“There is no plan to remove subsidy now because we have not yet found an alternative package to subsidy. We will not remove subsidy without another social safety net package,” the minister of finance said.

She noted: “One of the issues that always comes up in the report, especially by the IMF as a corporate body, is how we handle fuel subsidy. In principle, the Fund is saying fuel subsidies are better removed, so that you can use the resources for other important sectors. But in Nigeria, we don’t have plans to remove fuel subsidy at this time because we have not yet designed buffers that can enable us to remove fuel subsidy and provide cushions for our people. So, there is no plan to remove subsidy.

Also, speaking at Annual International Conference and Exhibition of the Oil and Gas Trainers Association of Nigeria (OGTAN) Ibe Kachikwu, minister of state for Petroleum Resources, asked the public to ignore rumours of planned upward review of pump price of petrol.

“As far as I’m concerned, there is no discussion within government circle about petrol price review and wondered how the rumour began and impatient motorists didn’t interrogate the speculation and gossip,” Kachikwu said on April 15.

Dilemma of subsidy

Subsidies are also a hot topic because it is politically unpopular to reduce them and force consumers to pay more.

With landing cost of petrol in Nigeria put at N171 per litre, the Nigerian National Petroleum Corporation (NNPC) incurred N37 on each litre of fuel at a depot price of N133.80, leading to a daily subsidy of N2.046billion for 55million litres. The landing cost of petrol has been higher than the pegged retail price of N145 per litre, after crude oil prices rose to $45 per barrel in January 2017.

Nigeria spent N730.9 billion on subsiding price of fuel in 2018, an amount which was far higher than funds allocated to education, health, infrastructure and other key ministries and parastatals that would have increase the economic growth or standard of living of its 0ver 180 million people.

Over the years, the Nigerian government subsidises things like electricity and petrol paying the difference between the cost to produce and the cost charged to customers in order to make them more affordable, but in the end is it worth the cost?

Like many other countries, Nigeria began controlling the price of petrol and other fossil fuels decades ago, largely to provide stable and secure prices to families and small businesses. Also in common with other countries, these price controls became more expensive as demand, some of it driven by cheap, subsidised prices, grew exponentially, and as world oil prices increased, notably in the past decade.

Way forward

Stakeholders say the challenges facing Nigeria’s downstream sector ranges from poor governance and management of refining assets, to low operating margin for operators leading, low return on equity,  huge debts/receivables on account of unpaid accumulated subsidy and unpaid interest and foreign exchange differentials on product importation.

Major Oil Marketing Association of Nigeria (MOMAN) suggested some important strategic steps which include introduction of corporate governance, full deregulation of the sector, introduction of guilds which will increase availability of skilled workmen and artisans in the industry.

“Improved regulations of fuel standards, improved customer service, improvement in port reception logistics, development of transport infrastructure, and improved security,” MOMAN suggested in the 16 page report.

Leading consulting firm PricewaterhouseCoopers (PwC) said Nigeria as the largest market in Africa offers unique opportunities for investment in the petroleum downstream sub-sector.

“However, the government needs to create the necessary business environment through price liberalisation and strong independent regulation. In addition, challenges around pipeline infrastructure, technology, supply consistency and capital need to be addressed,” PwC said in its report titled “Nigeria: looking beyond oil.”

Nigeria’s inability to refine adequate petroleum products domestically in order to meet local demand has continued to render the downstream sector vulnerable to foreign exchange volatility particularly for petroleum independent marketers.

Recent efforts to revive the local refineries have failed as they have struggled to refine up to 30percent of their installed capacities despite the huge amount ($1.6billion) reportedly spent on repairs and maintenance over the past 19 years.

The advent of Dangote refinery, which is set to produce 0.65 million barrels per day of refined products and other modular refineries will significantly impact the current landscape in the downstream sector which upon completion will exceed domestic consumption levels and subsequently export excess refined products to neighbouring African countries.

 

STEPHEN ONYEKWELU & DIPO OLADEINDE