Liberalisation: A faster remedy for stemming the frequent scarcity of PMS

Around three to four months ago, Nigerians woke up to yet another scarcity of Premium Motor Spirit (PMS), commonly referred to as fuel or petrol. As usual, this scarcity was marked by long queues of vehicles and jerry cans lining the streets of Lagos, Abuja, and Port Harcourt. This situation led to panic buying at any point where fuel was available for dispensing.

The Nigerian public viewed this recent development with mixed feelings, as the return of long fuel queues on major roads and highways was a scene many had hoped was behind them. The negative impact of these recurring fuel shortages, both on individuals and the government, is deeply troubling.

During this period, the price of a litre of fuel soared far above the official pump price of approximately ₦672. In the parallel or black market, prices ranged from ₦800 to as high as ₦1,400 per litre, depending on the location. This situation was highly regrettable, as the pain and hardship caused by the scarcity became unbearable for the masses.

Undoubtedly, the recent hike in PMS prices led to an astronomical increase in transportation fares, which impacted not only daily commutes but also the prices of food and other essential goods. The soaring cost of these basic items went far beyond the expectations of the average citizen.

Furthermore, small businesses and young entrepreneurs, particularly those dependent on PMS for their daily operations or as an alternative energy source, suffered significant setbacks. These small and medium-sized enterprises (SMEs) are vital in creating jobs, reducing hunger and poverty, and contributing to overall economic growth.

It is crucial to recognise that these frequent fuel scarcities have a ripple effect on the broader economy, creating what economists refer to as “negative externalities.” Many are left wondering why the Nigerian National Petroleum Corporation (NNPC) refineries remain non-functional and why successive governments have failed to build new refineries in recent years.

It has now been over 17 months since President Bola Ahmed Tinubu, during his swearing-in ceremony on May 29, 2023, announced the total removal of the fuel subsidy. The public had hoped this would mark the end of fuel scarcity in Nigeria. However, with the return of scarcity, there is growing support for the total liberalisation of the oil sector as a potential remedy.

“Undoubtedly, the recent hike in PMS prices led to an astronomical increase in transportation fares, which impacted not only daily commutes but also the prices of food and other essential goods.”

Liberalisation in the oil sector refers to the removal of barriers and regulations to foster healthy competition and attract investment. It can take various forms, including price liberalisation, trade liberalisation, investment liberalisation, and most importantly, deregulation. Deregulation, in particular, refers to the removal of government control over the oil industry to increase private sector involvement and promote competition. It entails the government stepping back from setting petroleum product prices and opening the sector to investors, allowing them to refine and make crude oil available at prevailing international prices. Additionally, deregulation encourages the conversion of pipelines and depots into common carriers, accessible to anyone willing to pay for their services, while also allowing private individuals or companies to import petroleum products, provided they meet specific benchmarks and pay the required tariffs.

Liberalisation offers numerous potential benefits for Nigeria, particularly in combating recurring fuel shortages. One major benefit is increased competition, which could transform Nigeria into a more attractive destination for investment. Liberalisation would also ensure the consistent availability of petroleum products, eliminating the monopolistic control of the NNPC, and allowing more companies to enter the market and compete. Reducing operational costs within the oil sector would stimulate economic activity, encouraging the entry of new businesses and creating more jobs in the refining, transportation, and distribution of petroleum products.

Moreover, liberalisation would foster healthy competition among companies in the oil industry, driving economic growth and encouraging innovation and creativity. It would stabilise market growth and product prices, remove unnecessary business restrictions, and potentially lower consumer prices in the long run. Additionally, the process would boost Nigeria’s Gross National Product (GNP) and increase per capita income.

While the government has made commendable efforts to address the issue of fuel scarcity, more must be done. The government should ensure that all national refineries are restored to full operational capacity, as this would help bring an end to the recurring fuel shortages. With the recent entry of the Dangote Refinery into the market, the landing costs associated with fuel importation are expected to decrease, which will significantly boost local supply. This will ease the frequency of fuel shortages and reduce the high demand for foreign exchange used for importing fuel. The Dangote Refinery’s commencement of local petroleum product production, after nearly 28 years of non-functional national refineries, is a milestone in Nigeria’s energy sector.

However, more work is needed to accommodate additional players in the market. Doing so would create a more competitive environment, increase supply, and eventually bring prices down to more affordable levels. The removal of fuel subsidies is often seen as a deregulation measure, designed to reduce government control and allow market forces to determine prices and availability. However, the removal of petroleum subsidies can have significant social and economic impacts, particularly on low-income earners and industries reliant on PMS. Therefore, it is crucial for the government to introduce palliative measures to cushion these impacts and protect the most vulnerable members of society.

In conclusion, there is a need for the Nigerian government to continue providing an enabling environment for businesses and creating a conducive atmosphere for investors to enter the oil sector. By fostering competition and increasing private sector participation, we can finally put an end to the issue of fuel shortages in Nigeria.

Kingsley Ndubueze Ayozie, FCTI, FCA, Public Affairs Analyst and Chartered Accountant, writes from Lagos.