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Investigation: Real reasons for protracted fuel scarcity and economic implications

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A commercial cab driver Adewole Kufuriji, looked both exhausted and worried. He had spent the entire night of Friday, March 4th inside his car parked along the road close to a filling station around Jakande Estate Isolo, Lagos Nigeria, not because he didn’t have a house to retire to or that his vehicle broke down, but because he needed to refill his near-empty fuel tank to guarantee food for himself and his family, and attend to other exigencies.

The many hours he risked on the road in the dead of the night was responsible for his tired look, but his worry was that this effort proved futile, as he was unable to refill his car and could not work to provide for his wife and three children.

“I wasted seven hours in the queue and still could not buy fuel. The stations don’t sell for more than one hour and before it could reach my turn, they stopped selling. I have parked my car at home because to buy from the black market is expensive and passengers will refuse to pay if you increase the price of transport. I don’t know how I will continue to provide for my family,” Kufuriji said.

Happiness Illiya, a young lady in her mid-thirties resides in one-man-village, a settlement in Nasarawa State close to the Federal Capital Territory border. Speaking with our correspondent, she said transport fares have gone up by at least 50 per cent since the fuel scarcity started, and that commuting to her workplace in the Abuja central area has been physically stressful and financially difficult to cope with, considering she earns N40,000.00 monthly.

“In a day, I spend close to N1,000.00 on transport and there has been no plan to cushion the effects of this fuel scarcity. At the end of the month, I would have spent more than half of my income on transport and have little remaining for food and other expenses. Government should do something to help low-income earners in the country,” Illiya appealed.

For Fumilayo Ajao residing in Abeokuta, the Ogun State capital, her worry was about the rising cost of foodstuff and other basic commodities like cooking gas occasioned by the hike in transportation. She said surviving in Nigeria is becoming more and more difficult even for the working class, saying she has had to cut down on some expenses in order to cope with the situation.

Despite reassurances from the government, the fuel scarcity which began about a month ago continues to bite harder, causing physical and economic hardship to the populace. Long queues at filling stations persist across many cities in the country both in the day and at night, causing heavy gridlock, with motorists spending an average of four hours to buy fuel.

The hydra-headed reasons for the prolonged fuel scarcity

TNG’s investigation has revealed that the latest fuel scarcity, which was initially thought to be caused by the importation of off-spec gasoline and then panic buying, is now being sustained by a raise in the ex-depot rate from the official N148.77 per litre to as much as N185 by some private depot owners due to prevailing circumstances, including the recent Ship-to-Ship Coordination Charge introduced by the Nigerian National Petroleum Corporation (NNPC) last month.

TNG reports ex-depot price is the price at which depot owners sell the product to retail outlets and fuel marketers across the country. Findings by this newspaper revealed that out of about 130 depots in the country, 21 are owned by the NNPC, with the remaining 109 owned by private entities, and satellite depots, among others.

For about five years running, the NNPC has remained the sole importer of fuel, as most depot operators have been forced out of business due to scarcity of FOREX and the official retail price range of N162-N165, which oil marketers say leaves very little profit margin. So rather than import directly, these oil majors who own private depots buy from the NNPC and resell to retailers.

Petrol import into Nigeria between the 1st quarter of 2018 and the 1st quarter of 2021 (in billion Naira)

Ideally, this should be done at the Corporation’s inland depots to reduce administrative bottlenecks and enable oil majors to sell at the approved N148/litre ex-depot price; but in reality, vessels are discharged at sea and third-party marketers say they incur additional costs such as clearance fees that make it unrealistic to sell petrol at the official ex-depot rate to retailers.

While there have been calls for an upward review of the ex-depot price, the NNPC last month introduced a Ship-to-Ship Coordination Charge of N500,000 for each trans-shipment operation to cover manpower, logistics, among others.

“Please be informed that the NNPC management has directed that effective February 10, 2022, the sum of N500,000 will be charged for STS Coordination fees for each trans-shipment operation involving the NNPC Marine Logistics. A Remita payment request will be generated by our accounts section for each operation to effect necessary payment upon the vessel’s tendering Notice of Readiness,” the letter from NNPC addressed to all oil marketers read in part.

Subsequently, some private depot owners have reflected this additional operational cost in their ex-depot price causing it to soar from the official N148/litre to between N180-N185/litre. In turn, some retailers afraid of being sanctioned for selling above the N165/litre are unable to purchase the product for N180/litre, but in many states like Lagos, Ogun, Delta, Bayelsa, Niger and Nasarawa, some daring retailers have adjusted their pump price to between N200-N250/litre in order to stay afloat, while black marketers sell between N300-N500 per litre.

Meanwhile, the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) had threatened that its members would not distribute products for any depot that sells above the official rate, but defending the increased pump price, Chairman of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Benin Depot, Douglas Iyike, told the News Agency of Nigeria that the increment was due to a hike in the ex-depot price of petrol and not any fault of the oil retailers.

“We want to place it on record that the increment is not due to any fault of oil marketers because we can only sell based on the price at which we buy petrol from the depots. There has been an increment in the ex-depot price which has left marketers with no option but to increase the pump price of petrol above the official N165 per litre in recent weeks,” Iyike said.

He added: “We believe that addressing the issue of the ex-depot price should be the focus of NUPENG and not attempting to picket petrol stations, which might lead to a breakdown of law and order”.

Sources at the Ministry of Industry Trade and Investment, the regulatory body in charge of ensuring that oil marketers operate within the approved standards told TNG that some oil majors like Total, Oando and Conoil who appear to sell at the official N165/litre, short-change the public by exceeding the tolerable error limit of 300-500 millimetres to above one litre.

“The standard for measurement is 20 litres. So what that means is that for every 20 litres of fuel you pay for, you are getting 19 litres. Total is the worst as they sometimes have up to 2 litres error, depending on the location of the station. It is difficult to enforce sanctions such as sealing of the station or revoking of certificates at a time like this because the consumers are willing to pay for it,” one source said.

In addition to these challenges, there has been an increase in the global cost of crude oil, from a market price of N234 ($0.61) per litre last year, to N310 ($0.74) per litre this month as the market price of a barrel of crude hit $118. Nigeria’s N17.126 trillion budget for 2022 and the supplementary budget of N2.56trillion for subsidy were anchored on an oil price benchmark of $62 per barrel.

The NNPC has been importing fuel at the market price and selling at N162 ($0.42) per litre through a subsidy intervention, but analysts fear that the country could go bankrupt if oil price continues to soar and Major Oil Marketers Association of Nigeria (MOMAN), the IMF and World Bank have advised Nigeria to stop the fuel subsidy scheme to free resources for development.

Reacting to the escalating price of crude oil at the international market, President Muhammadu Buhari said at the opening ceremony of the 5th edition of the Nigeria International Energy Summit (NIES 2022) that the trend presents a unique revenue opportunity that Nigeria must seize.

“Crude oil prices are on the rise again after turning negative in April 2020. It is a great opportunity for us as a country. With the Petroleum Industry Act (PIA) in place, there should be no excuses. The enabling investment environment, which has been the bane of the industry has been taken care of by provisions in the PIA,” Buhari said.

On his part, Chairman of MOMAN Adetunji Oyebanji, explained that: “The benefit of a liberalized downstream is the most visible means of growing the economy in the medium to long term. Nigeria can become the refining hub of West and Central Africa and eventually the whole of Africa if we stick to this path of investing in new refineries, adopting a cost optimization initiative, building an environment that promotes competition and creates a sustainable petroleum sector.

“These actions would lead to increased employment, reduced poverty and reduced social inequity. We must take advantage of the opportunities brought by the African Continental Free Trade Area agreement (AfCFTA) and fully benefit from our barrels of crude, getting the maximum value it can bring Nigeria”.

Promoting Local Refining of Crude Oil through the PIA

Refineries in Nigeria are key national assets, and experts believe it is in the national interest if they are optimally run from a commercial perspective. The NNPC has four refineries – two in Port Harcourt (PHRC) and one each in Kaduna (KRPC) and Warri (WRPC), which together have a combined installed capacity of 445,000 barrels per day.

Despite the fact that the country has expended N1.47 trillion running and maintaining them between January 2015 to June 2020, these facilities have remained largely moribund, as the capacity utilization of the three refineries was put at 4.88 per cent in 2015; 11.92 per cent in 2016; 18.13 per cent in 2017; 10.13 per cent in 2018 and 2.19 per cent in 2019.

The Petroleum Industry Act (PIA) establishes a new reality for Nigeria’s oil and gas industry Section 32 (e, f) empowers the NNPC to provide pricing and tariff frameworks based on a fair market value and not set or dictate prices and tariffs or pay subsidies.

In a bid to implement the Act, the Nigerian government had only provided subsidy for the first half of 2022, but the plan to remove subsidy was met with stiff resistance from labour unions that threatened to ground the country, compelling the government to extend the subsidy to the second half of 2022 through a supplementary budget sent to the National Assembly.

However, oil and gas expert Omowunmi Iledare, said subsidy removal would not only lessen fiscal budget debt financing but will also reduce drastically, FOREX volatility with less pressure from petroleum import demand on FOREX and in the long run encourage competitive pricing at the pump.

“There are those who will argue that if PIA 2021 is implemented within the context of petroleum price deregulation, there is going to be societal misfortunes – diminished energy access and affordability in terms of multi-dimension energy poverty index (MEPI), rising public transport fares, disproportionate income redistribution among the poor, inflation, and public discontentment.

“Nevertheless, the benefits of deregulation far outweigh the highlighted misfortunes in the long run. Political expediency trumping economic efficiency and effectiveness must not render PIA helpless in this debate,” Iledare argued.

The Minister of State for Petroleum Resources, Timipre Sylva, recently decried the huge subsidy spending, as he explained that Nigeria was a net importer of refined petroleum products and that this was counter-productive in terms of the rising prices of crude.

“In Nigeria right now, we are a net importer of petroleum products and when the prices of crude oil go up, they also affect the prices of petroleum products,” Sylva said.

On his part, the Group Managing Director and Chief Executive Officer of NNPC Limited, Mele Kyari, insists that the transition “must have sanity” and guarantee the most-friendly fuel for the country in the short term of 10 years.

To this end, many Nigerians eagerly anticipate the commencement of the Dangote refinery, which is expected to begin processing of crude oil in the third quarter of 2022 at 650,000 barrels per day, equivalent to 102 million litres of oil per day, to meet Nigeria’s current 60 million litres per day consumption level.

In the meantime, the PIA stipulates that market forces should determine the price of fuel and many Nigerians view the current situation as a way of “testing the waters” before the total deregulation of the downstream sector; and they are bracing up for the challenges ahead.

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