It is the subsidy, stupid
Nigeria had a bleak Christmas, and the crisis could continue into the new year. The transport system, almost entirely dependent on road transportation has collapsed completely, owing to a debilitating crisis in access to petrol. From the middle of December, scarcity of petroleum products began, noticed first in Lagos and Abuja, it quickly became nationwide, […]
Nigeria had a bleak Christmas, and the crisis could continue into the new year. The transport system, almost entirely dependent on road transportation has collapsed completely, owing to a debilitating crisis in access to petrol. From the middle of December, scarcity of petroleum products began, noticed first in Lagos and Abuja, it quickly became nationwide, crippling the entire transport system. This has happened at the most critical time – the travel season owing to the holidays of Christmas and the coming new year.
Overnight, long queues developed at petrol stations nationwide, often stretching past many kilometres in the state capitals. It has been bedlam and a pitiful situation seeing how motorists suffered hours stretching into a full day at the petrol stations. As expected, petrol black markets, long forgotten, reappeared, wheeling and dealing in plastic jerry containers, selling at cut throat prices with hard pressed motorists left no alternative than patronise them, even at the high risk of adulteration and fire accidents. Some fuel pumping stations have been selling petrol for as high as N165 to N250 in some states and even at that, with long queues at those stations.
Authorities first denied that there was fuel scarcity. The presidency through its Twitter account, @AsoRock, blamed the fuel shortage and queues on hoarding of petroleum products by marketers as well as “panic buying” by Nigerians in reaction to rumours of an impending increase in pump price of petrol. This is habitual once a constriction developed in the country’s supply system, turning the flow into a trickle. Believed rumours of increase of prices quickly develop. Once this happens, independent marketers hoard the product in huge storage capacities nationwide and speculate on the price.
The government through its agencies, tried to mitigate the situation. Officials of the Department of Petroleum Resources (DPR) and the Petroleum Products Pricing Regulatory Agency (PPPRA) appeared to be carrying out stricter monitoring of fuel supply and distribution across the country, effecting a few closures of pumping stations found hoarding, but all too nimble to be of any impact. The Nigerian National Petroleum Corporation (NNPC) increased truck distribution of petroleum products to major cities in the country from Its strategic reserves completely to no avail.
On its part, the Independent Petroleum Marketers Association of Nigeria (IPMAN) denied all charges of hoarding and in fact threatened to withdraw its services alleging breach of agreement by the NNPC. IPMAN accused the NNPC of defaulting in the bulk purchase agreement they reached to sell fuel to them at N133.28 per litre. In other words, NNPC had withdrawn the subsidy! It gave details that the ex-depot price of N141 per litre to IPMAN members made it impossible for IPMAN members to dispense fuel at the N145 per litre approved retail price. The only way to break even was if its members sell fuel at N146 per litre given the normal running costs, bank charges and other operational expenses.
As the crisis intensified, Nigerian government through information Minister Lai Mohammed revealed that it had ordered the Minister of State for Petroleum, Dr. Ibe Kachikwu, to ensure that the scarcity ended immediately.
Minister of State Petroleum Resources Dr. Kachikwu was now to change the narrative from the earlier stance of hoarding and panic buying. He admitted that there were problems with supply meeting demand, the simple economics of everything. The major cause of the fuel scarcity across the country is the shortfall in supply of petroleum products, the government now admitted.
Said Kachikwu: “The major problem is the gap in terms of volume because NNPC is the only one importing the product to the country.”
Long queues are an embarrassment to the oil rich nation, more so to a President that is the Minister for Petroleum. A fuel crisis is symptomatic of a deeper cancer – fantastic corruption, and for President Buhari whose selling point is his selflessness, honesty and incorruptibility, the suffering of masses as being witnessed while corruption reigns evidently at all levels of the fuel supply and distribution chain is anathema to a just leader. He sent out tweets of sympathy. Press releases from him went out, but Nigerians wanted him to speak a strong worded plan to deal with the precarious national predicament with regards to the biting fuel crisis. If this President Buhari cannot fix it, who can? The human face the President’s handlers tried to show in a documentary paled in the face of real human suffering. As a good egg, President Buhari needs to hatch working policies that give comfort to the citizenry or go bad. Being a good egg is just not enough. It is comforting that he sent Vice President Osinbajo to see to the assuage of frustrated motorists at the petrol queues.
From all indications, the Nigerian Government is faced with a subsidy dilemma. According to the Group Managing Director of the Nigerian National Petroleum Corporation, Dr. Maikanti Baru, the landing cost of petrol, meaning the actual pump price is currently N171.40 per litre calculated at the official exchange rate of N305 per US Dollar. It can be seen as Dr. Baru pointed out, that the federal government must pay N40.70 for every litre of imported petrol to maintain retail price at N145 per litre. At the current consumption rate of about 50 million litres per day, subsidy works out at over N2bn per day, over N60bn a month, up from N15.4 billion in 2016, when the government removed subsidy! Is this appropriated in the 2017 budget? Is it feasible given the current precarious earnings of the country?
Subsidy means easy money for transporters and marketers since Nigerians appear to “drink” more petrol than water. Independent Marketers have enough installed capacity to store and hoard petroleum products, force a scarcity and exert maximum benefit from the subsidy system, mindless of the suffering masses. At night, they pump into black market plastic jerry cans and are back at the NNPC depots demanding more supplies. They skim off the subsidy, make more money selling at exorbitant rates while the artificial scarcity keeps transporters busy and taking their part of the scam. This is a vicious cycle with no visible end in sight.
It is wrong that Nigeria imports the larger proportion of it needs in petroleum products. The volume makes it impossible for the private sector to cope. The banks that tried to fund the process got in, got burnt and ran out carrying humongous non performing accounts held by corrupt yet free oil barons.
Profits are exerted at every point on the supply and distribution chain from imports and transportation down to the pumps nationwide. Distribution itself is fraught with challenges, the only incentive being a mark up, wherever delivery is made.
Nigeria cannot survive importing its needs in petroleum products. The country must make its refineries work. Aside from building new ones, the country must legalise local modular refineries, and enhance contribution of the products from that sector.
Oil barons rule the economy from demands on foreign exchange, to acquisition of the Naira in bogus subsidy claims, down to the extortion of the ordinary buyer of the product at the pumps. The economy is their firm wicked grip. The solutions to the fuel crisis are hard to take because of the grip on the jugular of political power.