How to resolve Nigeria’s lingering fuel supply crisis, by Osuno
Eighty-year-old Mr. Ben Anene Osuno has been in the oil industry for the past 56 years, when he joined Shell-BP Petroleum Development Company of Nigeria in 1960, after graduating from University College, Ibadan, as a Physicist. With varied experiences later with the Nigerian National Oil Corporation/Nigerian National Petroleum Corporation (NNOC/NNPC); Ministry of Petroleum Resources, where he rose to became the Director of Petroleum Resources; he has become a veteran human encyclopaedia in oil and gas business.
Indeed, he was also variously Nigeria’s Governor to Organisation of Petroleum Exporting Countries (OPEC); Chairman, OPEC Board of Governors; Nigeria’s Representative on the Permanent Council of the World Petroleum Congresses; among others; and Special Adviser to the Minister of Petroleum Resources between May, 1992 and May 1993, after retiring from the Ministry in January 1992.
He is currently a Petroleum Consultant, offering advisory services on oil and gas operations, including environmental matters. In this interview with Business Editor, ADE OGIDAN and SULAIMAN SALAU, he x-rays the germane issues on the nation’s oil and gas industry and proffers solutions to the current fuel supply crisis in the country. Excerpts
The nation has been going through a harrowing experience in respect of current fuel scarcity. How did we walk ourselves into this problem?
As the saying goes, ‘’The answer is blowing in the wind’’. The refineries are not working and when they do, not at full capacity. So, that means we don’t have the product locally, hence we have to depend on importation. Now, what you can import depends on your access to foreign exchange and people have refused to accept the issue of removing subsidy, to allow people to import and sell as they wish. If I can import at N1 and sell at N3, it’s business for me. So, I can source for my forex and import anywhere and bring it down to sell. But people don’t like that, so government has to control it. Now, the volume you import depends on what government can afford to subsidize and they cannot subsidize all the time. People don’t import readily because they are not sure if they will get their money and those who are importing are only those who are authorized to import. So, importation is limited, local product is limited, but consumption keeps going up. During the boom era, everybody was buying cars, not just small cars, but big cars that consume a lot of petrol like the SUVs. Everybody wants to own such vehicles because the roads are bad. These vehicles consume more fuel but you cannot buy fuel as you like now.
Total liberalisation of the downstream oil sector was being suggested by many stakeholders. Are you in support of such policy measure?
Most people have been saying that that is the solution. If you liberalize the downstream oil sector, people will be gingered towards participating in the importation business, even though customers may have to pay more. But isn’t it better to pay more than to start searching for fuel. For instance, at the official price of N86.50k, we cannot get the product. I don’t know how much you buy your own, but I don’t buy at N86.50. People are selling at between N170 to N350, depending on where you are buying from. Besides, you have to suffer in the long queue to buy it and they will still shortchange you with manipulated meters. But where the market is liberalized, if your meters are not accurate, I won’t come to you. I will prefer to go those places where their meters are accurate. So, when you liberalize, you solve a lot of problems. You don’t have to beg anybody to buy fuel. Even when you come, they will check your tyres for you because they want you to come again. So, the issue of saying government should control price is not working. The labour unions that are agitating for subsidy to be maintained have not really thought well about it. If they had thought deeply about it, they will see that it will be beneficial to everybody to liberalize the sector. Under a liberalized regime, you can get to a filling station and buy petrol at a reasonable price. If they are not selling at the right price or the measurement is not correct, you don’t go there again. So, the filling station would be forced to come down, give you good price and accurate volume.
Essentially, the way out of our present fuel supply crisis is deregulation, whereby the government, through the NNPC, may continue to operate its refineries and dispense their own products at subsidised prices, while allowing the private sector to operate their own refineries and dispense their own products at their own commercial rates. Members of the public will then have the option to buy from any source of their choice. This scenario is not new, as it was the case when the government-owned Nigeria Airways was competing with private airline operators; NIPOST was operating alongside private couriers; government hospitals existing side by side with private hospitals, and public educational institutions co-existing with private schools.
But there is this question of business integrity on the part of the fuel importers as there were allegations that some of their claims were not actually right?
That was happening because we were still paying subsidy. If you don’t pay subsidy, they cannot make any claims on you. Deregulation would have solved such problem. It was free money for them, since even if they didn’t supply products, they would still come and claim subsidy. Like some years after the war when they were paying subsidy on cement, everybody was bringing in cement. Old rickety ships were brought and left at the port and they sank and then the importers started claiming demurrage and damages. If government was not involved in it, they would not be talking about damages. This fuel problem is the same thing. The marketers don’t care if the product was not available. Their own concern was to get the subsidy. I agree if you say some officials are involved in the corruption because the importers could not have done it on their own. There are some government agencies at the ports, yet these people will come in and say they brought product from various countries and then claimed all sorts of things and government would pay. At the end of it all, the money that was meant for developmental projects was being paid to few dishonest individuals for frivolous claims.
But former President Jonathan tried to remove subsidy and we all know what happened. What was it is that Jonathan’s administration did not do right that made Nigerians to move against the removal of subsidy, especially now that many stakeholders are calling for deregulation?
It wasn’t just Jonathan’s administration alone, but most of the previous governments tried at various times to remove or reduce subsidies, but it was difficult. Let’s go back to history. At the end of the colonial era, international companies were importing products. There were no subsidies and fuel shortages, but they were making good business. After oil was discovered in the country, it was felt that we should feel the benefit by paying less for the products from our oil. Initially, this was achieved by subsidizing the cost of crude oil supplied to the refinery. As time went on, the local consumption exceeded the supplies from the refinery. To maintain the low fuel price even for imported products, government had to start subsidizing the importers. The price of petrol kept increasing and government having stepped into monitoring and regulating the business to keep down the prices did not go back, because if any government did that, the public would agitate and complain that government was not caring for the masses. When the military came in, they did not care about the politicking, and made efforts to reduce the subsidy, particularly during the Babangida and Obasanjo eras.
But for the political class, it was difficult. You were talking about Jonathan. He was complaining that the nation’s economy was shaky, but he could not remove the subsidy. The best he could do was to negotiate some reduction in subsidy by increasing the cost of products, despite the fact that all economic indices were suggesting the removal of the subsidy. Ministry of Finance, foreign advisers and the IMF supported the removal. Some multilateral bodies even argued that the nation could not be seeking financial assistance since it had money to pay subsidy. But a civilian government cannot afford to go against the wishes of its people if it wants to remain in power. So, you can now see that it was not just Jonathan’s government but a political matter. No political group could afford to remove subsidy just like that. Even now, people are still arguing about it. The Senate and the Labour still insist on subsidy payment.
It is just that people have not really sat down to educate the labour unions properly. If you go to the labour union to campaign that you are going to government so that you can remove subsidy, they will vote you out. They will fight and say no. Individually, they may be convinced that subsidy is not good for the nation, but they will not come out and argue for it openly. Even the labour in their political party would find it difficult to remove subsidy. It takes only a party that is very politically strong to remove subsidy.
Can we say that was what brought about the price modulation strategy?
It is only logical that you allow market forces to determine the price. Now, we are talking about price modulation. How will they do that? What parameters will be used to effect the modulation, if not market forces and political considerations? Obviously, it is only when the sector is deregulated and a level playing field created, that the benefits of choice will sanitise the market situation.
The current non-subsidy payment regime is being maintained because the crude oil prices have crashed. At what price do you think government can re-introduce subsidy?
If you follow the logic of free market regime, the issue of subsidy cannot come up. The NNPC is mainly importing now, because other marketers don’t have access to foreign exchange. If there is freedom and I can raise forex on my own, when I raise it and import products, I can sell at a price that is good enough for me to make a profit. So, you may say there is no subsidy now, but when you don’t give somebody forex and he goes to source for it, he cannot sell at the price that you want him to sell it. But if I can buy at N1 and sell it at N1.50k, it is my own decision if I can make profit. Deregulation forecloses subsidy. You can buy forex as you like and import products as you like. You don’t need to start going to central bank to start begging for forex. If you make your money by importing, you can then take your money to buy forex as you wish. Many of the businessmen who go to China to buy products, where do they get their forex from? Did anybody control them? But they are importing. If in fact there is no subsidy payment now, it is my view that any future price revisions should be dictated by market conditions. Subsidy should be allowed to continue ‘sleeping’ quietly, and not reawakened.
How can we achieve self-sufficiency in refined products, to move the country away from the importation saga?
It is simple. Since we have raw materials of crude oil and manpower, qualified private operators should be allowed to build and operate refineries. But the business must be deregulated so that the refining company can be in good business. Dangote is already building a refinery. Some years ago, about 10 companies were given licences to build refineries, but none of them actualized the project, because they wanted to be sure that after spending their money to build the refineries, they would have the right to sell at the price they wanted. If the Nigerian price is low, they could export their products. But they did not get that nod, hence they did not build.
Initially, in the 50s, we had no refinery and we found oil. The government told Shell and BP that they should build refining facility and of course, they built a refinery in Port Harcourt. From 27,000 barrels per day, they moved to 36,000 barrels per day and so on. We were not self-sufficient, but it was enough to start and the price at which they were selling was comparable to the price of imported products then. So, there was no subsidy. Gradually, NNPC then came in and started building refineries in Port Harcourt, Warri and Kaduna. It was thought that the fuel they were going to produce would be able to sustain a strategic reserve of at least 30 days, so that if any refinery had to shut down, there would be enough products for some thirty days, while the refinery was repaired and re-streamed. Now, the consumption has increased so much that the refineries are no longer able to cope. The next thing must be how to get money to repair the refineries. There are many forces fighting against us and they cannot be controlled by government. But under a deregulated regime, a lot of these problems would fizzle out and the country can become self-sufficient in refined products, devoid of current avoidable crises.
Just recently, NNPC announced bidding for co-location refineries. With the scenario you just painted, do you see this materialising even as govenment continued to regulate the prices?
I don’t know what the terms were. If people are offered some reasonable and sustainable terms that they are comfortable with, I presume that they will perform. But if they are still not given a free hand to make reasonable returns on their investments, I doubt that the situation will change. Like I told you, many people applied for licences in the past and they were given, but they did not build. So, the same way you are negotiating with people now and they are agreeing, it is until the chips are down that you can realistically appraise the situation. You see, people are saying they cannot build refineries because they are not sure of the fiscal regime under which they are going to operate and Dangote is building this massive refinery. Has he been assured that by the time he finishes, these things will change, or is he just taking a chance. Maybe he is taking a chance that the magnitude of scale of his refinery may enable him to operate at a lower margin than the others. But the small operators will never go to build a refinery unless they are sure that when they finish, there will be a right business environment to operate in.
In the upstream sector, the investment profile has been going down. What are the implications?
Again, the right policy environment has to be created to lure investors back to exploration activities. Obviously, the upstream sector is critical for the business. That is where the core of the business lies. If there is no crude oil, there will be no refinery, no petrol and no pipelines, among others. Everything we are doing now were the result of the discoveries made some years ago. Now, that many of the upstream facilities and investments have been amortised, it is only the operating costs that are required to continue producing from those old fields. To replenish depleted reserves and/or increase production, a lot of work has to be done in the upstream sector, to find and develop new fields. This phase of the oil business has a gestation period, and one does not wait until he needs crude oil before embarking on exploration activities. If therefore we are not investing appropriately in the upstream sector now, the implications are that in the near future, we shall be importing not only refined products, but also crude oil. People don’t want to invest in any business unless they know the terms, so that they can carry out proper feasibility studies and economic analyses. Our exploration activities are now in more difficult and uncertain terrains. It is now also a lot more expensive, and we have a lot more countries competing for funds in the oil exploration activities. Our oil fields are aging, and we urgently need new discoveries to keep going. If we don’t find new reserves, our reserves will continue to go down and eventually it will be depleted and everything in our oil business will peter out. That is the implication of not revamping our upstream activities, now.
To be continued.