Kerosene: still scarce and regulated

• Govt Pays N2.91 Per Litre As Subsidy
• Product Price Hits Ceiling Level

The price modulation strategy for petroleum products by the Federal Government may have failed to arrest the supply crisis of Household Kerosene (HHK) in the country. Indeed, the Nigerians are crying foul, as they go through pains purchasing the product, which is sold above the pump price amid scarcity and intriguing tales of fuel subsidy.

Kerosene is commonly used for cooking and other energy needs. But the product has been scarce and unaffordable to low-income earners, after the Federal Government removed subsidy on the commodity, which saw the price increase from N50 to N83 per litre.

Two months after the new price regime, the product is still scarce, as filling stations have refused to deal in the product. Few marketers that have old stock have indiscriminately hiked the price to about N120 per litre, far above the official pump price.

Besides, The Guardian investigations revealed that the Federal Government might still be paying subsidy for kerosene, as the Petroleum Product Pricing Regulatory Agency (PPPRA) template on kerosene importation as reviewed on March 20 showed that government is still paying a subsidy of N2.91 on every litre of HHK sold in the country through the Nigerian National Petroleum Corporation (NNPC).

According to the template, the landing cost of the product is N71.61, while the expected open market price (Landing cost plus margins) is N85.91 per litre.

But the Federal Government had pegged the domestic pump price at N83 litre, leaving the subsidy at N2.91 per litre.

An authoritative source in the PPPRA, said the agency is presently working on modalities to making kerosene available at the stations.

The source said: “The last time we spoke, I said the product is still under subsidy. I just came out of the meeting and I am going back to another one. That the product is still scarce is the matter we are trying to resolve now,”

As at Wednesday, only Integrated Oil and Gas was selling kerosene in Lagos axis, while other depots were out of stock.

An official of the company who spoke to The Guardian on condition of anonymity said, “We were only trying to be patriotic because it was not easy for us securing forex to import the product, and we can only sell according to what we buy. The landing cost and other expenses incurred is far more than the official pump price and it is uneconomical for us to sell at loss.”

The new pricing regime has however left the marketers at crossroads over importation of kerosene, just as many had shifted their focus and concentration to Premium Motor Spirit (PMS), otherwise known as petrol. Hence, the status quo remains, where the NNPC continues to be the sole importer of kerosene into the country.

With the nation’s consumption of about 11 million litres of kerosene daily, government may be paying about N32 million daily on the product based on the N2.91 per litre subsidy estimate.

For the situation to normalise, the petroleum marketers believe that the government should deregulate the sector and create a level playing ground for the private sector to venture into the import programme.

A marketer, Mr. Azeez Arabambi, said the situation may linger for some time until the Federal Government deems it necessary to deregulate the downstream petroleum sector.

According to him, the product would be sold around N90 per litre in the deregulated regime, and it would be readily available because “competition would set in, and marketers would be ready for serious business.”

“If the market is deregulated, marketers would import products and there will be enough products in circulation. This will eventually force down the price and make products readily available at any point in time,” he said.

He said he has not sold kerosene at his four filling stations in the last two years, because of the price regulation, as he is not willing to sell above pump price because of the consequence.

The Federal Government is reported to have spent huge sum last year on kerosene subsidy in order to make it affordable and available, but respite is yet to come the way of the Nigerian masses, as the commodity remain scarce.

The component of kerosene subsidy in the country’s budget last year was about N40b. In the last four years, over N1trn went into kerosene subsidy, yet the product could not get to the end users.

Available records indicated that a total of 9,732,437.17 metric tones of kerosene was imported between 2010 and 2013. Despite the high volume, there is hardly anywhere in the country where kerosene was sold at the official price of N50 per litre.

At the NNPC mega stations, the product is usually sold to middlemen whenever it is available, while end users wait endlessly on queues without getting the product to buy.

The NNPC had collaborated with Capital Oil two years ago to carry out field distribution of the product. They could not sustain the supply because high-level manipulations were discovered before the birth of the initiative called Kero Direct Scheme, as the NNPC entered into another deal with the Independent Petroleum Marketers Association of Nigeria (IPMAN) to improve the product supply across the country.

Under the Kero-Direct-Scheme, IPMAN received kerosene allocation and supplied to its members nationwide for effective distribution. The scheme worked for only one month before the product became scarce again in Lagos and its environs.

The NNPC is now encouraging consumers to switch to use of gas as alternative to kerosene for cooking, saying scarcity remains persistent due to activities of smugglers

“Diversion of kerosene to neighbouring countries, industrial use, the use as aviation fuel, sharp practices by middlemen and pipeline vandalism are reasons why kerosene is not available for domestic consumption. There are quite a number of competing demands for kerosene, and until these are addressed, by the relevant agencies, the issue of kerosene not being available for domestic use will continue to reoccur every now and then.

“The way out is for this committee to collaborate with the NNPC to encourage the sale of liquefied petroleum gas, otherwise known as cooking gas,” former NNPC Group Managing Director, Andrew Yakubu, was quoted to have said.

Efforts to find out why the price of the product continued to remain at ceiling level was not successful as all calls to the spokesman of Petroleum Product Pricing Regulation Agency (PPPRA), Mr. Lanre Oladele were not attended to.

But an authoritative source at the agency said the prevailing scarcity, orchestrated by alternative usage has kept the price high. “Kerosene has the highest complexity in the chain of petroleum products. That is why it changes hands at any point in the chain. Kerosene is a premium product; it has alternative uses. There are two grades of kerosene, the Aviation Turbine Kerosene (ATK), used in the aviation sector and House Hold Kerosene (HHK) used for domestic cooking.

“Nigeria remains one of the few countries where HHK is in high demand, but ATK has dual uses: fueling of aircraft and for domestic cooking. This grade is not too different from HHK and so it can be used for cooking and as aviation fuel.

“But because our refineries don’t produce enough kerosene, the country has been importing ATK grade of kerosene, which is also referred to as Dual Purpose Kerosene (DPK). A superior form of diesel.”

Giving reason for the scarcity of the product, he said, “Marketers have been using the product to adulterate diesel to make more profit. These two products can blend perfectly well.

“Blending one litre of DPK with diesel will give the marketer N100/litre extra profit. So the temptation to blend DPK with Automotive Gas Oil (AGO) is very high”, the source said According to him, the end product of the blend between DPK and diesel is the emulsion, which is being used by construction companies for road construction.

“The usually reliable source also identified other reasons for the scarcity of the product, when he said a sizeable quantity of kerosene imported into the country finds its way, through the porous borders, into neighbouring countries and “consequently what is left for the real domestic market is restricted and when there is scarcity, demand will be high and then the price will go up. That is what is happening to kerosene is our country,” he said.

According to the NNPC, petroleum products supply from the Offshore Processing Agreement (OPA) in January 2016, 1,055.63 million litres of white products was supplied into the country through the OPA arrangements, which comprised  of  1,024.77  million litres and 30.89 million litres of PMS and DPK respectively.

The breakdown of kerosene importation from February 2015 to January 2016 showed that about1.4 billion litres were imported, while the refineries produced only 160.5 million litres within the period.

The Nigerian National Petroleum Corporation (NNPC), which is the major importer of kerosene, according to the seventh House of Representatives, paid subsidy on kerosene to itself between 2009 and 2014, amounting to N1.7 trillion.

Subsequently, the corporation declared that it made about N48.8b revenue from the sales of kerosene between February 2015 and January 2016.