Unanswered questions on petrol scarcity

Fuel scarcity

Fuel scarcity

It is alright that the fuel scarcity is abating, but it is on record that the Muhammadu Buhari administration has inflicted on the country the longest nationwide spell of acute petrol scarcity ever. It is as if towards fulfilling its 2016 Budget goal of building a national economy that does not depend on petroleum oil, the administration immediately wants to put in place a Nigerian economy that does not run on petroleum oil. The paralysing shortage of petrol began in the last week of February 2016 and normality of supply has been slated for May. Unlike in previous occurrences (each lasted for about two weeks), the shortage this time was not precipitated by any contentious pump price hike or stoppage of supply owing to long delayed accumulated subsidy payment arrears.

The level of petrol subsidy declined as international petroleum crude oil prices, which began to drop in July 2014, bottomed in January 2016 with the benchmark Brent crude averaging US$30.80 per barrel. At that stage, the cost recovery pump price of petrol (including normal profit) was nearly equal to the then petrol pump price of N87/litre. However, in January, government introduced the revised petrol pricing template under which the petrol pump price was N86.50/litre. The set price was ostensibly subsidy-free and it was intended to be subject to review every quarter. Additionally, 78 per cent of the first quarter 2016 petrol import allocation went to the Nigerian National Petroleum Corporation (NNPC) while other oil marketing companies got 22 per cent. The allocation was purportedly dictated by “consideration of retail outlets ownership, marketers’ performance of previous quarterly allocation as well as the challenges of sourcing foreign exchange.”

On the eve of the first quarter, crude oil swaps were cancelled and replaced with Direct Sales of 445,000 barrels daily domestic crude allocation and Direct Purchase (import) of petrol. In the midst of the unremitting petrol scarcity, the Minister of State for Petroleum Resources said, “the main critical reason why you have this supply gap today is that although NNPC has its own 445,000 barrels allocation of crude (which is being exceeded) the individuals who should provide the balance of 40 per cent are not bringing in any product… (NNPC) didn’t have the capacity, we didn’t have the funding, we didn’t have access to the product and we didn’t have the foreign exchange.”

The Nigerian people deserve cogent explanations. Did Petroleum Products Pricing Regulatory Agency (PPPRA) not know that NNPC lacks the capacity to executive 78 per cent of the petrol import allocation in a full quarter? But being aware of its own incapacity, why did NNPC accept the volume of imports allocated to it? In any case, when armed with the proceeds from export of 445,000 barrels of crude daily, did NNPC lack the means to deliver? In the last quarter, the average capacity utilisation of NNPC’s four petroleum refineries was negligible. Direct sale (export) of the daily domestic crude allocation at the lowest average January Brent crude price noted earlier would fetch US$1.25 billion. Petrol is but a fraction of refined products derivable from the exported crude oil volume which (a NASS committee has established) is virtually sufficient for domestic requirements. Why was a part of the forex earned not used to import the needed petrol? With NNPC petrol supply performance put at less than 40 per cent, what happened to the unutilised balance of the forex earned during the first quarter? Relatedly, it is unclear if the sum of $236.7 million used in February by the Federal Government to settle joint venture cash calls (JVCCs) was part of the proceeds from export of domestic crude allocation. In any case, JVCCs are not chargeable to domestic crude takings.

Pertinently, the Minister of State propositioned the international oil companies (IOCs) soon after they collected the JVCCs to sell forex to the “other oil marketers” for the procurement of petrol. That arrangement simply turns the IOCs to government-recognised large scale bureaux de change. The plan is proof of an obvious fact: the IOCs need naira funds for some of their operations. So why do the IOCs not routinely collect any needed naira sums directly from the Federal Government as part of JVCC settlements? The conversion of IOCs in Nigeria to grand money changers is unacceptable. Let both the oil marketers angling to import petrol and dollar-laden IOCs in search of naira amounts head to their respective banks, which are authorised to deal with any specific requests on this matter on their behalf in the foreign exchange market.

As a matter of fact, petroleum products are not on the list of items excluded from accessing forex through the CBN. Hence the denial to oil marketers of forex for import of petrol allocations throughout the first quarter was a benighted act that has greatly set back the economy and compounded the suffering of the generality of the people. There is need to stress that it is not the place of President Buhari to direct the CBN to allow approved petrol importers to access forex as happened recently. Nor is it the business of the CBN to arbitrarily allocate forex to any sectors of the economy. The near economic standstill caused by the lingering petrol scarcity is attributable to the past president-dictated improper handling by the CBN of public sector supplies of forex to the economy. It has been conclusively shown that in a properly managed deposit money bank-operated forex market, current inflows of public and private sector forex are more than adequate for the country’s forex needs.

In the midst of the unjustifiably induced socio-economic pain, it was disclosed that the upstream joint venture operators would soon manage the NNPC refineries. Did Nigerians deserve to be subjected to a paralysing petrol scarcity as a way of softening them for the expansion of the IOCs to midstream petroleum operations by diluting NNPC’s stake? The issue is not IOCs’ presence in midstream operations because the people supported the NNPC’s call in the early 2000s for IOCs to refine part of their crude oil output locally. That is still agreeable. The problem is the seeming programmed reduction of NNPC’s stake in oil operations.

Indeed, the announcement is sequel to NNPC’s insistence on contracting external loans for the settlement of JVCCs whereas the country possesses, and can generate any time, more than enough forex to pay its way. There is an emerging pattern over time in the actions of the CBN and NNPC. The former mismanages the national currency and forex while the latter seems to have lately been given the wherewithal but chose to unleash petrol scarcity with a view to foisting the scheme being unfolded. All of this gives the impression that the economy is being mismanaged on purpose despite the widely proffered solutions to Nigeria’s fiscal and monetary, petroleum and economic problems, in order for vested interests to return foreigners to full control of the commanding heights of the economy. It is unacceptable. As the IOC joint venture operators prepare to spread their wings over the NNPC refineries, there is need to caution that they abide by the letter and intendment of the Nigerian Content Act.



2 Comments
  • emmanuel kalu

    Nigeria governing leaders have the ability to take a simple process and make it so complex, complicated and confusing. They do this to prevent transparency into their looting. importation of fuel should be the easiest thing, it is just a matter of importing refined product and distributing it. yet we see that the government has completely and totally failed at this. It is time that Nigeria call for total deregulation of the sector and allow investor and the market to control the sector, with the government just regulating fair play.

    • fagarjaji

      If you allow independent marketers and investors to control the market, they become predatory! How much did you buy a litre of petrol during the peak of the crises? These predators could go for 3000% profit consciencelessly! The above writer raised some cogent questions. This week I saw the ministry talking about the huge amount of dollars expended on importing petrol as if it was dispensed free of charge. The central question is why can NNPC like Petrobus of Brazil, ARAMCO of Saudi Arabia and other national oil companies in the world, just source and distribute petrol adequately without moaning? This question is relevant because even in the new PIB a new company called Nigeria Petrol Company or so is envisaged. If it doesn’t work now how will it work tomorrow?

      • Mazi JO

        Ask the Government and the operators charged to import and distribute refined petroleum products. Weed out the ‘kleptoes’; the insatiable money bags, the irritant pains in the ‘rearend’ of the Nation. Nigeria will then breathe freer.

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