oil and gas

The Fuel Subsidy Quagmire

April 25, 2021

After the on and off appearance of queues at filling stations across some states of the federation some time ago, it would appear, like a lion that retreated to recharge, the queues may have roared back. The fuel queues have returned. Meanwhile, the controversial subsidy for petroleum motor spirit, popularly called petrol, returned with an almost irredeemable audacity. To be fair to the NNPC Group Managing Director, Mele Kyari, his desperation to ensure Nigerians do not suffer fuel scarcity or another unbearable increase in pump price has caused him to hold on to the subsidy pillar. He insists the queues, this time around, has nothing to do with availability or affordability of petrol, but the tanker drivers’ strike. But we have been here before! What could really be the problem? Chris Paul examines

In the past two months, Nigerians have found themselves enduring the usual fuel crisis, arising from imminent increase in the price of Premium Motor Spirit (PMS).

To calm nerves, the Minister of State for Petroleum Resources, Timipre Sylva and the NNPC GMD, Mele Kyari, have assured that consultations with the labour unions to agree on the appropriate price for the product are in progress.

The consequences of that on-going dialogue has found expression in the arbitrary and uncoordinated hike in the cost of petrol at the filling stations. Accompanying the seeming confusion in the downstream sector were irregular fuel queues at filling stations across many parts of the country.

At some point, it appeared the minister and his team had managed the crisis and the fuel queues had disappeared; price seemed to have returned, for the most part, to the N162 per litre. However, within this past week, the queues came back, fiercer than before. It started in Abuja.

When the fuel queues resurfaced in Abuja, NNPC, as was expected, advised the public against panic buying, saying petrol will be available in all depots across the country.

This happened barely two months after petrol scarcity hit major cities across Nigeria.

A visit to petrol stations, last Monday evening found that some of the stations were shut, while others were besieged by motorcyclists, tricycle owners, as well as private and commercial drivers.

Some NNPC retail stations were also shut, with no fuel station selling petrol to motorists along Lugbe- Airport Road and Kubwa expressway.

This round of scarcity was said to have been triggered by the strike action announced by petrol transport drivers. As a result, different locations in the capital city were gripped with traffic gridlock. The usual selective sale of the product which normally greet this chaotic development, where filling stations sell to their favorite customers with capacity and willingness to pay higher, became the order of the day.

While telling many that they have ran out of stock, some of the top filling stations across the Abuja metropolis surreptitiously sell the product to their preferred patrons; thus depriving

commercial drivers and other customers access to purchase the product.

Witnessing the unfairness in the dispensing of the product, in situations such as this, some smart drivers will rebel and fight to ensure the fuel goes round all in the queue.

As it happened in one of the NNPC outlets in Lugbe, the attendants stopped dispensing to customers, but some of the motorists refused to leave the petrol station.

At other times, the retail outlets deliberately hoard their stock in anticipation of a rise in price. This was the situation in some of the outlets that declined to sell petrol in anticipation of a price hike Tuesday morning.

Reacting to the scarcity and anticipated hike in price, the Nigerian National Petroleum Corporation (NNPC) said it will not increase the ex- depot price of petrol in May.

The Group Managing Director made this known at the end of a closed-door meeting with Petroleum Transport Drivers (PTD), National Association of Road Transporters Owners (NARTO) and oil marketers in Abuja on Monday.

Ex-depot price is the price marketers buy products from depot owners. It also determines the pump price at filling stations.

“We want to inform oil marketing companies that NNPC will not increase the pump price of PMS in May. I am giving the assurance and I ask Nigerians to go about their normal businesses; we have over 20 billion litres of petrol in our custody.

“Many of you are aware of this and with the assurance given by the tanker drivers and NUPENG, there is no need for panic buying of the product.

“Petrol will be available in all the depots in the country including NNPC dispatched depot across the country, so nobody should panic in buying the product,” he said.

Commenting on the strike by PTD, the NNPC GMD said NARTO’s inability to increase their compensation which was not resolved last week, may have caused the crisis.

The NNPC boss affirmed the commitment of the corporation to both NARTO and PTD that issue will be resolved

within a week; adding that the parties will come back to the table to have a total closure on the issue.

“We also have a robust engagement with our oil marketing partners in respect of increase in the volume product that is check in the Nigerian market. We have agreed to work jointly with all the security agencies to contain any possible infractions seen in our borders.

“We will work as a team to curtail this fraudulent practice with the help of the security agencies,” he added.

He explained further that the meeting dwelt on issues concerning payment by Petroleum Equalisation Fund (PEF) to oil marketing companies.

He said that all stakeholders agreed to ensure the availability and sale of PMS to marketers.

In his reaction, NARTO President, Yusuf Othman, commended the NNPC for the intervention and assured that within the next seven days, things will normalise in the adjustment of allowances of PTD.

“We have requested that they bring three persons so that we discuss the issues but that would not have been possible without this intervention.

“We hope that within the next seven days things will normalise and I want to assure Nigerians that we are committed to it,” he said.

The PTD president also said that the strike had been suspended until the next seven days.

Commending the NNPC and all the stakeholders for their quick intervention, he said; “We believe that the condition of service of tanker drivers and others need to be improved and we believe that everything will be resolved as discussed.”

Still in the spirit of engaging stakeholders, the NNPC boss pledged to work with stakeholders to ensure sanity is restored in the downstream sector.

Kyari made the pledge on Friday, in a statement issued by the Corporation during a meeting with the Association of Distributors and Transporters of Petroleum Products (ADITOP) in Abuja.

Speaking during the visit the National President of ADITOP, Alhaji Lawal Mohammed, commended the NNPC for its unrelenting efforts to bring sanity into the downstream sector of the oil industry.

Mohammed expressed delight at the achievements of the corporation under the leadership of Malam Kyari, especially in the area of stakeholder engagement.

The ADITOP President said NNPC’s initiative to engage in regular meeting with the union defined Kyari as a leader with limitless leadership humility and untiring capacity for encouraging the concept of stakeholder management and eagerness to carry the union along in every public policy engagements of the NNPC concerning the oil and gas value chain.

He pledged the group’s support for NNPC, stressing that they were ready to place their trucks and retail outlets at the disposal of the corporation for any pilot programme and investment initiative.

In the midst of the confusion, controversy and stakeholders engagement the downstream has gone through within the past week, the issue of subsidy, which appears to have be playing a ‘Catch me if you can’ game with the purse of the Nigerian state.

Last month, it was disclosed that, as at March 25, 2021, Nigerian government had been spending close to $300 million a month, on fuel subsidies.

In other words, the state oil firm will continue to absorb the cost differentials; until the federal government-labor negotiations end.

Unfortunately, until then, Africa’s biggest crude producer will continue to import virtually all its fuel.

The national oil company is emphatic in its resolve not to phase out gasoline subsidies that are costing up to N120 billion ($294 million) monthly.

While Nigeria produces 1.6 million barrels of crude a day, NNPC imports virtually all its fuel from abroad due to the country’s low refining capacity, reselling it locally at a subsidised price.

The NNPC boss said it will maintain the price at which it sells gasoline to wholesalers and retailers, saying, “Until the conclusion of on-going engagement with the organised labor and other stakeholders.

Meanwhile, he assured the NNPC will keep “bearing the burden of price differentials between the landing cost and pump price.”

Nigeria’s average daily consumption is around 60 million litres of gasoline.

At this rate, will NNPC not run into a supply and distribution jam, in the nearest future?

The question to ask is, what did the GMD based his proclamation of the removal of subsidy on, a year earlier? What has changed so drastically that has necessitated the bold plunge into another full subsidy regime.

The controversial $1.5 billion repair cost of the Port Harcourt Refinery and the close to six years outlay for the completion of the rehabilitation of the refinery does not give many Nigerians and international observers’ confidence.

Nigerians hope that, at the end of the day and as has been the case with the nation’s downstream sector in the past two decades, this Port Harcourt Refinery story does not develop complications.

So, until the refineries are fixed, the country will have no choice; but to be bringing in the product from foreign refineries.

But raising pump prices, let alone allowing them to move in line with international crude markets, is a risky proposition Nigerian politicians cannot consider; because of the combustible nature of the kind of controversies that have been known to come with it.

Many in Africa’s largest economy, which also hosts the highest number of people living in extreme poverty globally, regard cheap fuel as their single dependable benefit from the country’s misspent oil wealth.

President Muhammadu Buhari’s administration is considering ways to cushion the impact of fuel-subsidy cuts once they are finalised.

The policy change would lead to deregulation of the downstream sector, opening up the fuel-import business to private companies.

The NNPC is in talks with the Central Bank of Nigeria to provide foreign exchange to private sector players for the importation of gasoline after deregulation, Kyari said. “We expect all oil marketing companies to commence import so that the burden will be taken away from the NNPC,” he informed.

Taking the problem off the NNPC is the desire of all stakeholders including all Nigerians. But the nutty concern here has to do with the rules of engagement and the sustainability of the process, even though the queues may have, in their usual manner, faded away.

Of paramount concern is the interest of the common Nigerian. Would he be able to buy at an affordable, but competitive price, since the field will, then, be populated with more players? Would the volatile foreign exchange regime push the marketers into a cul de sac that may lead them to make ‘legitimate’ demands that could dovetail into an exponential increase in the price of fuel? Would the country be subjected to tactics of fuel hoarding that will provoke panic-buying and fuel queues? Would it not lead the country, consequently, into another rumba dance all over again, with NNPC and the minister of state pleading for a stop to panic- buying, assuring of a months-long stock?

And so on and so forth…

The solution to this crisis as has always been advanced is for NNPC to engage existing private refineries or fast track their completion of their facilities. Government can practice its crude oil swap deal with them, here at home.

As the owner of the raw stock, NNPC can give crude oil to the local refiners at a giveaway price in return for the production and availability of the product, which Nigerian people must be able to buy at a double digit price.

The partners will be happy, Nigerians will be happier, Nigeria and NNPC will finally be at peace. There is nothing so difficult in this.

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