YNaija Analysis: Fuel scarcity is Nigerian by birth

by Alexander O. Onukwue

Sometime around March 2003, Mobolaji Aluko was raising an alarm about an unprecedented occurrence when he made the following observation:

I saw two-mile long queues with my own eyes within the past fortnight week, including just a week ago as I travelled from Akure to Abuja. Petrol cost as “low” as N40 per litre in the South, and as high as N100-N150 per litre, particularly in the North. Until about a fortnight ago, it cost N26 per litre”.

A further cause of Aluko’s alarm was that “in Akure, a carton of twelve 150-cl bottles of Ragolis Table pure water costs N650, and N850 in Abuja” which amounted to “N36 per litre in Akure, and N47 in Abuja”. Aluko revealed to 2003 Nigeria that “the cost of refined oil is catching up with the cost of processed water in Nigeria”.

Those numbers, fourteen years ago, were staggering, but given the happenings at the time in Nigeria’s oil industry, Aluko actually described those figures as “hardly surprising”.

You may be forgiven if you laugh at Aluko’s outrage today. In 2017 Nigeria, nobody is holding his breath or outraged about the cost of refined oil “catching up” with the cost of water. Fuel today is sold at N147 per litre, but the mile-long queues talked about in 2003 persist and appear to assume greater proportion.

But the problems did not begin in 2003 anyway. Let’s step back.

As Segun James describes in a piece last year, a key question that agitated the minds of the oil and gas industry stakeholders in 1996 was this: How can the leadership of a country whose economy is dependent on oil deliberately decided to sabotage the economy by awarding a contract for the turn-around-maintenance (TAM) of a Nigerian refinery to an Indian fishing company, which has no knowledge of oil and gas operations?

Of course, it was under the reign of Sani Abacha that Nigeria became a perpetual importer of petroleum products, as all the refineries packed up. The question above resulted from the TAM approved for the Warri Refinery but as it happened, the only thing that turned around at the time was the financial fortunes of Abacha and his cronies.

Nigeria’s historical fuel scarcity has its roots in the failure of the local refineries to meet with their installed capacities, aided principally by the abandonment of mandatory turn-around maintenance required to keep them at optimum capacities.

Over the years, the fuel importation business has become the biggest scam in the country. An oligopoly of marketers has held the nation captive to their whims and caprices, devising every financially viable artifice to fill their pockets while supplying refined products. Nigeria’s oil business suffers every ill characteristic of an oligopolistic competition where the market is at the mercy of the collusion of the few sellers.

At periods when fuel become scarce and intractable due to these high lusts for profits, the NNPC takes up sole duty of importing the refined products into the country. But this intervention does not solve the problem. If anything, it is usually talk for political positioning.

In 2003, Obasanjo ordered the importation of 500 million litres of oil to relieve the scarcity pressure, promising it as a means of putting “a smile would be put on the faces”. At the rate of N35 per litre to import the oil at the time, and at N9 to subsidize it so that it could be sold at N26, that saw an expenditure of N17.5 billion and N4.5 billion in subsidy. That was March 2003, a month before the Presidential elections in April.

A similar situation is playing out currently where the NNPC has to bear N40 of the landing cost of N171.40 so that the pump price of petrol will remain at N145 per litre. But elections are quite farther ahead, so we will not say the present intervention in the scarcity is political.

Yet, taking up the duty of importing the products alone is not structurally feasible for the government. A recent report shows that Depots and Petroleum Products Marketers Association (DAPPMA) members import about 65 percent of the nation’s total fuel consumption. Major Oil Marketers Association of Nigeria (MOMAN) imports about 15 percent and PPMC/NNPC imports the balance of 20 percent. Out of nearly 130 fuel depots in the country, IPMAN, MOMAN and NNPC own them in the ratio of 83:24:22 respectively.

There are about 26,700 filling stations nationwide, with 2,453 stations belonging to the Major Oil Marketers Association of Nigeria (MOMAN), comprising Mobil Oil, Total, Oando, Conoil, Forte Oil and MRS. NNPC has only 37 mega stations located only in the capital cities in the 36 states of the federation and the federal capital territory. Independent Petroleum Marketers Association of Nigeria has over 24,226 outlets located in the country’s hinterland.

Hence, excluding the independent and major marketers in the fuel supply programme provides a willing tool to idle marketers with capacities larger than NNPC’s to sabotage the fuel supply efforts. Even if they choose not to sabotage the process intentionally, NNPC simply does not have the facilities and local intelligence to send fuel to every creek and crooked street in the 774 Local Government Areas in Nigeria.

Nigeria’s fuel scarcity problem will probably be manageable if anyone actually knows how much fuel is used in the country. The NNPC could always make plans ahead of time for replenishing shortages in supply before scarcity ensues. So why is that such a big deal?

Well, the estimate of national demand is between 35 and 40 million litres. However, marketers, when calculating subsidy claims for products, put it to the NNPC and PPPRA that the figure is between 45 and 60 million litres.

There have been attempts to fix the obvious ill consequences of the heavily centralized and restrictive arrangement where the oil is in the hands of a few to distribute but such efforts have often come to nought. Not a single one of the 18 licenses issued by the government to private investors since 2008 has produced any new facility on ground to solve the fuel crisis. Only Dangote can help us now.

When the refineries come to be, solving scarcity will still require great attention to ensuring easy flow of products from the refineries to parts of the country through pipelines. The issues of sabotage and equipment failure are front burners too; between 2006 and 2016, NNPC reported a total of 16,083 pipeline breaks in different locations in the country, with ruptures accounting for 398 pipeline breaks, while 15,685 breaks were due to the activities of vandals, according to this account by Bassey Udo.

Then, there is vulnerability to international political and economic factors. The reluctance of Banks to provide credit lines and access to foreign exchange to enable marketers bring in more products was a major contributor to the April 2016 fuel scarcity. Pressures on the Nigerian naira will continue to play a role in the ability of independent marketers to function effectively; when they suffer to get dollars, they naturally will have the inclination to pass on the burden to Nigerians at huge interests.

 

 

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