Fuel Scarcity: Is the end finally in sight?

0
745

by Femi Okeowo

Finding a lasting solution to Nigeria’s perennial fuel scarcity has been a major subject in public discourse for the past two months. While some of the reasons why Nigeria goes through the cycle of shortage intermittently have been identified, the government is currently at a loss as to how best to address the challenge. To most policy makers within government, the problem will persist until local refining capacity meets demand.

The market distortion that exists in Nigeria as a result of the huge reliance on importation of petroleum products and regulation of pump price, continues to put a heavy burden on the country’s economy, while also contributing greatly to fuel shortage.

The real causes of fuel scarcity

The causes of fuel scarcity are quite complex, and they vary. After a series of blame trading, about five different explanations have been put forward so far by all parties responsible. These include the Federal Government, represented by Minister of State for Petroleum Resources, Dr. Emmanuel Ibe Kachikwu and Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru and independent marketers.

First, is the lack of sufficient reserve to store products coming into the country.

Second, is the low clearance speed of petrol at the ports due to the congestion of the Apapa seaport.

Third is the government’s refusal to release subsidy payments to independent marketers, despite acknowledging the huge disparity in market price and regulated pump price, which is N145 and N171 respectively.

Fourth, is NNPC’s inability to meet up with volume of consumption in the country, as it is overburdened, being the only importer of Premium Motor Spirit (PMS) since independent importers who previously bridged the supply gap backed out for economic reasons.

Lastly, is fuel marketers’ inability to access foreign exchange at concessionary rates. Those who struggle to get forex at black market rate are not able to sell at stipulated pump price.

The reasons highlighted above are interrelated and require very strategic solutions which seem to elude decision makers at the moment.

Why major marketers ‘held the nation to ransom’

Although the government continues to live in denial, a fresh can of worms has been opened on the subsidy controversy Nigerians thought was a forgotten issue with the increment of pump price from N97 to N145 in 2016.

From latest reports, a new regime of fuel subsidy started in January 2017, even though some claimed that it re-emerged later in the year, around the time, the scarcity became intense. The disparity in landing cost and pump price of petrol made it highly unprofitable for private parties to import fuel.

NNPC devised means to subsidise its own imports describing it as ‘under-recovery’ on paper. However, the other oil importers who are responsible for close to 40% of required products were left neck-deep in debt.

The Federal Government insisted that the budget has no provision for subsidy. As it remains illegal to sell above the given price irrespective of landing cost, the marketers decided to stop sales completely, holding the nation to ransom in political terms, but saving their heads from further loss, in business terms.

NNPC’s moribund depots

At present, almost 100 per cent of fuel importation is being handled by the Nigerian National Petroleum Corporation (NNPC).

The withdrawal of major marketers created a major gap in the availability of the petrol across the country and has put more pressure on NNPC, who assumed the role of the sole importer and supplier of petroleum products, despite owning less than 20 per cent of oil depots. These depots with dilapidated infrastructure are not enough to cater for the volume of product being shipped in. Therefore, a lot of times, NNPC vessels remain at sea, accruing exorbitant demurrage as a result of lack of capacity to accommodate products to be discharged.

There are reports that, out of all depots in Lagos, only four or five are being used by NNPC to distribute products to filling stations nationwide. A lot of the storage facilities are moribund and NNPC has failed to approach private depot owners with very large capacities.

The Apapa bottleneck

The deplorable condition of Apapa, home to two major seaports in the country, where the bulk of imported petrol comes through has also been a major contributing factor to fuel shortages. As a result of cramming and gridlock caused by containers and tankers loading goods, it takes days for fuel tankers to get to retail outlets.

“Scarcity will never happen again” – Baru

Maikanti Baru’s optimistic statement was made recently in Abuja at the 2018/2019 crude oil term contract bid opening, where he also described the NNPC’s downstream sector counterparts as unpatriotic.

In his words, ““It was unfortunate that due to the behaviour of a few bad eggs, the Christmas was a pain. We hope you will never be part of this incident and we also hope this type of thing never happens in the future. NNPC is determined that this year there will be no fuel shortage. Definitely we have seen the last of it.’’

Nigerians are way too familiar with empty promises than to take this seriously without evidence. After all, nothing has really changed; NNPC’s approach does not appear sustainable. Also, the display of incompetence by both Baru and Kachikwu in the face of the lingering crisis shocked people within the country and international observers.

Barely a week after the weak declaration by Baru, Nigerians now very frustrated, resumed their queues at the fuel station as products were in short supply again.

Government’s proposed interventions

According to Kachikwu, a newly constituted committee he chairs is considering three options to allow marketers join in the importation of petrol. The options include, “a regime of flexible tax-waiver window to accommodate the extra cost elements in the fuel pricing template”, “introduction of an exchange rate modulation programme”, and “price plurality regime to allow marketers sell at different a price from the NNPC’s”.

“These measures would pave the way for marketers’ participation in the fuel import regime to guarantee seamless supply and distribution of petroleum products across the country within an 18-month corridor, ahead of the eventual attainment of local refining capacity,” he said.

Way forward

Solutions to the current fuel crisis are as varied as the reasons behind them. However, there are some that require very simple approaches.

For instance, to improve strategic reserves and efficient distribution of petroleum products, the federal government must urgently turn to reliable private depot owners. It is obvious that the NNPC lacks the required storage capacity to provide the right amount of fuel needed in the country, which dovetails between 35 million – 40 million litres per day.

New partners with better capacities must be brought on board to salvage the situation. These new partners who are ready to collaborate with the government must be given all required support to function optimally.

A good example of such strategic depot where products can be channelled is the 300-million litre bulk storage facility built by Petrolex Group in Ibefun, Ogun State. When it was unveiled in December 2017, it was described as a gamechanger in Nigeria’s oil and gas sector. Not only was it supposed to decongest the gridlock at Apapa by as high as sixty percent, it was also expected to cater for a large percentage of in-country fuel demand and drastically ease the distribution of petroleum products across the country, because of its size and strategic location.

Petrolex’s offering would go a long way in solving shortage challenges, with the right support. It will also solve at least three out of the five problems stated: Poor turnaround time caused by Apapa’s gridlock, NNPC’s inadequate storage facility and volume of products in circulation.

 

Ultimately, having fully functional refineries remains the only permanent solution to the fuel crisis in Nigeria. With fully functional refineries, Nigeria’s reliance on importation will be drastically reduced.

Once this is achieved, the other problems relating to foreign exchange and subsidy payments, which has been a serious bane on the neck on several administrations will become a thing of the past.

Oil majors will be forced to look at other value adding components of the oil and gas value chain to improve the economy.

At present, Nigeria has four state-owned refineries whose combined output is put at 445,000 barrels-per-day. However, these refineries have failed to operate at optimum capacity for a long time. Although private sector players such as Dangote and most recently, Petrolex, are in the process of delivering 600,000 bpd and 250,000bpd respectively, the government must create the right environment to make this venture profitable. This will attract more investments in this regard.

Femi Okeowo is an analyst who lives in Lagos

LEAVE A REPLY

Please enter your comment!
Please enter your name here