Wednesday, April 27, 2016

Reasons why fuel scarcity persists in Nigeria

Nigeria’s perennial fuel crisis has defied all solutions by successive governments. The problem is not a creation by witches from outer space, but an entirely Nigerian problem by Nigerians.


Fuel scarcity is usually a result of limited or inadequate stock of products not replenished on time. But, how do you replenish the stock when nobody knows exactly what the country’s demand is?

From the Nigerian National Petroleum Corporation, through the Ministry of Petroleum Resources, to the Department of Petroleum Resources, and the Petroleum Products Pricing Regulatory Agency, no one can say categorically what the daily national fuel consumption figure is.

The statistics are as varied as the purpose for which each agency is issuing them.

When calculating subsidy claims for products, marketers, the NNPC and PPPRA put figure at between 45 and 60 million litres against conservative industry figures of between 30 and 35 million litres.

If the agencies that are supposed to handle fuel supply do not know what we need or consume daily, how can we build an adequate and sustainable stock? How are we sure we are not spending our scarce resources building a stock that are being diverted and smuggled outside the country to service consumers in neighbouring countries to the detriment of Nigerians?


The NNPC allocates 445,000 barrels of crude oil daily for domestic refining. If the four refineries in Port Harcourt, Warri and Kaduna, in their present state, were functioning optimally, total products yield cannot be more than about 10 to 12 million litres.

Even at full capacity, the supply from those refineries will still be far from sufficient to take care of at least 50 per cent of the 45-60 million litres the NNPC says we consume daily.

Despite the huge amount of money spent by government over the years on turnaround maintenance, the functional states of the refineries remain seriously impaired.

With the poor condition of the refineries, the natural consequence has been the scarcity consumers are currently facing.


The story would have been different if there were new refineries built either by government or private investors.

But none of the 18 licenses issued by government to private investors since 2008 have led to any new facility on ground to help solve the fuel crisis puzzle.


Even if the refineries are in top shape, their optimal performance still depends on the availability of services from other facilities associated with their operations.

The volume of refined products supplied depends directly on availability of crude oil feedstock. If crude oil is lacking because the pipelines are repeatedly attacked by vandals, there is no magic anybody can perform to guarantee sufficient products supply to consumers.

The result would be scarcity and more fuel crisis.

The NNPC says its biggest headache in its bid to find lasting solution to the fuel crisis over the years has been how to deal with pipeline vandalism.

The corporation says over the last decade, it has 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.

But the deeper issue has to do with reports that pipeline vandalism appears to be a very sophisticated insider crime with connivance of agents linking to even the highest reaches of the NNPC management echelon.

That President Muhammadu Buhari recently threatened to treat persons involved in oil pipeline vandalism and other sabotage activities in the oil and gas industry like terrorists or saboteurs shows how frustrating the problem has been to the government, industry and Nigerians.


To make up for the balance of supply from the refineries, government’s only viable option has been to import.

Although that has been going on these years, the huge cost to the economy justifies why local production is still the best way out.

Because crude oil and its derivatives – refined petroleum products – are subject to the gyrations of forces at the international oil market, a spike in crude oil price directly impacts retail prices of refined petroleum products at filling stations.

With government opting to subsidize the difference between the landing cost of imported petroleum product and retail price above N86 per litre, it means huge amounts has to be paid as subsidy to petroleum products marketers for fuel imports.

But the corruption in the fuel subsidy arrangement made the arrangement very unattractive for the present administration, which at inception found it difficult to continue the payment of the subsidies.

After inception, government inherited a backlog of over N600 billion subsidy bill due to marketers. Coming at a time the country’s economy was bleeding from declining revenue earnings as a result of low global crude oil prices, paying the huge bill became a huge burden and a bitter pill for government to swallow.

Although part of the money was paid in November 2015, it was hardly enough incentive for all the marketers to continue fuel importation.

Apart from unpaid subsidies, claims for arrears of interests on bank loans, and differentials in foreign exchange made the new fuel price unattractive for the marketers. The result has been the scarcity and fuel crisis.


With global crude oil prices dropping to unprecedented levels of less than $25 per barrel late last year, landing cost of imported fuel translated to a retail price below the official pump price of N86 per litre, necessitating the marketers to pay back money to government in the form of over-recovery.

For marketers, the modulated fuel pricing mechanism introduced by government was not a good business, hence their resolve to drop out of the fuel importation programme.

The modulation mechanism provides an automatic adjustment that regulated retail price of fuel at the pump against the movement of prices at the international crude oil market, to minimise or eliminate subsidy payment.

The withdrawal of the independent and major marketers, which accounted for the supply of 55 per cent of the entire national fuel consumption, meant NNPC would move from providing 45 per cent capacity to 80 per cent initially, and ultimately 100 per cent of the supply.

Out of more than 26,700 filling stations nationwide, only 2,453 stations belong 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. The rest of over 24,226 outlets located in the country’s hinterland belong to the Independent Petroleum Marketers Association of Nigeria (IPMAN).

Equally, out of nearly 130 fuel depots in the country, IPMAN, MOMAN and NNPC own them in the ratio of 83:24:22 respectively.

With inadequate capacity of the NNPC in terms of resources to handle the entire importation programme and the facilities to store and distribute even the inadequate quantity imported is part of the current fuel supply crisis.

The scarcity is simply because the NNPC is unable to import enough to meet growing demand.

The problem is worsened by the lack of involvement of the independent and major marketers in the fuel supply programme.

If an idle man is known to be a devil’s workshop, an idle marketer with a huge capacity than NNPC could be worse – a willing tool to sabotage the fuel supply effort for selfish reasons.


Even in the best of times, the NNPC has not been the best of planners.

Under the current crisis, the situation appears to have worsened, because there are strong suggestions that the corporation did not do enough due diligence, in terms of advance planning and monitoring of the stock of fuel at the depots to know when they would run dry and ensure that fresh orders were placed on time to replenish depleting stocks.

Even where such stocks were experiencing unusual pressures, every forward planning country maintains a healthy strategic reserve or national reservoir it could draw from in contingencies to make up for any shortfall in supply till the import consignments arrive.

With the uncertainty and crisis the country is always exposed to each time there was a short delay in delivery of imported fuel cargoes, there are strong doubts that the country has any such strategic reserve or advance planning arrangement for fuel supply.

If there is, how long is that reserve capable of sustaining supply before the next crisis?

The effect of lack of planning has always been shortages, which always triggers ripples of panic buying by consumers perpetually unsure for how long the scarcity would last.


Despite a hugely inadequate supply by NNPC, a significant volume is being diverted by corrupt officials who connive with marketers and transport owners to divert allocations from depots either to hoard in underground tanks to create artificial scarcity, or smuggle to neighbouring countries to earn higher profits.

The Minister of State for Petroleum Resources, Ibe Kachikwu, was stating the obvious when he said this week that at least 30 per cent of fuel allocations meant for different parts of the country were diverted daily to neighbouring countries like Cameroon, Chad, Togo and Benin Republic.

Despite efforts by the NNPC to curb such sharp practices by publicizing the daily truck outs from the depots, it was hardly enough to deter these saboteurs, who work with insiders to undermine the system.

Whereas marketers are supposed to get the product at the depots at about N77 per litre to retail at N86 at the pump, reports say corrupt depot officials give the allocations to marketers at about N105 per litre.

To recover their costs, such allocations are usually diverted to remote locations in the hinterlands where they are sold at cut throat prices of between N150 and N200 per litre to desperate consumers.


Even those marketers that had allocations to import and supply petroleum products are unable to do so due to lack of foreign exchange following the restriction imposed by the Central Bank of Nigeria on access to FOREX by some importers.

Some fuel marketers are hardly able to access dollars and open letters of credit for their imports.

Banks are reluctant to provide credit lines to enable marketers bring in more products. They are more interested in recovering outstanding amounts in terms of interests on previous loans and the differentials in foreign exchange rates.

This is at the heart of the current fuel crisis.


Fuel crisis, like break out of war, is the perfect time for good business for some Nigerians, who thrive in crisis situations, and would do everything to sustain the crisis.

The belief of such people is that if they do not create a desperate situation through fuel scarcity, they might be deprived the opportunity to make extra profits from the crisis that would ensue.

In the recent past, there were some Nigerians who amassed stupendous wealth from the murky waters of the fuel subsidy scam.

Most of those marketers who have tasted the allure of the subsidy wealth have reinvested their loots in strategic downstream oil industry facilities like tank farms, depots and transportation facilities, and developed capacities to dictate to even the NNPC the direction the fuel supply issue should go.

At will, such corrupt private individuals are the ones holding the government to ransom by cutting deals that are inimical to the collective interest of Nigerians.


The bulk of the marketers that enjoyed the subsidy fraud find the present administration’s determination to stop that arrangement an affront to their selfish interest.

For refusing to pay arrears of their subsidy claims, as was usually the case under the immediate past administration, the marketers would stop at nothing to frustrate government efforts, and have found the current fuel crisis the best time to get back at government.

In the face of foreign exchange scarcity, the NNPC was made to become the sole importer of petroleum products, to the exclusion of the independent marketers, which have the bulk of the fuel storage and distribution facilities.

Even when government negotiated with the upstream multinational companies for a $200 million foreign exchange buffer for their downstream affiliates over the next one year, the independent marketers were not involved.

That is why the recently invitation by the minister for the independent marketers to join hands with the government and other marketers to ensure adequate fuel supply has not been attractive to some operators.

Some of the marketers who responded are said to be cutting deals with some fuel importers on the high seas by delaying their import schedules to bring in products beyond the normal time, in a bid to attract costs that would make payment of subsidy inevitable.


The current fuel crisis has lingered longer than Nigerians are used to because corruption is fighting back. Reports say there is a power tussle in the NNPC between loyalists of the old order in the oil industry and the new order led by President Muhammadu Buhari and Ibe Kachikwu.

The old order feels threatened by the changes in the NNPC so far to uproot entrenched interests, particularly in the fuel supply front, and have resolved to frustrate every effort to change the status quo.

Every attempt to reform the NNPC’s operational processes, including the removal of fuel subsidy and rehabilitation of the refineries, have been criticized as ‘one-man show’.

When Mr. Kachikwu recently moved around some line managers and deputy managers in the Pipelines and Products Marketing Company, PPMC, while some others were asked to proceed on compulsory leave, most of the affected workers not only adopted a ‘siddon look’ attitude to work, but openly defied official directives, sabotaging efforts to turn the system around.

Frustrated by the antics of this group, the minister was compelled recently to blame “saboteurs” for the persistent fuel queues across the country.


Deregulation, as one of the key components of the Petroleum Industry Bill, is a policy that government expected would help open up the industry for more private sector participation in the downstream sector of the petroleum industry.

With more participants in the fuel supply process, the scarcity problem would be resolved.

The delay in the passage of the PIB, which would have paved the way for the take-off of deregulation, as a solution to the bad management of the oil industry, is seen as the reason for the perennial fuel shortage and the crisis consumers are facing.

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