Five months after the Bola Tinubu administration removed subsidy on petrol, major crises bedeviling the petroleum sector continue with ripple effects on the livelihood of Nigerians. President Tinubu had, in his inaugural address on 29 May, announced the removal of the subsidy, to lift a major financial burden off the back of the government.
The Nigerian government had for decades subsidised and fixed retail prices of petroleum products. The payment, however, threatened the nation’s fiscal position and affected the government’s ability to fund developmental projects.
Last year, over N4 trillion was used to subsidise petrol, more than the government spent on education and healthcare combined. Speaking during his inauguration, Mr Tinubu said the petrol subsidy regime was not sustainable.
He also stated that funds for the subsidy will be diverted to other things like public infrastructure, education, health care and jobs. Apart from helping to save public funds, the removal of the subsidy was also expected to allow for more private-sector operators in the petrol sector including in the importation of the product.
Following the announcement, the Nigerian National Petroleum Company Limited (NNPCL) directed its outlets nationwide to sell fuel between N480 and N570 per litre, an almost 200 per cent increase from the initial price below N200, leading to a significant increase in transportation fares and prices of goods and services.
The pronouncement was trailed by panic buying and gridlock across filling stations in many parts of the country, even as regulatory bodies called for calm amid the chaos.
Again in July, petrol pump prices rose to about N617 per litre at various outlets of the NNPCL in Abuja and many parts of the country. At the time, the NNPCL attributed the rise in prices to ‘market forces’. The NNPCL Group Chief Executive Officer, Mele Kyari, explained that with the deregulation of the oil sector, market realities will force the price of petrol up sometimes and at other times force it down.
NNPCL has since 2016 been the sole importer of PMS in Nigeria. But on 15 June, the company announced it was no longer the sole supplier of petroleum products in the country.
The development came months after the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) said it was fast-tracking the process of issuing oil marketers licenses to import petroleum products in its bid to break the monopoly of the NNPCL in compliance with the Petroleum Industry Act (PIA) 2021. On 19 July, Emadeb Energy Services Limited imported the first batch of petrol of about 27 million litres into the country.
According to the company, the product came into the country in a cargo valued at over $17 million with huge foreign exchange components. Speaking in Lagos at an event to mark the inaugural importation of petrol into the country by Emadeb Energy, the Chief Executive Officer of the company, Adebowale Olujimi, said the company had proven its capacity and readiness to actively play its part in ensuring steady product supply in the country.
He noted that despite the removal of petroleum subsidy, local refining remained the best option for the country to guarantee energy security, considering the huge foreign exchange implication of the imported products.
“The value of this cargo here, you cannot find it in the market just like that. It is over $17 million, and you can’t, in any way, with what the FX is today. Today, we have imported 27 million litres of PMS, but local refining is the way forward for us in this country.
“We want to be one of the early comers into this game. In conjunction with some of our trading partners, we decided to source for the licences and that is what has brought us here today,” Arise TV quoted Mr Olujimi as saying.
But contrary to public expectations, in recent days, there have been speculations that the government had partly reintroduced petrol subsidy, unannounced, to keep the pump price at N617 given the continued fall in the value of naira against the dollar and the price of crude oil in the international market. Since Nigeria depends on imported refined products, the exchange rate is a key determiner of the prices they are sold to consumers.
In August, Mr Tinubu assured Nigerians that there would be no further increase in the pump price of petrol, despite the deregulation of the product. The Special Adviser to the President on Media and Publicity, Ajuri Ngelale, disclosed this while briefing journalists in Abuja after a closed-door meeting with the president.
“The president wishes to assure Nigerians, following the announcements by the Nigerian National Petroleum Company Limited (NNPC) just yesterday, that there will be no increase in the pump price of petroleum motor spirit anywhere in the country,” the spokesperson said. “We repeat, the president affirms that there will be no increase in the pump price of petroleum motor spirit.”
Mr Tinubu also acknowledged that there are inefficiencies within the downstream sector that are contributing to the fuel price controversy. He assured that all loopholes associated with the smooth delivery of petroleum products in the country will be addressed immediately.
Meanwhile, on 6 October, the National President of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Festus Osifo, insisted that the Nigerian government had restored the subsidy on petrol, despite the official government policy of ending the subsidy regime.
Mr Osifo, who is also the president of the Trade Union Congress (TUC), one of Nigeria’s two largest workers union coalitions, while featuring on a Channels Television programme, Politics Today, said due to the cost of crude oil in the international market and the exchange rate, the government still pays subsidies on petrol.
“The government has to come clean. In reality today, there is a subsidy because as of when the earlier price was determined, the price of crude in the international market was somewhere around less than $80 to a barrel. But today, it has moved to about $93/94 per barrel for Brent crude. So, because it has moved, then the price (of petrol) also needed to move,” Mr Osifo said.
In its reaction, NNPCL however said the Nigerian government has not resumed payment of subsidy on petrol.
“No subsidy whatsoever. We are recovering our full cost from the products that we import. We sell to the market and we understand why the marketers are unable to import,” Mr Kyari told State House correspondents after a meeting with the president at the Presidential Villa, Abuja.
“We hope that they do it very quickly and these are some of the interventions the government is doing. There is no subsidy.”
In the midst of the uncertainties, many of the crises hampering smooth operations in the oil sector linger as Nigerians continue to lament the ripple effect of skyrocketed pump prices.
Forex crisis
Over the past four months, the naira has depreciated by over 50 per cent at both the authorised and unauthorised market segments, after the Central Bank of Nigeria (CBN) announced in June that it had collapsed all forex windows into the Investors and Exporters (I&E) window.
The move, according to the central bank, is part of the Nigerian government’s efforts to improve liquidity and stability in the market and attract foreign investors into the Nigerian economy.
Although the policy was widely applauded as well-intentioned and necessary, it has put additional pressure on the local currency and manufacturers, with ripple effects on domestic prices.
Oil marketers that had allocations to import and supply petroleum products are unable to do so due to scarcity of foreign exchange. Some fuel marketers said they are hardly able to access dollars and open letters of credit for their imports.
Speaking at the National Executive Council meeting of the Natural Oil and Gas Suppliers Association of Nigeria (NOGASA) in October, Benneth Korie, the national president of the association, said many petroleum products depots are currently deserted due to a lack of products caused by foreign exchange rate volatility.
“Depot owners are so terribly affected by the increasing cost of crude oil and exchange rate, to the extent that many depots are practically deserted as their owners are unable to secure bank loans to fund their business due to high-interest rates.
“Banks are not willing to guarantee funds release to stakeholders as a result of the difficulty, instability and galloping rates of foreign exchange and high cost of the dollar. Many depots are presently dried up or out of stock, and this is no gainsaying as it is evidently verifiable.
“Worst hit are filling stations whose owners find it extremely difficult to secure funds to procure products for their retail outlets. Both the independent and major marketers are so terribly affected,” Mr Korie said at the time.
NNPCL recently confirmed it has returned to being the sole importer of petrol in the country. Mr Kyari who disclosed this during the Energy Labour Summit organised by the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) in Abuja said licensed private oil companies are unable to obtain foreign exchange for importation.
“We are the only company importing premium motor spirit (PMS) into the country.
“None of them (oil companies) can do it today. For them, access to foreign exchange is difficult. We create foreign exchange (FX), therefore we have access to FX, while their access to FX is limited,” Mr Kyari said.
Crude oil
Crude oil and refined petroleum products are subject to the volatility in the international oil market, and a spike in crude oil price directly impacts retail prices of refined petroleum products at filling stations. Recently, due to global economic uncertainties, crude oil prices have fluctuated, with direct impacts on the retail petroleum product prices.
On 3rd October, the prices of crude oil fell more than two per cent. Brent crude oil futures were down $2.02, or 2.22 per cent, to $88.90 a barrel at 1228 GMT, while U.S. West Texas Intermediate crude (WTI) fell $2.10, or 2.35 per cent, to $87.13 per barrel, Reuters reported.
In many cases when the global oil price falls, Nigerians do not usually benefit. The fall raises more concerns for Nigeria at a time when the country faces severe revenue problems, pipeline vandalism and crude oil theft in its oil-producing region.
Earlier in September, the Speaker of the House of Representatives, Tajudeen Abbas, said Nigeria lost N16.25 trillion to crude oil theft between 2009 and 2020. He said crude oil theft had hampered the growth of the country’s oil production, with between five and 30 per cent of crude oil production lost daily.
Distribution Challenges
In recent weeks, this newspaper noticed that many petrol stations in the Federal Capital Territory, Abuja were shut, resulting in long queues at the few outlets that were selling. Petrol marketers attributed it to the inability to secure funds to run their businesses.
“As of today, filling stations are shutting down in great numbers on a daily basis and dealers are going out of business, with many more on the verge of bankruptcy because of their inability to secure funds to facilitate orders for their stations,” Mr Korie said earlier in October.
The NMDPRA and other relevant organisations in the oil sector had recently announced moves to resolve the major challenges faced in the importation and distribution of petroleum products across the country.
Speaking to journalists in Abuja after a meeting at the headquarters of the NMDPRA, the operators said they seamlessly discussed the issues hampering the distribution of petroleum products in the country and came out with results.
According to the operators, the meeting was convened to address the major challenges faced by the oil marketers which include foreign exchange scarcity for the importation of petroleum products, non-functional refineries, banks’ refusal to provide loans, and bad roads across Nigerian cities.
On the foreign exchange challenges faced by marketers, Mr Ahmed explained that engagement had been ongoing with the CBN in that direction to make the dollar available.
“We have been discussing with the government and if you must have observed that a lot of work is going on within the CBN in terms of their internal restructuring which will make available the dollar as soon as everything stabilises,” he said.
“We are also working towards improvement in crude oil production, which will bring more revenue into the country and then, of course, boost our foreign reserves. These are all part of the factors that we are all working on towards stabilising the naira.”
Source: Premium Times
