Except urgent steps are taken to address the imbalance between the actual landing cost and retail pump price of fuel across the country, Nigeria’s financial crises may ultimately take a turn for the worse in the years ahead.
The apprehension came on the heels of a recent disclosure by the Minister of Budget and National Planning, Zainab Ahmed, that the Federal Government was setting aside the sum of N450 billion in the 2020 budget for fuel subsidy. This mind bugging figure is about N145 billion higher than the N305biliion it budgeted for fuel subsidy in 2018.
Ahmed said a provision of N450 billion was made for ‘under-recovery’ of cost in respect of the importation of Premium Motor Spirit (PMS), popularly called petrol.
That revelation came after the Petroleum Products Pricing Regulatory Agency (PPPRA), in its November 2019, report disclosed that the Nigerian National Petroleum Corporation (NNPC) subsidised the cost of petrol by N19.37 per litre with the national daily consumption of petrol put at 55.8 million litres, and the national oil company spending an average of N1.06 billion on daily consumption.
According to official data, the landing cost of petrol as of November 18 was N144.7 per litre, with distribution margin put at N19.37 per litre.
Under this regime, the consolidated cost of petrol, (landing and distribution cost) stands at N164.07 per litre even though the NNPC takes the distribution costs off the private marketers as subsidy.
In Nigeria, petrol is sold at a fixed price of N145 per litre at filling stations across the country.
In May last year, the Senate approved N129 billion as subsidy payment to cover debts to local oil firms related to fuel subsidy programme. This approval came as landing cost of petrol rose to N180 per litre, N35 higher than the official pump price of N145 at the end of April 2019.
But the recent spike in subsidy payment was expected as a former Minister of State for Petroleum Resources, Mr.Ibe Kachikwu, had earlier argued that the rise in global crude oil prices after the 2016 hike in petrol price brought back subsidy.
The NNPC, the sole importer of petrol into the country for about two years after private oil marketers withdrew from the importation of the product, bears the burden of subsidising the product.
It was particularly against this backdrop that stakeholders converged on Abuja last week to x-ray the effect of the canker worm hemorrhaging the country’s economy and making globally uncompetitive.
The forum the Nigeria Petroleum Summit (NIPS) 2020 with the theme ‘’Widening the Integration Circle of Technology, Knowledge, Sustainability and Partnerships’’ ended in Abuja at the weekend.
Most stakeholders while dissecting the effect of subsidy on the economy advised the Federal Government to muster the political will to deregulate the downstream sector to free up the funds to develop other critical sectors of the economy.
They also urged the Federal Government to ensure that its refineries are working at optimal capacity, while decrying a situation whereby crude oil is exported in return for imported refined products as an sustainable economic model.
According to them, the continuous payment of subsidy by the Federal Government will further cripple its already fragile economy as low investments by operators would aggravate underemployment and shrink the economy.
In his contribution, Managing Director of OVH Energy, an Oando Licensee, Mr. Hubb Stokman, lamented that the NNPC’s role as sole importer of almost 100 per cent of Nigeria’s petrol needs, contrasts sharply with its statutory mandate as a regulator and has the capacity to stifle the industry.
He worried that Nigeria may not be able to reap the full benefits of the downstream sector under the current arrangement except it deregulates.
According to him, deregulation will free up the market both on the supply and demand end, leading to robust investments.
Stokman lamented that Nigeria has the lowest margin for petrol in all the places he has worked and is equally the most fragmented.
‘‘Despite a legacy nameplate refinery capacity of 445,000 barrels per day (bpd), with operational challenges keeping production below 15 per cent, Nigeria has historically imported over 80 per cent of refined products. The enhanced refining capacity from imminent conventional and modular refineries would shift Nigeria from import driven supply to self-sufficiency which is a catalyst for the downstream industry.
If Nigeria wants to capture the full benefits of the downstream value chain after the enhanced refining capacity comes on-stream, the other downstream sectors need to use this short time window to make improvements in customer experience and safety and operational standards; driven by technology. This will only be possible through major investments which are not feasible at current margins,’’.
For his part, Chairman of Integrated Oil and Gas Limited, Mr. Emmanuel Ihenacho, said it remained worrisome that Nigerian as an oil producing nation still depends on imported petroleum products.
He maintained that the issue of market structure places deregulation and payment of subsidies at the front burner of discourse because they have a direct bearing on the cost and efficiency of how products are distributed.
He lamented that the country’s poor refining capacity has left it with no option than to continue paying trillions of naira in fuel subsidy.
‘‘It is troubling that these subsidies intended to go to Nigerians, do not get to the common man because the beneficiaries are those who go into the filling stations to draw the fuel, and drive their numerous cars rather than the ordinary Nigerian. Market structure should be looked at to determine whether or not subsidy should be the order of the day.
“Open market competition creates efficiency in the system. In that vein, government must take a look at the subsidy regime and regulation. The subsidies do not really benefit the common people” he said.
Iheanacho also decried the plight of the country that has not been able to get things right despite having been in the oil and gas business for over 60 years. He further implored the government to take a second look at the market structure in terms of cost and efficiency.
“Open market competition creates efficiency in the system. In that vein, government must take a look at the subsidy regime and regulation. The subsidies do not really benefit the common people.
But if there is competition, people would strive to better their services so at the end of the day the beneficiaries would be the consumers. We are suffering and government is depriving itself of huge revenues that it needs for development’’.
Managing Director and Chief Executive Officer of 11 Plc, formerly Mobil Oil Nigeria Plc, Mr. Tunji Oyebanji, said Nigeria must make up its mind whether fuel for moving people around is a social issue or an economic one.
He said if the country decides to make fuel a social welfare contract, then Nigerians must be ready to make more and more resources available to sustain petrol price at the current level which he said was no longer sustainable.
Oyebanji said deregulation was not about closing down government regulatory agencies but rather, the power to unleash the potential of the private sector to grow and develop the industry.
He said if the country does not create the right investment climate, products from the Dangote refinery will eventually continue to find its way outside the country because it would be more profitable for smugglers to continue to do their trade to the detriment of the economy.
For his part, the Director, Department of Petroleum Resources (DPR), Mr.Sarki Auwalu, admitted that deregulation and subsidy are issues that come to the front burner all the time, assuring that domestic refining capacity in the next two years will exceed requirements of the consuming population.
He said the country’s border closure has helped to give the country a fair idea of what our real consumption figures are which he said has gone in no small way in reducing what the country spends on subsidy.
The DPR boss assured that that the downstream sector will witness unprecedented growth in the next few years because the agency was doing all it can to make sure that stakeholders have a seamless experience through reduction in turnaround time with the deployment of technology as seen in its recently launched Automated Downstream System (ADS) that abolished manual processing of downstream application for licenses and permits.
He noted that the launch of the Nigeria Gas Transportation Network Code (NGTNC) will also be an alternative to petrol as the growing us of Compressed Natural Gas (CNG) brings about a reduction in demand for fuel. He added that the code will also connect about 8 million homes to pipeline channels for the use of cooking gas.
In his submission, the Chief Operating Officer (COO) Downstream, NNPC, Mr.Tunji Adeyemi, said that in line with the policy directive of the Federal Government, the Corporation will continue to subsidise petrol until otherwise directed.
He said the role of NNPC is to ensure that there is adequate energy security for Nigerians, despite the challenges of the environment, stressing that recent couple of mergers and acquisitions, in the sector are pointers to the fact that the prospects remain bright for the downstream sector.
According to him, some independents oil marketers are beginning to play big and are getting closer to becoming major marketers, a development that signals the sector is not entirely distressed as being speculated in some quarters.
Adeyemi said government was already talking to investors to key into pipeline infrastructure to help assist in its quest for efficient and safe delivery of petroleum products, including CNG and LPG. He revealed that plans are on top gear to ensure that LPG consumption is ramped up to 5000 million metric tonnes from the current 1000 metric tonnes.
Executive Secretary and Chief Executive Officer, Petroleum Equalisation Fund (PEF), Mr. Ahmed Boboi, said the intervention of PEF through payment of bridging cost has continued to ensure that petrol is sold for N145 per litre across the country.
“The intervention of PEF has ensured that industries in the remotest part of the country continue to survive, because without the PEF, there would have been high unemployment rate because many SMEs would have closed shop” He said.
Boboi, who was represented by Goddy Nnadi, said the support from PEF has helped to reduce rural urban migration because petroleum products are available in every nook and cranny of the country, adding that plans are on to include LPG as one of the area of focus and intervention by PEF by ensuring that it is available in rural areas at a cheaper cost in a bid to discourage the use of dirty fuel and reduce environmental degradation.