Wednesday, May 20, 2015

Resolving the petrol scarcity conundrum

For some time now, especially since the beginning of 2015, Premium Motor Spirit popularly known as petrol has been very scarce in Abuja and many other cities across the country. I live and work in Abuja and can count the number of times I have got fuel at the official rate of N87 per litre since the year began. Of course, for those who do not attach much value to time, they do not mind queuing for hours on end at the few filling stations that are selling at the official rate. For some of us, we have embraced buying at the black market even if we have to pay twice or thrice the official price.
I have tried to conduct a preliminary study as to the root causes of the perennial scarcity of petrol in Nigeria. What I found out is mind-boggling. The problem came to being largely as a result of the non-maintenance of our oil refineries. Nigeria currently has five of them. Two in Port Harcourt; the old refinery inaugurated in 1965 with the current nameplate capacity of 60,000 barrels per stream day and the new refinery inaugurated in 1989 with an installed capacity of 150,000 bpsd. This brings the combined crude processing capacity of the Port Harcourt Refineries to 210,000 bpsd.
There is also the Niger Delta Petroleum Resources, a 1,000bpd topping plant located at Ogbelle, Rivers State, which was established to produce diesel. The other two refineries are in Warri and Kaduna. The Warri Refinery was established in 1978 to refine 100,000 bpsd and was expanded in 1987 to 125,000 bpsd. The Kaduna Refinery was commissioned in 1983 with a nameplate capacity for 110,000 bpsd. These refineries produce varieties of products including Liquefied Petroleum Gas, Premium Motor Spirit, Kerosene (aviation and domestic), Automotive Gas Oil, Low Pour Fuel Oil and High Pour Fuel Oil, among others.
According to the National Public Relations Officer of the Petroleum and Natural Gas Senior Staff Association of Nigeria, Comrade Emmanuel Ojugbana, “The refineries have on many occasions suffered from irregular Turn Around Maintenance. While TAM is required once in every 18 months, the refineries have been without TAM for almost two decades and this has caused serious problem for their operations.”
Invariably, lack of maintenance culture on our refineries and petro-chemical companies led to fuel imports. Fuel imports led to the introduction of fuel subsidy which was meant to be a stop gap or temporary measure pending the time our refineries could operate at full capacity and when privately licensed companies would have completed the construction of their own refineries. Alas, the Dr. Kalu Idika Kalu-led National Refineries Special Task Force while presenting its report to President Goodluck Jonathan in November 2012 observed that 28 out of the 35 investors given licences by the Federal Government to establish refineries in the country lacked the capacity to do so. The Idika committee reported that to ensure self-sufficiency in petroleum products’ production, the country needed three more refineries that should be established either by the government or private investors. The refineries, the committee suggested, should be established in Lagos, Bayelsa and Kogi states.
Information gleaned from the website of the Department for Petroleum Resources showed that out of the six private refineries which would have added a cumulative 657,000 bpsd to the local refining capacity, only the Niger Delta Petroleum Resources, a 1,000bpd topping plant located at Ogbelle, Rivers State, is operational. What this means is that for some time to come, Nigeria will continue to import refined petroleum products.
The challenge successive governments have been facing is whether to subsidise the cost of the imported petrol or leave the price to be determined by the vagaries of demand and supply. In plain terms, the crux of the matter is whether government should deregulate the petroleum industry, particularly the downstream sector. Over the years, I have held the view that deregulation is not pro-poor and that subsidy is needed to cushion the harsh effect of the partial deregulation of the Nigeria’s oil and gas sector.
But recent developments have shown that full deregulation might be the only way out of the fuel scarcity quagmire. As things stand, the fuel subsidy scheme is riddled with a lot of scams as importers of petroleum products have been found to engage in all manner of sharp practices. Even as it is, government is finding it difficult to pay genuine claims.   In a May 14, 2015 report by this newspaper, it was observed that the lingering fuel scarcity was occasioned by the delay in the payment of the subsidy claims. According to the records made available by the marketers, they had received subsidy of N98bn in Sovereign Debt Notes, interest of N56bn for delayed payment and N37bn as foreign exchange differentials, bringing the total payment in 2015 to N191bn since the beginning of the year.
Their records also show that the outstanding balance expected from government as of March 31, 2015 is N200bn. But while the marketers put the outstanding claims at this amount, the Minister of Finance, Dr. Ngozi Okonjo-Iweala, said the outstanding figure was N131bn. In the recently passed 2015 budget, only N100bn was budgeted for petrol subsidy and N45bn for kerosene subsidy. This is far less than what the outgoing government currently owes the petroleum importers.
The report establishes that “When subsidy payment is delayed, huge interest accumulates on funds borrowed by the marketers to fund importation of products in addition to huge exchange rate differentials arising from the difference in exchange rate when the cargoes are imported and the time the subsidy claims are paid.”
I couldn’t agree more with the opinion expressed by the President, Nigeria Association for Energy Economics, Prof. Adeola Adenikinju, that there is the need for the Federal Government to discontinue subsidies on petrol consumption and look into subsidising production of petrol and other petroleum products locally. The scholar opined that it was more economically viable for government to encourage businesses that want to invest in local refining of crude oil and that it was very pressing that the country phased out subsidy because of its huge negative impacts on the country’s foreign reserves, exchange rate, inflation and the budget.
Given the expert’s opinion that subsidy payment encourages fraud, fuels waste of scarce resources and causes frequent scarcity of products due to government’s inability to fulfil its own part of the obligations, shouldn’t every right-thinking Nigerian support the full deregulation of the oil sector? Truth be told, the sector is at present unofficially deregulated. As I travelled from Abuja to Bogoro, Bauchi State over the weekend, I noticed that at the six different filling stations we fuelled our vehicle along the way, we bought fuel at different prices ranging from N120 per litre to N135 per litre. In all of these filling stations, there were no queues as consumers there had adjusted to the realities of buying above the official rates. My support for the full official deregulation of the oil and gas sector does not in any way preclude the trial of those who have defrauded the country through various scams in the sector. It does not mean that government should not pursue the turnaround maintenance of the existing refineries or their outright privatisation, if necessary. I am for whatever measures that will make this great country to cease importing refined petroleum products. Enough is enough!