Wednesday, February 15, 2017

How Nigeria can end fuel importation by 2019


On February 7, 2017 Mr Ibe Kachikwu, the Minister of State for Petroleum Resources said Nigeria will stop importing refined petroleum products by 2019. He made the disclosure at a public hearing on the review of petroleum pricing template for Premium Motor Spirit organised by the House of Representatives. The minister said, inter alia, that the country currently refined eight million out of the 20 million litres of petrol being consumed locally. He also espoused that the country is borrowing a leaf from other Organisation of Petroleum Exporting Countries by planning to stop export of crude oil in the near future and substituting that with export of refined petroleum products.  Good thinking, I dare say!

I was guest on ”Burgami” a popular radio programme on Vision 92.1 FM Abuja last Thursday to discuss the feasibility or otherwise of this laudable effort. Without mincing words, I am of the firm believe that it is doable and possible to stop importation of refined petroleum products even before 2019 if the political will is there. There are conditions precedent to realising that ambition. It needs be emphasised that when Nigeria delved into importation of refined petroleum products in the early ‘90s, it was supposed to be a temporary; stop-gap measure pending the time the country’s four refineries will undergo the mandatory turn-around maintenance better known as TAM in industry parlance. Ironically, for over two decades, we never got round to carrying out the needed TAM due to acts of sabotage fueled by greed arising from the introduction of subsidy regime meant to ensure that the petroleum products are readily available and at affordable prices.

This subsidy regime created emergency fuel importers who indulged in all manner of malpractices and sharp practices to milk the federal government. Many a time, these importers make bogus claims aided and abetted by some scoundrels in civil service. The futile attempt by government to ensure that there is uniform official price for petroleum products across the nooks and crannies of Nigeria brought about further distortion in the supply chain of the much needed products. Of all the previous attempts to deregulate the oil sector, it was the last effort in May 2016 that is close to a semblance of deregulation. The government had then set the maximum limit to N145 per litre from N87. However, there is latitude of price differentials allowed across all filling stations. There are fuel stations now selling at below N145.

Back to the issue at hand, one of the surest ways to end fuel importation is to ensure that the needed TAM is carried out on our government owned refineries in Port Harcourt, Warri and Kaduna. Once we can get the refineries to work at optimal level, we would be one leg out of fuel importation. Again, there is need for proper deregulation. Market forces of demand and supply must be allowed to determine prices of all petroleum products.  The N145 per litre has become unrealistic now due to the scarcity of foreign exchange to enable fuel importers to bring in refined products. Depot price which was around N130 as at May 2016 has jumped to N142 per litre. By the time other ancillary cost such as transportation is added it becomes unrealistic to sell profitablly at N145 per litre. As I write this some fuel stations in South East and North Central Nigeria have stopped lifting fuel from the depots or alternatively buy at N142 and sell for about N150 which is above the approved control price.

If the downstream sector of the oil industry were to be fully deregulated, petrol marketers would have been able to sell at a cost recovery price. With the volatility of the exchange rate with Naira being very weak against international currencies, it will be foolhardy of government to expect fuel importers to sell at below the high exchange rate under which they imported the products. It is noteworthy that the over centralisation of the price coupled with subsidy regime which makes fuel importation an attractive option to building new private refineries were some of the reasons that many of the licensed investors refused to build new refineries. To the best of my knowledge only Aliko Dangote has braved the odds to build a private oil refinery located in Lagos.

If we are to exit importation of refined petroleum products in 2019, the Petroleum Industry Bill currently before the two chambers of the National Assembly needs to be quickly passed into law. The non-passage of the bill has held up multibillion dollar investment in both the upstream and downstream sector of our oil and gas sector. The let’s-wait-and-see attitude of foreign investors in the oil industry was due to the cloud of uncertainty currently enveloping the sector. The passage of the bill, which will be highly beneficial to oil producing communities, is expected to reduce militancy in the Niger Delta region. Just last week, Governor Ifeanyi Okowa of Delta State decried the large scale vandalism of oil and gas infrastructure in the state which accounts for loss of about 250,000 barrels of oil per day.

Pipeline vandalism and illegal oil bunkering have to be decisively dealt with if we are to stop fuel importation by 2019. Trucking of petroleum products hikes the cost price of the products apart from the high risk of the haulage due to the highly inflammable nature of the products. Thus, transportation through pipelines remains the cheapest means of distributing petroleum products. However, in a situation where stealing of petroleum products at an industrial scale takes place as is currently the situation in this clime, it will be difficult to attain self-sustenance in the production of refined products.

Corruption is another menace that plagues our oil and gas sector.  Imagine the huge amount allegedly stolen or recovered from former petroleum minister and Group Managing Director of the Nigeria National Petroleum Corporation. That is just a tip of the iceberg. Nigeria Extractive Industry Transparency Initiative has repeatedly published report of high level of fraud and corrupt practices in the country’s oil and gas sector. As earlier hinted, some cabal currently profiting from importation of refined petroleum products will not want their honeypot smashed. Thus, it should be expected that they will fight tooth and nail to ensure that we do not wean ourselves off importation of refined petroleum products.

In order to sustain the relative peace in the Niger Delta, federal and state government must sustain the amnesty programmes initiated to lure ex-militants away from the creeks where they indulge in pipeline vandalism, illegal oil bunkering as well as kidnapping for ransom. The $1billion cleanup of Ogoniland which was flagged off by the Buhari administration last year must be vigorously pursued. If the government can do all the aforementioned, there would be calmness in the Niger Delta region, inflow of the Foreign Direct Investment into our oil and gas sector, expansion of the refining capacity of petroleum products for domestic consumption and export and that will mean saving of our foreign exchange, earning of more FOREX and economic prosperity for the country as a whole.