Thursday, December 28, 2017

Fuel Crisis Intensifies In Nigeria








ABUJA, NIGERIA (OIL PRICE) -- Again, Nigeria’s government has failed its citizens, thanks to an acute shortage of fuel—despite the country’s status as the chief oil-producing country on the African continent.

Year in and year out, governments in power have woefully neglected to stem the reoccurring hard bite of fuel scarcity, especially during festive seasons—and this one is turning out to be one of the worst.

Over the years, a combination of well-known (and definitely not unforeseen) factors—ranging from inadequate supply to pipeline vandalism to unending issues with independent marketers—have floored whatsoever effort, if any, by the government to ensure adequate fuel supply, particularly during holidays.

Shortly before Christmas, Anietie Akpan, a Lagos-based entrepreneur whose business is suffering from pangs of the distressed economy, said that “the fuel crisis is getting worse; I bought from the black market the other day at 200 Nigerian naira per liter and can’t even get it at that price now,” echoing an expression of frustration that cuts through the entire nation.

For the 2017 end-of-year fuel crisis, economic watchers point to the gap in the volume of products between supply and demand and lack of government incisive action—even when they saw it coming, as in past years.

Oil industry analyst Bassey Udo points out that, “the primary reason for the current crisis is that the Nigerian National Petroleum Company (NNPC), is the only importer of petroleum products. It also gives preference to the major marketers—Mobil, Conoil, Total, Forte Oil—in its allocation, rather than independent marketers who have the largest number of retail outlets across the country, to better serve the people.”

Udo, the Business/Economy Editor of Premium Times, Nigeria’s leading online investigative publication, added that, “to assert their importance, members of the Independent Petroleum Marketers Association of Nigeria (IPMAN), threatened to go on strike from December 10, 2017 if government does not supply them products at the same ex-depot price of N137 per liter like major marketers, to enable them to sell at N145 per liter for profit margin.”

Findings show that government initially took the strike threat with levity, and by the time the government “acceded to their demand, it was on the same day the strike was billed to begin, during which panic buying and hoarding for the Christmas season were already in top gear,” Udo said.

None of the reoccurring causes of the perennial fuel scarcity takes anyone by surprise; rather, government functionaries are used to either ignoring the issues or reacting belatedly to them.

A case in point is how Nigeria’s Minister of Petroleum Resources, Dr. Emmanuel Ibe Kachikwu, waited until early December (only a few days before the holiday rush) to roll out emergency plans—a typical firefighting approach that has failed to forestall the current petrol scarcity.

When announcing emergency plans, Kachikwu stated that fuel shortages “were occasioned by a gap in the volume of products available in the country,” caused by reluctance of oil marketers to import petrol. The petroleum minister attributed the shortfall to rising price of crude oil, which he indicated forced oil marketers to defer imports.

Oil marketers have often been the scapegoat for all fuel scarcity, with the government typically using them as the excuse for their continuous failures to get it right in the highest oil-producing country in Africa, currently put at 2.53 million barrels per day.

The oil marketers have been embroiled in a never-ending fight with the government in subsidizing cost of fuel per liter. With the government opting to subsidize the difference between the landing cost of imported petroleum product and retail price above N86 per liter, it means huge amounts must be paid as subsidies to petroleum products at filling stations.

Presently, the government is said to have inherited a backlog of over ?600 billion in subsidy bills due to marketers, and payment is an issue. This outstanding subsidy amount and the occurring bank interest in U.S. dollars is a source of disincentive for the oil marketers to import, especially the Independent Petroleum Marketers. This causes a supply drop, hence fuel shortages and the attendant crisis—more so when nobody knows the approximate quantity the country needs at any point in time.

A top industry executive disclosed to Financial Times in May 2015 that during the fuel crisis of that year, NNPC had only about two days of fuel in stock.

“How do you replenish the stock when nobody knows exactly what the country’s demand is?” said Udo. “From the NNPC through the Ministry of Petroleum Resources, and the Petroleum Products Pricing Regulatory Agency (PPPRA), no one can say categorically what the daily national fuel consumption figure is.”

According to Udo, the statistics for daily consumption 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 the figure at between 45 and 60 million liters against conservative industry figures of between 30 and 35 million liters.

But the intractable fuel scarcity, especially during holidays, goes far beyond supply and demand and the unending battle with marketers. There are also the activities of the larger-than-life trade unions in the industry, notably, the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN).

In the December 2017 excruciating scarcity, the body was at the center of it all. Like with other crises, the union, citing what it called unfair labor practices by some oil companies and subsequent termination of appointment of its members by Neconde Energy Limited, called on the government to direct the company to recall sacked members or face workers strike action by December 18, 2017.

In the interim, PENGASSAN’s General Secretary Lumumba Okugbawa said, “PENGASSAN appeals to all Nigerians to show understanding and to use this window to stockpile adequate quantity of premium motor spirit (PMS) and other petroleum products that will last them during the festive period, as this strike will be indefinite.”

Predictably, there was an immediate reaction to the strike threat. Oil prices climbed more than one percent the next day, as traders covered shorts after sharp losses the previous day brought on by an unexpectedly large rise in U.S. stocks of refined fuels.

“Short covering in the market, together with the threat of a strike by Nigeria’s key oil union, provided some influence on oil prices in today’s session,” said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London.

As if that’s not enough, besides the labor union muscle flexing, Nigeria’s oil sector is the epitome of not only corruption, but high-level inefficiency and mismanagement. It’s generally seen as a national cake, where those with access help themselves to whatever can be gotten hold of. Every government of the day makes sure their kindred is in charge of daily activities to ensure good hold on the largesse.

The outcome of this unfortunate scenario is the ever-present motion without movement, where nothing gets done, because every step is interpreted with tribal and economic sentiments. Take the very recent public power play between the petroleum minister and the NNPC chief executive officer, giving credence to the old rhetorical question: Is Nigeria’s oil wealth a curse or a blessing?

In their 2006 Journal of Research in National Development paper, “Crude Oil Resource: A Blessing or Curse to Nigeria,” writers S. Tamuno and J.M. Felix, address this issue, concluding with a call to the federal government to “put in place appropriate measures to stem further mismanagement and looting… of revenue from crude oil.” Unfortunately, more than a decade later, the end to the fuel crisis as we know it is not in sight anytime soon.

In Udo’s “13 Reasons Fuel Crisis Persists in Nigeria,” report in Premium Times, he blames inadequate supply, dysfunctional refineries, no new refineries, pipeline vandalism, fuel importation constraints, the drop in global oil prices, poor import planning schedules, corruption-diversion-smuggling, foreign exchange crisis, fuel crisis as good business time for some, payback by marketers, NNPC internal politics, and absence of deregulation.

But what about Nigerian President Muhammadu Buhari? Even as a former minister of petroleum, Buhari has done nothing significant to alleviate the horrible state of affairs. He only has about a year to go before his four-year tenure ends.

Announcing government ad-hoc plans to end the current fuel scarcity, Kachikwu hinted that the technical committee has been benchmarking costs and streamlining bidding firms, and will submit its report for presidential approval before end of 2017 and that “work aimed at bringing the four refineries operated by NNPC in Kaduna, Warri, and Port Harcourt back to their nameplate production capacities… would eventually start in January 2018,” said Solomon Elusoji and Chineme Okafor in a This Day article.

Ordinarily, this would have been good news, but as the administration approaches its end, it’s not much to cheer about—instead serving as yet another reminder of the system’s lax inefficiency, even for problems considered national emergencies.

By Williams Ekanem for Oilprice.com
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