Christmas and New Year celebration in Nigeria is almost always characterised with long fuel queues, high fuel price and (artificial) scarcity.
Last December was not different despite the Nigerian National petroleum corporation (NNPC) assurance of having enough stock to meet consumer demand. The sad reality is that a lot of Nigerians spent their holiday keeping vigil at filling stations in a bid to get fuel.
Where did it start to go wrong?
To start with, monopoly of the commodity by the NNPC is a contributing factor to the fuel scarcity. The sale of fuel in the country is pegged at N145 while the landing cost, how much it costs to bring in fuel to the country sits at N171. Selling at the pegged amount when compared to how much it costs to import the fuel is not feasible, especially with the current exchange rate. It is quite unprofitable to sell at N145 without incorporating the extra cost spent in bringing it in to the overall fuel price.
The inability of the NNPC to create a window with CBN for private firms to import petrol themselves is part of the problem. Leaving out the Major marketers and Depot owners under DAPPMA (depot and petroleum products marketers association) while assuming the role of the sole importer in the country is always problematic because it is the marketers that own 80% of the functional retail outlets and facilities for distribution in Nigeria.
Poor preparation on the part of NNPC is another contributing factor to the fuel scarcity. Having admitted numerous times that the demand for petrol is usually twice as the normal demand - stakeholders should have been prepared. According to the NNPC, the average consumption of fuel per day in the country is 30 – 33 million litres. Based on this figure, NNPC claims to supply an average of 45-51 million litres per day to cushion the effect of the scarcity, which is in excess of what is required.
This increase in the supply of fuel however does not reflect in actuality. There has barely been any stock across filling stations in the country since December 2017, yet the petroleum corporation claims to have increased supply. How come the reality on ground portrays the opposite of their declarations?
There have also been uncanny activities of some fuel smugglers and hoarders across the Nigerian border. Our petrol price sits at 145 / ltr while our neighbours in Niger republic, Cameroun, Chad and Republic of Benin all have their fuel price above 350 / ltr. In order to benefit from the high price of fuel in these neighboring countries, fuel truck diverters and smugglers move petrol to these countries with the aim of making big money. They settle security and regulatory personnel at the border and offer fuel meant to ease the artificial scarcity here to other countries instead.
The NNPC’s managing director (MD), Maikanti Baru during a session in January with the Joint National assembly committee on petroleum downstream, shared the same sentiment. He raised alarm over cross – border fuel smuggling syndicates sabotaging the efforts of the corporation to ease the distribution of fuel in the country.
What is the way forward?
For starters, the government should not be the one running the petroleum downstream sector. The NNPC does not have the capacity to continue this humongous task; they might as well allow private firms import fuel seeing as oil marketers own a large amount of the functioning retail outlets. The forces of demand and supply in the market will regulate the price of the commodity.
Also Read: NNPC working to end scarcity.
Our refineries also need to be fixed; Nigeria has refineries in Warri, Kaduna and Port Harcourt but has remained useless due to corruption. To be free from the constant fuel scarcity, Nigeria has to begin to produce and refine the petrol that it consumes.
Finally, NNPC needs to improve on the usage of its storage and distribution facilities to ensure quality delivery. Unfortunately, the integrity of personnel engaged in monitoring both storage and distribution are worrisome as they caved in to sharp practices easily.
Written by Mohammed Salaudeen.
Mohammed Salaudeen is an MSc and MPhil Economics graduate with a bias for writing. He is a Guest faculty at Lagos business school with over two decades experience in FMCG & Oil and Gas.