No end in sight to fuel scarcity

THAT Nigeria, the number one crude oil producer in Africa and second largest in reserves, is unable to meet its local en­ergy needs remains a national embarrassment.
With a daily production of about two million barrels of crude oil and a national con­sumption of 45 million litres of Premium Motor Spirit (PMS) otherwise called petrol, accord­ing to data from the Nigerian National Petroleum Corpora­tion (NNPC), Nigeria, stake­holders insist, has no business importing refined petroleum products.
In the last 10 years, the country has been battling the menace of petroleum products scarcity, going back and forth on policies to resolve the prob­lem with no solution in sight. But current fuel scarcity can be said to be the worst in the his­tory of Nigeria having been on for over two months with the citizens bearing the brunt in virtually all areas.
Unfortunately, all strategies put in place by government to end the current fuel scarcity ap­pear not to be yielding results as most of the initiatives outlined by NNPC are for the longer term.
Why fuel scarcity may not abate
When the Minister of Petro­leum Resources, Mr. Ibe Ka­chikwu, gave April 7 deadline for fuel queues to disappear, Ni­gerians heaved a sigh of relief, believing that their sufferings ultimately have a terminal date. Little did they know that the as­surances would not materialise. Today, the queues are still there with motorists spending long hours at filling stations.
When Daily Sun exclu­sively reported in December 2015 that fuel scarcity will linger till February 2016, many dismissed it as un­likely for a country that produces about two million bpd. Today, the scarcity has lasted longer than the Febru­ary date predicted with no solution in sight.
Former Managing Di­rector of Kaduna and Port Harcourt refineries, Mr. Anthony Ogedengbe, is one of the experts who be­lieved that the scarcity may not be stopped totally with the ongoing measures. He insisted that the queues will still return after a while, if the government does not put real measures in place to permanently nip the scarcity in the bud.
“The queues will come back if we continue the way we are doing things,” he said, adding that the “stakes in the refineries should be given to companies with competence and funds.”
Ogedengbe said this does not mean that the government will sell them out-rightly “but competent companies, which will be in charge will make sure that those facilities are not only profitable but also perform at maximum capacity for the benefit of Nigerians.”
Inefficient refineries
Nigeria has three refin­eries; Port Harcourt Re­finery: 210,00bpd; Warri: 125,000bpd and Kaduna: 110,000bpd. This brings the total installed capacity of the three refineries to 445,000 barrels of crude oil per day. Even at optimal capacity, the refineries cannot meet the 45 million litres daily consump­tion demand of the country.
The domestic crude oil supply of 445,000bpd can only guarantee about 50 per cent of the 45 million litres’ national requirement for petrol. But due to poor maintenance, vandalism and corruption in the running of the refineries, the capacity of the refineries to run optimal­ly began to nosedive until it attained zero production ca­pacity, forcing NNPC to im­port 100 per cent of national demand.
The last time a compre­hensive Turn Around Main­tenance (TAM) was con­ducted on the three refineries was in 1992.
However, shortly after assumption of office, the Minister of State for Petro­leum Resources, Mr. Ibe Kachikwu, gave the refiner­ies a deadline of December to begin full production. Unfortunately, none of them met the deadline.
Forex scarcity
The withdrawal of mem­bers of the Major Oil Mar­keters Association (MO­MAN) from importation of petroleum products has fur­ther dealt a debilitating blow on the product supply chain.
Prior to now, MOMAN members accounted for 48 per cent of petroleum prod­ucts imports into the country but their inability to access forex led to their gradual withdrawal.
Not even the several promises by the Central Bank of Nigeria (CBN) to fast track the application process of MOMAN mem­bers was achieved as several Letters of Credit (LCs) have been opened with no forex to support the request.
Speaking on the develop­ment, Chairman, Depot and Petroleum Products Market­ers Association (DAPPMA), Mr. Dapo Abiodun, said in a recent interview that: “But while we wait, the CBN must make available for­eign exchange to marketers because there is no forex to pay our creditors and we have been crying out loud on this for months but it has fallen on deaf ears. There are members who are will­ing to fund the import with their money, but where is the dollar equivalent for it? And even if we source the dollar from somewhere, the addi­tional costs will be factored into the subsidy claims.”
Reasons for shortfall in supply
A major reason the coun­try is in this mess can be traced to poor handling of the allocation formula by the Petroleum Products Pricing Regulatory Agency (PPPRA) in quarter one of 2016 when it suddenly jerk­ed up the import allocation formula in favour of NNPC to 78 per cent and MOMAN members 22 per cent not taking into consideration that the NNPC lacks the lo­gistics and funding to cater for 78 per cent. The other reason remained the huge debt profile arising from out­standing debts on subsidy.
Again, on the eve of the first quarter, crude oil swaps were cancelled and replaced with Direct Sales of 445,000 barrels daily domestic crude allocation and Direct Pur­chase (import) of petrol. In the midst of the unremitting petrol scarcity, the Minis­ter of State for Petroleum Resources said, “the main critical reason you have this supply gap today is that al­though NNPC has its own 445,000 barrels allocation of crude (which is being exceeded), the individuals who should provide the bal­ance of 40 per cent are not bringing in any product… We (NNPC) didn’t have the capacity, we didn’t have the funding, we didn’t have ac­cess to the product and we didn’t have the foreign ex­change.”
Nigerian people de­serve cogent explanations. Did PPPRA not know that NNPC lacks the capacity to execute 78 per cent of the petrol import allocation in a full quarter? But being aware of its own incapacity, why did NNPC accept the volume of imports allocated to it?
Steps taken by NNPC to address the challenges
A huge chunk of the leg­acy subsidy debts arising from the infamous subsidy
regime was paid off. And to avoid a repeat accumulation of untenable debt overhang from subsidy, the price modulation regime was activated effective January 2016. The price modulation also allows for effective adjustment of the PPPRA template in such a way as to eliminate waste – resulting to savings of over N100 billion monthly for the nation.
Also, supply constraints due to foreign exchange challenges are being resolved through collaboration
with the Central Bank of Nigeria (CBN) on innovative ways of closing the gaps in accessing foreign exchange.
Similarly, major international upstream oil companies have indicated their willingness to support major
oil marketing companies with some of the required foreign exchange.
‘‘We are vigorously pursuing an improved model for ‘crude oil for refined product’ exchange (the Direct
Sale – Direct Purchase arrangement), which eliminates inefficiencies with an attendant cost saving for the
nation of about $1 billion. This will guarantee sustainable product supply to the nation.”