Long fuel queues amid IMF’s call for subsidy removal

Long queues have resurfaced at filling stations raising fears of fuel scarcity. The Nigerian National Petroleum Corporation (NNPC) has since allayed such fears. Although there was improvement in supply yesterday, many outlets remain shut in anticipation of shortage. Assistant Editor EMEKA UGWUANYI examines the cause of this development.

It all started with the speculation that there was shortage of fuel imports. Eventually, three days ago, many retail outlets were shut. The few that were selling had very long queues as motorists waited patiently to fill their vehicles tanks and buy some in kegs to keep as reserves and for domestic use, in expectation, the fuel scarcity will escalate.  Many of the filling stations that claimed not to have the product, it was later discovered, were only hoarding to sell at a higher price or to those that hawk fuel in gallons by the roadside, should the scarcity worsens. However, the stakeholders in the downstream especially the fuel marketing firms under the aegis of Major Oil Marketers Association of Nigeria (MOMAN), Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN) and Independent Petroleum Marketers Association of Nigeria (IPMAN) in collaboration with the Nigerian National Petroleum Corporation (NNPC) and the Department of Petroleum Resources (DPR) were able to bring the situation under control.

Cause of the current scarcity

The NNPC has been the sole importer of premium motor spirit (PMS) or petrol in the past few years as players in the downstream couldn’t import and sell at the regulated price pump price of N145 per litre. The NNPC as a state-owned organisation pays the shortfall that arises from subsidizing the product from the Federal Government coffers under the term “under-recovery cost.” Under-recovery, according to the NNPC, is the amount of subsidy the Corporation gains on behalf of the government for the importation and supply of petroleum products at a landing cost above the official retail pump price of N145 per litre of petrol. To industry analysts, there is no difference between under-recovery and subsidy. But because the Federal Government had said it has stopped payment of fuel subsidy but refused to deregulate the price of petrol, the NNPC adopted the under-recovery approach to be able to access public fund, which the private sector oil marketers cannot. Therefore, whenever there is a slight delay in NNPC’s fuel imports, it reverberates and the impact is fuel scarcity and that is what happened in this scenario.

As Nigeria is almost 100 per cent dependent on imported petrol for national consumption, issues arising from delays in the arrival of ships carrying fuel to some cargoes being off-specification. In the case of the consignment being off-spec, it is either the industry regulator, turns the vessel back to the place of import or the product would be blended to specification before being pushed out to the public for consumption. These issues occur often but because they are promptly resolved, the consuming public doesn’t get to know or feel it.

According to the Executive Secretary, Major Oil Marketers Association of Nigeria (MOMAN) Mr Clement Isong, who told The Nation early enough on Friday that the scarcity that existed wouldn’t last beyond the weekend, said their members had enough stock. He said there was no scarcity and advised fuel consumers not to engage in panic-buying as what led to the gap in fuel supply and distribution, which resulted in the queues at fuel stations, was a minor operational problem. The problem, according to him, has been addressed and depots are loading 24 hours and whatever supply gap will be closed within the weekend. Companies that makeup MOMAN include Total Nigeria Plc, Conoil Plc, Oando Plc, 11Plc (formerly Mobil Oil Nigeria Plc), MRS Oil Nigeria Plc and Forte Oil Plc.

Isong said: “All MOMAN members’ tanks have the product (petrol). There is no supply shortage. What caused the queue is a minor operational hitch. Whenever there is such technical issue and it takes up to 12 hours to resolve, it upsets supply and distribution chains and that is what happened in this scenario because it created backlogs of loadings that could have been done much earlier. However, the problem has been resolved. I advise the public not to embark on panic-buying as there is enough fuel. The gap in supply created by the technical problem will be closed within the weekend as our members are loading 24 hours through the weekend.”

An official of one of the depots owned by the Independent Petroleum Marketers Association of Nigeria (IPMAN) who didn’t want his identity disclosed said the problem was a slight scarcity. According to him, during the election period, the Nigerian National Petroleum Corporation (NNPC) didn’t make enough fuel imports. As a result of that shortage in import, there wasn’t enough fuel to go round and the NNPC has ever since been rationing what it has in stock. He said for instance, “If 10 depots supposed to get supply from NNPC and only five depots were able to get at the end of the day, certainly there must be a gap and that is the reason you see queues at the filling stations. We have marketers that have paid for fuel in our depot in the past two to three weeks and they are yet to be loaded because of inadequate fuel but I believe that supply shortfall will be addressed soon. It is not something so serious, I assume it was a costly responsibility oversight on the part of the NNPC.

The National President of IPMAN, Chief Chinedu Okoronkwo, also confirmed the fuel scarcity was created by rumours. He said: “There was no need for panicking over fuel scarcity as virtually all the NNPC depots across the federation had fuel and were loading product to marketers. Marketers are currently loading petrol in Makurdi, Kano, Enugu, Aba, Yola, Suleja, Kaduna, Ejigbo, Mosinmi, Ibadan and other depots across the country. The shortfall in distribution was due to the slow pace of product importation and hitches at the jetty, which had been addressed. But the Federal Government is on top of the situation, there is enough petrol to go round. I have also instructed all our members to ensure adequate distribution of the product across the country.

“I have also directed them to ensure the product is sold at the official price of N145 per litre. If there are any issues on distribution and pricing differentials, members should call the secretariat for further action. The Petroleum Products Pricing Regulatory Agency’s (PPPRA) template has not changed, so no marketer should influence hike or sell above official price.”

Okoronkwo restated IPMAN’s commitment to supporting the Federal Government’s efforts on effective and efficient distribution of petroleum products across the country, adding that the Association had reached an agreement with other marketers for better synergy in making the product available in the country. “IPMAN which controls 80 per cent outlets has more advantage in distributing and dispensing in both urban and hinterlands in the country. In line with the Federal Government’s efforts at ensuring efficient petroleum products distributed across the country, IPMAN members have opted for seamless distribution of petroleum products,” he said.

The Executive Secretary, Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN,) said that NNPC distribution pricing had been a major issue for depot owners, adding that for now, no members had product in his facilities. Adewole said the price at which NNPC gives their members product and other charges make it extremely difficult for them to sell at regulated depot price. “It’s not profitable because we are getting it between N139 and N140 per litre with other additional charges, therefore, at what price do we sell it?

“NNPC has the product but with the price the corporation gives us in addition to other costs incurred such as the cost of hiring a vessel, it will be on the high side and we have informed them (NNPC) but nothing was done. We asked them to give us credit facilities as it does to MOMAN but they refused. The differences in pricing have been the issues.

“We have advised them to give us credit facilities and remove the finance cost as it is done to MOMAN.  They (NNPC) should remove the freight cost but they have not done that. So, for now, DAPPMAN members don’t have products,” he said.

The Nigerian National Petroleum Corporation debunked the rumours of the impending scarcity early enough. The spokesman of NNPC, Ndu Ughamadu, disowned rumours of alleged refusal of some oil marketers to lift products from the depots, which would result in fuel scarcity.

Ughamadu said the NNPC had over one billion litres of fuel in stock. “NNPC has once again appealed to Nigerians to disregard trending social media report of an impending fuel scarcity due to the purported refusal by some oil marketers to lift products from depots. He explained that the tale was fabricated by mischief makers with intent to create undue panic in the prevailing sanity in the fuel supply and distribution matrix across the country. NNPC has over one billion litres of petrol in stock while imports of 48 vessels of 50million litres each have been committed for April 2019 alone, he said, adding that there was no need for panic buying or hoarding of petroleum products in anticipation of a phantom scarcity.

Impact of NNPC import monopoly and Nigeria’s dependence on imported fuel

The monopoly of fuel importation by the NNPC alone and the dependence on imported fuel have had are having a grave impact on the economy, for example, the fuel scarcity that occurs occasionally and the huge national revenue spent on fuel imports and subsidy or under-recovery. The NNPC should select some reliable and efficient oil marketing companies to import and also extend the under-recovery arrangement to them. That will significantly improve fuel supply and distribution and guard against undue and unexpected fuel scarcity while the Federal Government continues to plan full removal of subsidy in any form to free funds for development of other sectors of the economy and infrastructure.

Also, the Nigeria Bureau of Statistics said the Federal Government spent a whopping sum N2.95trillion last year (2018) on fuel importation, which analysts said is more than the budget allocations of three ministries the same year, while over N700 billion was spent last year on fuel subsidy.

To the Lagos Chamber of Commerce and Industry (LCCI), the monopoly of the downstream oil sector by the Nigerian National Petroleum Corporation is worrisome. According to the group, the development has stifled the growth of the subsector, noting that Corporation, currently, solely produces and imports the entire petrol that runs the engine of the Nigerian economy.  LCCI’s Director-General, Mr Muda Yusuf, said it is practically impossible for marketers in the private sector to import because of the price distortions which the involvement of the state oil firm has created in the industry. To him, the extant policy on petrol pricing has made it impossible for private sector participants to get involved in neither fuel importation nor local refining by way of setting up refineries in the country.

According to the World Bank report, Nigeria spent N731 billion to subsidise petrol consumption in 2018. Also, the Managing Director of the International Monetary Fund (IMF), Christine Lagarde, said Nigeria and other countries across have spent $5.2 trillion on fuel subsidy since 2015. Lagarde who addressed the press at the ongoing spring meetings of the International Monetary Fund and World Bank Group, in the United States, said such money could have been spent on health and education. She advised Nigeria and other countries to stop fuel subsidy. She said:  “We believe that removing fuel subsidies is the right way to go. If you look at our numbers from 2015, it is no less than about $5.2 trillion that is spent on fuel subsidies and the consequences thereof. And the fiscal affairs department has actually identified, how much would have been saved fiscally but also in terms of human life if there had been the right price on carbon emission as of 2015. Numbers are quite staggering.

“If that was to happen, there would be more public spending available to build hospitals, to build roads, to build schools, and to support education and health for the people.”

The IMF boss advised that a social protection safety net is put in place for when fuel subsidy would be removed. “There has to be a social protection safety net that is in place so that the most exposed in the population do not take the brunt of the removal of subsidies principle. So that is the position we take.

“As far as Nigeria is concerned, with the low revenue mobilization that exists in the country in terms of tax to GDP, Nigeria is amongst the lowest. “A real effort has to be done in order to maintain a good public finance situation for the country and in order to direct investment towards health, education, and infrastructure.”

Way forward

Total deregulation is way forward for an effective downstream subsector, operators have said. Players in the industry including MOMAN, DAPPMAN and IPMAN members as well as the organised private sector including the LCCI, Manufacturers Association of Nigeria (MAN) and NACCIMA, among others, have been calling for full deregulation of the downstream over the years. The recent calls by the World Bank and IMF underscore the importance of complete removal of fuel subsidy.

The Minister of Finance, Mrs Zainab Ahmed, on the sideline of the IMF/World Bank meeting taking place in Washington DC, United States, assured participants that the Federal Government will look into gradual removal of fuel subsidy as part of the strategy to boost revenue. She was reacting to the IMF’s advice to Nigeria and other countries that still subsidise fossil fuel to stop doing so.

Corroborating calls by other industry players for complete removal of subsidy, the Group Managing Director, NNPC, Dr Maikanti Baru, said last year said that the multiplication of filling stations had energised unprecedented cross-border smuggling of petrol to neighbouring countries, making it difficult to sanitise the fuel supply and distribution matrix in Nigeria. He explained that because of the obvious differential in petrol price between Nigeria and other neighbouring countries, it had become lucrative for the smugglers to use the frontier stations as a veritable conduit for the smuggling of products across the border.

He stated that this had resulted in a thriving market for Nigerian petrol in Niger Republic, Benin Republic, Cameroon, Chad and Togo as well as Ghana, which has no direct borders with Nigeria.

Corroborating calls by other industry players for removal of subsidy,  “The NNPC is concerned that continued cross-border smuggling of petrol will deny Nigerians the benefit of the Federal Government’s benevolence of keeping a fix retail price of N145 per litre despite the increase in PMS open market price above N171 per litre,” he added

However, the leadership of the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) and the Petroleum and Natural Gas Senior Staff Association (PENGASSAN)  expressed worry that the removal of subsidy now will have untold impact on the poor. Minister of Finance Zaynab Ahmed has, however, said there was no plan to remove subsidy.