Why the federal government continues to pay petrol subsidy on a product that has become rarely available.
Nigeria may be spending not less than N4.27 trillion to keep its costly petrol subsidy scheme if the incoming president decides to jettison the removal of petrol subsidy by the end of June this year. As reeled out last week during a televised programme by the Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPC), Mallam Mele Kyari, of the total landing cost of petrol currently standing at N295 per litre, government pays N185 as subsidy. With all the spending in the name of subsidy, the questions begging for answers are: why then has petrol scarcity become a recurring decimal in Nigeria, defying all solutions. As Nigerians are now forced to pay through their noses to buy petrol at between N250 and N650 per litre, above even the N300landing cost, even under excruciating conditions, who then is subsidising who?
One Year Unresolved Scarcity
Since the scarcity that began in February 2022, due to the breakdown in supply and distribution which was triggered by the importation of adulterated petrol into the country by NNPC and its partners in the Direct Sale Direct Purchase (DSDP) deal, the nation has not recovered from that incident. Till date, petrol has been scarce at filling stations, leading to all sorts of arbitrage in the system. The N165 per per litre price of petrol suddenly ballooned to between N250 to N650 at different locations, no thanks to some marketers in the petrol marketing business who took advantage of the scarcity to impose suffering on the citizens. At every filling station in the country where petrol is available, especially the ones owned by NNPC and well organised depot owners, many motorists spend long hours on queues waiting for turn.
The situation has now opened a new window of business opportunities for fuel attendants who now hike prices as they suits them and opens and closes stations whenever they like. The black marketers are smiling to the banks as they make brisk business through buying petrol with containers and resell to desperate buyers at outrageous prices. Even the petrol tanker drivers are making a kill from diverting products meant for certain locations to other places, both in- country and neighbouring countries, where they sell far above the normal price, thus contributing to the shortages being lamented about.
NNPC’S Position
However, as part of the efforts to tackle the scarcity challenge, NNPC had disclosed penultimate Sunday in a graphic document that it had ramped up supplies to marketing companies that have depots, revealing that penultimate week beginning 28 January to3rd February, it had evacuated 450.92 million litres of petrol. The company disclosed that the average daily evacuation figure for the week stood at 63 million litres while year-to-date at the time, average daily evacuation for the week under review was 64 million. Kyari had said the country needed N4.27 trillion to meet its subsidy requirements, disclosing that the NNPC transfers products to oil marketing companies at N113 per litre to establish a market price of N170, for last year.
According to the GCEO, some adjustments “brought us to the reality of the cost of vessels and that adjustment took the NNPC to a different level in terms of logistics.” He stated that NNPC has been unwavering on the transfer price from the “landing location” to the marketing companies. “Yesterday’s (penultimate Monday), data is that this product will and in this country at N295 to the litre. That means you have to sell it at N113 to the marketing companies so that we will be able to maintain the current subsidy regime that we’re running,” Kyari said. “It means you have N185 per litre of subsidy on every product that comes into this country.
“Now, if you look at the average that we’ve done of 63 million litres January to date, and you convert it to 365 days, that means you need N4.27 trillion for you to meet the subsidy requirements for this country,” he added. With the NNPC as the country’s only importer of petroleum products, he said the law provides for N3.36 trillion for the January to June subsidy regime.
“That means technically, the Ministry of Finance is supposed to be giving us cheques against this subsidy value on a monthly basis,”Kyari stated. “But it’s not a real situation in the sense that we’re a company owned by the state today. We have fiscal obligations because, ultimately, whatever money NNPC makes is from fiscal obligations– taxes, royalties and margin. “Because we have not diluted the ownership of this company, all three belong to the state today. So, the only way NNPC can do this is to hold back the fiscal obligation, so that we can use that to buy the product and come and sell it to the market”, he said.
Cross Border Smuggling
Explaining how smuggling of Nigeria’s subsidised fuel has aided in worsening the shortages, Kyari said a fuel truck from Lagos delivering to a filling station in Maiduguri can earn a margin ofN270,000 as opposed to N40 million or N50 million when sold across the border to neighbouring countries. He added that the NNPC keeps track of every truck that has left every depot in the country, adding that fuel supply had increased from 63 million litres per day to over 70 million litres.“We have truck numbers, destination fuel stations, destination states. And we have published these by list of states – where those trucks go, the number of trucks that have left those [depots], etc. “When they leave the depots, where do they end up? That is what would have translated to national consumption,” he said.
According to him, it is practically impossible under an arbitrage environment and under a situation where neighbouring countries are helpless to say that there will be no cross-border movement of petroleum products. “That’s why we’re making it legitimate in the sense that NNPC is now buying fuel stations across our borders, so that we can deliver them legitimately. It is very simply impossible to stop this until we are able to solve this arbitrage issue. “So, definitely, what you’re dealing with is a logistic challenge, rather than anything else,” he said.
Govt’s Insincerity
While Nigerians are left to groan and suffer as a result of the problem that has now become a national energy and security challenge, the federal government doesn’t seem to be doing enough to address the challenge permanently. At best, the government has only succeeded in feeding the citizens with falsehood. For instance, when the news broke out in January that the federal government had increased the ex-depot price and pump price fromN148 to N172 and N165 to N185 per litre, respectively, the government denied endorsing any price increase. At the time, the Minister of State for Petroleum Resources, Chief Timipre Sylva had through his Senior Adviser on Media, Mr. Horatius Egua, said President Muhammadu Buhari did not endorse any hike in the prices of petroleum products, contrary to the rumours that fuelled the latest scarcity and the resultant long queues at filling stations across the country.
“President Muhammadu Buhari has not approved any increase in the price of Premium Motor Spirit (PMS) or any other petroleum product for that matter. There is no reason for President Muhammadu Buhari to renege on his earlier promise not to approve any increase in the price of PMS at this time. “Mr. President is sensitive to the plight of the ordinary Nigerian and has said repeatedly that he understands the challenges of the ordinary Nigerian and would not want to cause untold hardship for the electorate.
“Government will not approve any increase of PMS secretly without due consultations with the relevant stakeholders. The President has not directed the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) or any agency for that matter to increase the price of fuel. “This is not the time for any price increase in pump price of PMS. What is playing out is the handiwork of mischief makers and those planning to discredit the achievements of Mr. President in the oil and gas sector of the economy. I appeal to Nigerians to remain calm and law abiding as the government is working hard to bring normalcy to fuel supply and distribution in the country,” Sylva had said.
But in contradiction to his earlier denial that government had not approved any increase in fuel price, Sylva told journalists in Lagos last Friday after his inspection tour of some filling stations in the state, that the actual pump price of petrol remained N184 as obtained in all NNPC stations, adding that whatever price NNPC is selling is the current pump price. “Today, I went to NNPC filling stations and they are selling at N184 and that’s what all NNPC stations are selling. So, that is the price and all NNPC stations, 900 of them are selling at that price. But of course, you have all these sharp practices in the system and we’re trying to see how we can address them”, Sylva stated. Whatever it is, what Nigerians really want is that government should make fuel available to them and prevent the halt the prolonged scarcity that has had devastating impact on their lives and livelihood.
