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Fuel pricing: Kachikwu’s desperate options – Henry Boyo

Thankfully, fuel stations have gradually reopened for ‘normal’ business, while the severe social agony and angst instigated by the recent acute scarcity, has significantly eased with the reported improvement in NNPC’s fuel stock.

Nevertheless, Nigerians may not sleep with both eyes closed, as another scarcity, may just be round the corner. Indeed, on January 4th 2018, the Minister for State for Petroleum, Ibe Kachikwu, readily admitted, to a joint NASS Committee, that NNPC does not have the capacity to comprehensively supply 100% of Nigeria’s fuel requirement, which is currently estimated at between 30-40 million litre daily.

Minister of State for Petroleum, Ibe Kachikwu

The Minister obviously dashed hopes that, the billions of Naira repeatedly spent to revamp the existing refineries between 2015-2016, would have atleast produced a modest steady output to supplement imported fuel.

Nonetheless, while briefing the NASS joint committee on Petroleum Resources, on 4th January 2018, the Minister also suggested that “non performance of refineries” was due to factors, which include fraud and a lack of holistic maintenance programme. Regrettably, however, the Minister did not report what steps were taken to punish the perpetrators of fraud or to indeed, arrest the degree of fraud in these public refineries, which have clearly gulped more money on basic ‘Turn Around Maintenance’ than is probably required to build more efficient new facilities.

According to Kachikwu, “it got to a point where I started wondering whether as we repair this, somebody was going out there to destroy, so that contracting can be done”. Surprisingly, however, despite media reports of billions of dollars spent, the Minister noted that “over the last 10-15 years, we have not done a serious, conclusive Turn Around Maintenance of these refineries”.

In retrospect, Kachikwu had, infact, told reporters in Abuja on 15th December 2015, that “fuel price would no longer be fixed” and also noted that “the price of crude would continue to determine what petrol price will be”. It is instructive that Kachikwu’s statement on fuel price ‘deregulation’, was made at a time when crude oil price, was expected to remain below $40/barrel going forward. Invariably, the December 2017 extremely volatile, fuel scarcity “season”, blew apart earlier permutations and assurances of a stable and sustainable fuel price.

Ironically, however, instead of celebrating more dollar income from much higher crude oil prices above $60/barrel (especially when budget 2017 benchmark is a modest $44.5/barrel), the reverse is actually the case, as higher crude prices have invariably, induced a landed cost (not pump selling price) of N171/litre, while N145/litre remains regulated selling price. Sadly, subsidy payments, which Kachikwu described as an “issue of irresponsibility”, in December 2015, has probably now sadly returned big time.

However, the Minister confirmed to the Joint Committee of the National Assembly, on 4th January 2018, that the acute fuel scarcity of December 2017, was primarily the result of major factors, such as “diversion of products, low speed of clearing of petrol imports from the ports and a lack of sufficient reserves”. Kachikwu further revealed that the disparity between the present landing cost of N171/litre and the current regulated price of N145/litre, has resulted in a daily loss of N800-900m to the NNPC. Consequently, according to Kachikwu, the Executive arm of Government “is currently working on modalities to permanently resolve the petrol crisis, and prevent it from rearing its head any other time”.

Towards, this end, the minister confirmed that government has lately set up a committee “to find ways out of the pricing problem, until the refineries become functional in 18 months time”. Well, it is arguable that if a sustainable fuel pricing strategy remained elusive after almost 36 months of this Administration, it may seem simplistic and over optimistic to hold our breath, that a workable solution will be found, before the ‘expiry date of the present Administration, next year. The clearly embattled minister also confirmed that, government’s committee on fuel price has actually met few times recently; going forward, however, the committee will apparently focus on three strategies that may provide a sustainable solution to the fuel price dilemma.

The first option, according to the minister is “for the CBN to allow all marketers access to forex at the rate of N204/$1, as against the official rate of N305, so that petrol pump price can remain unchanged at N145/litre”.

The observation of this writer is that this option has not really been well thought through. Surely, this is introducing a bigger time subsidy, not only through the back door, but this time, with an increase in subsidy to over N100/litre on each dollar sold to marketers, in contrast to the controversial oppressive present subsidy estimate of about N26/litre, on the N145/litre current pump price.

Instructively, however, a casual investigation will reveal that petrol pump price presently hovers around $1/litre in neighboring ECOWAS countries, and this large price disparity will obviously encourage mass cross border smuggling and provide additional subsidy to the economy of our ECOWAS neighbors, despite the burden of higher fiscal deficits for Nigeria.

The second option that Kachikwus’ committee’s would consider is “to give room for modulated regulation, where petrol would sell at N145/litre in all NNPC outlets nationwide, while Independent marketers could sell their imports at whatever price is profitable from their own outlets”.

Again, this option is also a no brainer; it is clearly a deliberate ploy for NNPC to gradually reduce its participation in fuel imports, so that, ultimately, private marketers can sell at much higher profitable prices without any subsidy; inevitably, however, much higher fuel prices will sustain higher inflation rates to deepen poverty nationwide. Again, this option is ultimately a camouflage, for full price deregulation and its will invariably pump up fuel price nearer $1/litre(or N305/litre). Ultimately, inflation will invariably spiral out of control if fuel price approached N300/litre or more.

The third option in Kachikwu’s offensive is the adoption of a blanket subsidy for all importers; in reality, this option is another way of keeping the existing abrasive pricing model intact, so there’s really no new benefit in this option, except rapidly bloated subsidy values and higher fiscal deficits, indeed by higher subsidy values.

Ultimately, Kachikwu and NNPC’s hope for sustainable fuel price, appears to be squarely placed on the completion of Dangote’s 650,000 barrel/day Lekki refinery.

Instructively, however, Dangote has never hidden the fact that fuel from their mega refinery would be sold in dollars, as is currently the case with fuel imported for domestic consumption from elsewhere. Consequently, 18 months from now, rather than the promised respite by Kachikwu, the pain and agony from inevitable intermittent scarcity and very bloated subsidy values with rising fiscal deficits will remain Nigeria’s albatross.


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