January 21, 2018

Petrol subsidy may hit N449billion –  Investigation

Petrol subsidy may hit N449billion  –  Investigation

Kachikwu, Buhari and Baru

By Ediri Ejoh

Unless Nigeria’s refining output rises significantly or the price of crude oil in the international market drops to an average of $40 per barrel or the Naira appreciates against major international currencies, Nigeria may spend about N448.8 billion subsidising Premium Motor Spirit, PMS, otherwise known as petrol, in 2018.

Kachikwu, Buhari and Baru

At the current landing cost of N171.40 per litre and the differential of N26.40 per litre, borne by the Nigerian National Petroleum Corporation, NNPC, the country will be subsidizing the product at N1.2 billion daily based on the average consumption of 45 million litres per day.

According to multinational accounting and management firm, PricewaterhouseCoopers (PwC), Nigeria consumes over 17 billion litres of petrol annually.

Another report from the Department of Petroleum Resources, DPR, said about 18.126 billion litres of petrol, amounting to 13.517 million metric tonnes of the product, was imported into the country in 2015.

Meanwhile, with the growing need to stay afloat in business as well as ensuring minimum comfort in the homes amid the country’s epileptic power supply, the use of petrol to power generators has continued to fuel the daily consumption of the product.

The latest report from the National Bureau of Statistics (NBS) put Nigeria’s total value of imported petrol for 2016 at 18.8 billion litres.

The Federal Government had debunked the claims of subsidy on petrol while also denying the subsidy in the 2018 budget as presented to the National Assembly by President Muhammadu Buhari. However, the position on subsidy claims remains unclear as the NNPC plays its roles as a government parastatal.

Petrol price hike

The debate as to selling petrol at government pegged price of N145 per litre appears to have become more political than economic. Otherwise, analysts query the sense in government’s insistence on controlling the price of the product when the reality on ground shows that many Nigerians, especially those outside the cities across the country, are buying at higher prices?

Over the last few weeks, the debate has been how to avoid the fuel crisis which engulfed the nation during the yuletide and New Year celebrations. The Federal Government, through the Ministry of Petroleum Resources, NNPC, the Department of Petroleum Resources (DPR), among others, has continued to engage stakeholders in the industry on how to proffer solution to the lingering problem.

Initially, rather than face the reality of what led to the crisis, the government agencies and other industry stakeholders engaged in a war of words as to the cause of the queues which emerged at filling stations in major cities like Abuja and Lagos.

For instance, on Wednesday, December 20, 2017, the National President, National Association of Road Transport Owners (NARTO), Alhaji Kassim Ibrahim Bataiya, and the National Chairman, Petroleum Tanker Drivers (PTD), Comrade Salimon Oladiti, blamed the situation on what they called the activities of some unpatriotic citizens who were involved in the smuggling of the product out of the country.

The duo, who spoke during a stakeholders’ meeting on the challenges of products supply and distribution, led by the Chairman, House of Representatives Committee on Petroleum Resources Downstream, Honourable Joseph Akinlaja, submitted that such activities were responsible for the hardship experienced nationwide at that time.


On their part, the Depot and Petroleum Products Marketers Association (DAPPMA), the Major Marketers Association of Nigeria (MOMAN) and Independent Petroleum Marketers Association of Nigeria (IPMAN) came up with multiple allegations as to why the crisis persists.

They include that that the hiccups in the supply of products were due to the inability of the Direct Sale Direct Purchase (DSDP) partners of NNPC to deliver on their business obligations, even as their members claimed they made advance payment for products to the Petroleum Products Marketing Company (PPMC), a subsidiary of NNPC, which they alleged were not supplied, boiling down to the claim that their members were unable to get products at approved ex-depot price of N133.28/litre. All the allegations were refuted by the NNPC.

But while the debate was going on, the Group Managing Director of the NNPC, Dr. Maikanti Baru, disclosed that the landing cost of petrol had increased to N171.40 per litre due to the rising cost of crude oil in the international market but insisted that the official selling price of the commodity remained N145 per litre.

Following Baru’s disclosure, it became obvious that the real challenge was not just the availability of the petrol but the pricing. Unfortunately, since government insists on selling at the control price of N145 per litre, private sector operators have left the importation of petrol to the NNPC which is footing the extra charge of N26.40 per litre.

Worse still, the tank farms and other facilities used in the storage and transportation of products are outside of the control of the NNPC, thus necessitating the need to reach an agreement with the private sector operators as to how to deal with the issues at stake.

Consequently, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, held series of meetings with stakeholders last week, the outcome of which remains secret.

The bold question

But the real question is, in whose interest is it to sell petrol at N145 per litre when the landing cost is N171.40? How much is the product actually sold in the hinterland of the country?

Investigation from across the country showed that petrol now sells far above N200 per litre in most of the hinterland thus making the control price of N145 per litre to exist only in cities where politicians and elites live.

Speaking on how the issue can be solved, Eze Onyekwere, Executive Director, Centre for Social Justice, said only openness and truth will save government from the backlash of its inefficiency.

“It is imperative to state that Nigerians, especially in the South East where I spent my holiday, are already paying above the official price of N145 per litre,” he said.

Speaking of the varied pricing of the product, he said, “Throughout the holiday, petrol was dispensed officially and without challenge at the petrol stations (not black market) at between N220 and N250 per litre. Maybe the return to N145 per litre is only for Abuja and Lagos”.

Similarly, James Ogodo, a Port Harcourt based businessman, lamented that the product sells for over N200 per litre in parts of the state. “The situation is not different from what obtained in other parts of the country, thus raising the question of who truly benefits from the fixed price of petrol”, he said.

The real deal

Meanwhile, as rightly noted by some stakeholders in the industry, the possibility of petroleum marketers importing products to sell at a discount while the government appears not ready to pay for the balance will leave NNPC as the sole importer of petrol.

Unfortunately, the negotiation with marketers, designed to convince them to import the product and sell at official price, is heading nowhere as the gap of N26.40 per litre outweighs the incentives government is offering. Besides, the marketers are in business to make profit.

One cannot but agree with the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) submission that only the rehabilitation of the nation’s refineries can end the recurring scarcity of petrol in the country.

Tayo Aboyeji, the South-West Chairman of the union, who made the disclosure in Lagos recently, expressed displeasure at the inability of the NNPC to resuscitate the refineries after billions of Naira had been spent on turnaround maintenance.

“It is disheartening to know that despite the fact that the nation is a major producer of crude oil, it cannot refine the product for its local consumption”, he lamented.

“It is ridiculous that for the past 15 years now, the Nigerian National Petroleum Corporation (NNPC) had been spending billions of dollars on Turn Around Maintenance (TAM) of the refineries with nothing to show for it.

“If all our four refineries are producing at their maximum output, the country will not be spending billions of naira on the importation of the refined product.

“This is the right time for our refineries to work. The Federal Government should, as a matter of urgency, fix the refineries now.”

The Chairman urged the NNPC to increase the supply of petrol to depots in order to ease the scarcity nationwide.

Although, Aboyeji is of the view that it is not time for total deregulation of the sector, the market is already operating under circumstances that show that it is the way out.

Speaking on petrol stations selling above the official pump price, Aboyeji urged the DPR to investigate properly before sealing such stations.

“To me, it is not all about the pump price; it is about where they are getting the product and how much they are getting it”, he said.

“Are these private depots selling above the ex-depot price of N133.28?

“Since DPR started the sealing of petrol stations that are selling above official pump price, we have not seen them asking questions in private depots how much they are selling to marketers.

“Oil marketers are in business to make money; they cannot get petrol at higher price and sell at lower price.

“It is the responsibility of the DPR to find out where the marketers are getting the product before sealing the stations.”