Scarcity Of Forex Presents Another Reason For Fuel Queues

As Inflation Puts Pressure on Aviation Sector
FUEL scarcity has been around since November and the end appears not to be in sight. Initially, it was attributed to subsidy arrears not paid to fuel importers. But the government just approved the release of the arrears including paying them in advance, up to the end of the year.

It is not clear yet if the importers have received alert from their banks to indicate payment, but while waiting for that to happen, the importers revealed their next challenge, saying the scarcity of foreign exchange may prove another obstacle to importation of the essential commodity, even when they receive the subsidy payment.

According to them, the inability to access forex at the official market might hinder the fulfillment of their promise of an ‘oily Christmas.’

Fuel importers are not alone in this challenge orchestrated by scarcity of the Dollar in the Nigerian foreign exchange market. Manufacturers and aviation operators are also groaning.

While manufacturers said the scarcity has pushed up their production cost to worsen inflation in the country, those in the aviation sector said it has made maintenance of aircraft-extremely expensive and difficult because aircraft maintenance is done outside the country and in Dollar.

Feelers from the oil and gas sector indicated that, fuel scarcity might linger, despite approval for the release of N407.7b subsidy debt to importers.

Findings showed that payment of subsidy debt alone is not enough to end the crisis, as the marketers are now having the challenge of sourcing foreign exchange to import the product.

A marketer, who spoke to The Guardian said apart from delay in releasing subsidy arrears by the Federal Government, another major challenge, remained the falling value of the Naira and the Central Bank’s policy on Foreign Exchange.

“Even if we get the money today, the country will continue to deal with the issue of fuel scarcity and long queues because of the forex policy. Many of us cannot source foreign exchange for our transaction. International transaction is done in Dollar, and the Dollar is not available anywhere now, not even at the Bureau de change. So if we cannot source the Dollar, how do you think we can buy petrol to sell here at home. It is impossible. Government will have to do something about our existing refineries, open up the market for new refineries so that we can refine for local use and even for export.”

He said the situation has promoted hoarding and sale of the commodity above government regulated pump prices, which has attracted government attention and reaction.

The government has suspended import permit of no fewer than five oil companies, with warning for others to desist from hoarding and diversion of PMS, among other practices.

The Chairman of Independent Marketers Association of Nigeria (IPMAN), Mr. Chinedu Nebo said scarcity of forex is affecting operations in all sectors of the economy, not oil and gas sector alone.

According to him the country would continue to suffer perennial fuel shortage until moves are made to refine the crude locally.

“ The scarcity is not insulating anybody. Every genuine businessman suffers from scarcity of forex. It is not available for fuel importers that we are buying fuel from as independent marketers and that is why we are calling for total deregulation. The government has tried over the years to subsidise fuel importation. But if you stop this subsidy, money can now be channeled to other things.

“We have the crude here and once we begin to refine it here and you remove subsidy, the market will be opened up to attract more refineries. The only way we can make meaning of the economy is to open the market for local refinery.

“The implication of the inability to open the market is what we are seeing now. There is no product. This is the best time to refine crude locally, now that a barrel is being sold at $36. We must be very sincere with ourselves. Remove subsidy and build refineries for energy to be channeled to other areas. If we do that, I see a prosperous Nigeria again. If we are able to do that, at the end of the day, the pump price locally can be as low as N50 per litre.

“Nigerians should not panic at any plan to remove subsidy. Before GSM came, it was NITEL alone and there were lots of fraud and you cannot get a telephone line in six months, even if you apply. But GSM came and people paid as much as N30,000 to get a SIM card. But today, a SIM card is almost given free of charge. That is how it will be by the time we deregulate the oil sector and the market opened for emergence of local refineries and competition.

“I know that NIPCO will bring in fuel before Christmas. A lot of them will bring in fuel. Some people have foreign exchange window, which they are using. We at IPMAN don’t import fuel; we buy from the importers. But it is time to solve the problem of fuel importation once and for all.”

The President of Manufacturers Association, DR Frank Udemba Jacobs said the scarcity of foreign exchange is biting hard on manufacturers, adding that the end product of it will be inflation that would worsen the already poor standard of living amongst Nigerians.

“That there is scarcity of foreign exchange (forex) in the country is no longer news. This has unfortunately, affected businesses generally, including importation of fuel. In the real sense, Nigeria should not have relied on fuel importation to meet the fuel requirement of the nation, given the number of refineries we have in this country. Unfortunately, we allowed these refineries to lay waste, perhaps because of corruption in the system or lethargy. Why do we have to export crude oil without adding value only to import refined products? Why are the existing refineries not functioning optimally? Why has the downstream petroleum sector not been privatised, if the Government cannot manage it efficiently? Some years back, many refining companies applied for licenses; what happened to those applications or why did those companies that were granted licenses not start operation? Why should the government subsidise fuel imports when some of the claims are ambiguous.

The money could have been channeled to streamlining the refining capacities of existing refineries or even establish new ones? The solution appears to tilt towards the privatisation of the sector so that government would hands off.”
He said the Bureau de Change have become helpless in the matter, as they don’t have to sell. He wondered why they should depend on official allocation of forex by the CBN for their survival.

“I thought Bureau de Change should provide alternative funding windows to the economy, in which case they would source their forex independently from other sources and supply to the forex market. It is difficult to understand their real functions with the kind of arrangement Nigeria has. They act as mere distributive conduit pipes by simply getting forex allocation from the CBN and selling to those who need forex and making their profits without much value addition.

With the kind of forex scarcity we are witnessing now, prices of goods and services would definitely sky-rocket because the cost of production would obviously be higher and, ipso facto, prices would be higher, otherwise how can you justify the business.”

Continuing, he said, “the scarcity of forex, and associated problems have affected manufacturers in several ways. Unfortunately, because of the structure of our industrial development, many Nigerian industries are import dependent for their raw materials and other major inputs. Thus, they depend on forex allocation from the CBN to import their inputs. The implication of eliminating such companies from accessing forex from the official forex window is quite obvious – high production cost, which may translate necessarily to high selling prices and sometimes uncompetitiveness of local products and at the extreme would lead to closure of factories.”

To put an end to the challenges confronting manufacturers, he said there is need for an industrial friendly environment, overhaul of the infrastructure network to make them efficient and sufficient for manufacturers not to worry about providing their own electricity, water and others.

“ Nigeria should revisit the available industrial policy and adopt a more positive policy. A major issue and obstacle to industrialisation is the over-dependence nature of our manufacturing industries on imported raw materials. With this scenario, we cannot get anywhere. Very conscious efforts must be made by the government and manufacturers as well to develop local raw materials that local industries would require for production.

“In the immediate, short and medium terms, the diversification of the economy should be given priority attention, as the major way of shoring up the challenges of forex scarcity is to find other ways of forex inflow, other than from sale of crude oil. Export of manufactured products, which had started to boom before the suspension of the Export Expansion Grant (EEG) should be given momentum. Other services that can be exported should be encouraged as well.”

Another sector of the economy that is feeling the pinch of scarce forex is the aviation. Operators said it is now difficult to take aircraft for C-checks abroad.

The Managing Director of one of the airlines said government policy on foreign exchange has so far made it difficult for operators in the industry to have easy access to foreign exchange.

“Everything about the airline is computed in dollars. We don’t buy aircraft spare parts from the local markets. They are all imported and you must pay in Dollar. My aircraft is doing C-check abroad now. The aircraft is supposed to come out last week. Up till this moment, we have not been able to access $500,000 through the banks to pay, so that we can take our planes out of foreign hanger, where we are paying demurrage everyday. C-check is a major maintenance check. Our regulation says we should do it every 18 months. Every C-check costs about $800,000, going by the prevailing exchange rate, and you want me to source that amount from the black market?”