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Striking a balance on Nigeria’s PMS consumption, smuggling

By Kingsley Jeremiah, Abuja
07 September 2022   |   4:15 am
Earlier this week, the Nigerian National Petroleum Company Limited (NNPC Ltd), following criticism from the Nigeria Custom Service (NCS) stated that between January and August 2022, the total volume of Premium Motor Spirit (PMS) imported into the country was 16.46 billion litres, which translates to an average supply of 68 million litres per day.

Over the years, Nigeria has been battling with inadequate data. The prevailing development in the oil and gas sector, especially on the consumption pattern of Premium Motor Spirit (PMS) shows that the country has more work to do in the area of planning and in the terms of trust, transparency and accountability. KINGSLEY JEREMIAH writes.

Earlier this week, the Nigerian National Petroleum Company Limited (NNPC Ltd), following criticism from the Nigeria Custom Service (NCS) stated that between January and August 2022, the total volume of Premium Motor Spirit (PMS) imported into the country was 16.46 billion litres, which translates to an average supply of 68 million litres per day. Similarly, import in the year 2021 was 22.35 billion litres, which translated to an average supply of 61 million litres per day.

The NNPC Ltd insisted further that the average daily evacuation (depot truck out) from January to August 2022 was 67 million litres per day. The company buttressed its point with reference to the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), adding that the daily evacuation (depot loadouts) records of the NMDPRA carry daily oscillation ranging from as low as four million litres to as high as 100 million litres per day.

Before the state oil company released the data, the NCS had questioned the claim that the country consumes 60 million litres of petrol daily as the Customs’ comptroller-general, Hameed Ali, at a session with the House of Representatives’ Committee on Finance alleged that as much as 98 million litres of the products were being lifted daily.

“I remember that last year we spoke about this. Unfortunately, this year, we are talking about subsidies again. The over N11 trillion we are going to take as debt, more than half of it is going for subsidy. The issue is not about the smuggling of petroleum products. I have always argued this with NNPC.

“If we are consuming 60 million litres of PMS per day, by their own computation, why would you allow the release of 98 million litres per day? If you know this is our consumption, why would you allow that release?” he asked.

Nigeria has been in a game of wit over the issue of smuggling of the petroleum product and the actual data on the consumption of the product. Different government agencies involved in the value chain of the product have never had accurate and uniform data and this is often not different from the development across most agencies of government. Sometimes, citizens rely on data from international organisations on the events that happen locally.

The fact that the country did not know the actual PMS consumption raises dust and in fact pegs question marks on the much-trumpeted commitment of Nigeria to transparency and accountability in the extractive sector but the solution to it is neither in the hand of the operator nor the NCS. It is more of a regulatory concern because the NCS would like to clear its name as a weak agency when it comes to smuggling while NNPC would justify the reasons the daily consumption is rising.

In the few months that Nigeria tried deregulating the petroleum market, daily consumption of PMS went down drastically to about 45 million barrels per litre. In the month of June last year, a few months after subsidy returned, Group Managing Director (GMD), NNPC, Mele Kyari said smuggling across the borders increased the daily consumption to over 103 million litres per day in the previous month. By implication, about 58 million litres were being smuggled, meaning that the smugglers and other West Africans benefited even more from the PMS subsidy than the citizens of Nigeria.

Recall that NNPC had been the sole importer of PMS as rising crude oil prices and PMS supply costs above PPPRA (now NMDPRA) cap had forced oil marketing companies’ (OMCs) withdrawal from PMS import since the fourth quarter of 2017. The average 2022 international market determined landing cost for PMS was put at $1,283/MT and the approved marketing and distribution cost of N46/litre, according to NNPC.

The company had similarly noted that the combination of these cost elements translates to retail pump price of N462/litre and an average subsidy of N297/litre and an annual estimate of N6.5 trillion on the assumption of 60 million litres daily PMS supply. This will continuously be adjusted by market and demand realities.

“NNPC Ltd shall continue to ensure compliance with existing governance framework that requires participation of relevant government agencies in all PMS discharge operations, including Nigerian Ports Authority, Nigerian Midstream and Downstream Petroleum Regulatory Authority, Nigerian Navy, NCS, NIMASA and all others.

“NNPC Ltd recognises the impact of maritime and cross border smuggling of PMS on the overall supply framework. NNPC also acknowledges the possibilities of other criminal activities in the PMS supply and distribution value chain. As a responsible business entity, NNPC will continue to engage and work with relevant agencies of the Government to curtail smuggling of PMS and contain any other criminal activities,” Kyari had stated.

In 2018, the NNPC said it was discussing with the World Bank to determine the actual daily PMS consumption of Nigeria. The defunct Petroleum Equalisation Fund, which has been collapsed into NMDRA was also working in that direction but the development had remained elusive.

The Minister of State for Petroleum, Timipre Sylva had earlier noted that there had been efforts at controlling some of the smuggling and rising figure of PMS consumption but that the sustainable solution is to remove subsidies and deregulate the market.

Sylva, while speaking on NTA, said: “When we had the deregulation discussions, and the price moved up to N162 from N145 where I met it, we realised that the consumption dropped to less than 50 million litres or to 40 million.

“So, later on, once the exchange rate also moved up a little bit and swallowed the gains we made from the N162 move, the figures increased again.

And sometimes, the figures you hear are crazy. I mean, when they tell you 90 million litres a day, I mean, they’re crazy figures. So, for me what is the sum total of all this? We’ve been interrogating these numbers for 20 years.

“We continue to interrogate these figures because we all know that there is a problem here, it’s opaque. The opportunity, the premium is not coming to the government and it is not going to the poor people. It is going to select people who are feeding fat on these things.

“So why don’t we just get rid of this thing? Okay, we should interrogate this thing, but I mean, to me that is not the solution. Why don’t we just get rid of this whole subsidy so that we know that this problem is over once and for all.”

It is important to note that Nigeria does not only subsidise products for its citizens. It does for other neighbouring West African countries.

Last year, the NCS said PMS was being smuggled out of Nigeria in large quantities after it has been subsidised by the Federal Government, adding that the petroleum product is being diverted to as far as Mali.

Then Ali, had blamed the defunct Department of Petroleum Resources for approving the establishment of filling stations along the land borders.

National President of Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN), Prince Billy Gillis-Harry, noted that the government would need to carry along the players in the sector to avoid a flip-flop, adding that the market must be fair to all.

Admitting to the stability in the market since the sector was deregulated, stakeholders believe that addressing foreign exchange challenges would enable the marketers to import products instead of allowing the national oil company to play the dominant role of importation of petroleum products.

Gillis-Harry said that smuggling, product diversion and the financial implications are worrisome.

His main solution, however, is for the government to adopt a solution developed by his association to monitor products from depot to destination.

Gillis-Harry insisted that his members are not involved in smuggling and diversion, however only 1,000 of the 11, 000 marketers in the association have adopted the technology, meaning that about 90 per cent of the marketers are not tracked.

“I’m not going to vouch for anybody. One thing I know is that if you are our member, you cannot easily bend the law and do what you want. Because we have monitors and checks and balances where our petroleum products pass through. We are encouraging the Federal Government to completely stop the proliferation of petroleum products and check smuggling.

“You cannot take products out of this country unless you want to blow up the whole of your tanker. We track and see the products in our control rooms,” he said.

Gillis-Harry said there have been leakages in the sector and that the leakages could only be mitigated by the deployment of technology.

A report, conducted by Chapel Hill Denham, estimates that 15.64 million litres of petrol are smuggled out of Nigerian daily as Nigerian petroleum products retail on average 3.7 times cheaper than those of its neighbours, which has given smugglers unfair possibilities for arbitrage.

The report sees removal of subsidy as the way out from the development, stressing that although there could be negative impacts, the removal remained Nigeria’s best option.