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‘N861b freight cost for 26 months enough to rehabilitate refineries’

By Kingsley Jeremiah, Abuja 
20 February 2022   |   4:39 am
At least, N861b has been spent by the country in 26 months as freight cost for the importation of petroleum products, especially Premium Motor Spirit (PMS) totalling about 41 billion litres, as the nation’s four refineries remain comatose.


• Freight Higher Than 2022 Budget Of All States, Except Lagos 
• Fuel Scarcity May Persist Without Downstream Deregulation, Full Implementation Of PIA
• Stakeholders Insist On Halting Importation

At least, N861b has been spent by the country in 26 months as freight cost for the importation of petroleum products, especially Premium Motor Spirit (PMS) totalling about 41 billion litres, as the nation’s four refineries remain comatose. 
By importing, instead of refining petroleum products in the country, the Chief Executive Officer (CEO) of the Nigerian National Petroleum Company (NNPC) Limited, Mele Kyari, had earlier informed that the country spends at least N17 as freight cost on every litre of petroleum product imported. 
The devaluation of the naira against the dollar has, according to some insiders, pushed the cost to about N21. The cost that is being factored into the eventual price of the product (at the pump) stands at N861b naira in 26 months (that is from July 2019 to August 2021), according to statistics provided by the national oil company.

While the nation’s refineries have been down for decades despite billions of dollar being spent on Turn Around Maintenance (TAM) and monthly operational costs, the shipping expenses in months is almost N250b higher compared to the $1.5b (N623b) borrowed for the repair of the Port Harcourt Refinery.

It would be recalled that in 2021, as much as N100b was spent on refineries’ rehabilitation in an attempt to revamp the facilities. The expenses coming as fuel scarcity persists across the country due to petrol importation contract challenges amid the payment of over N3t subsidy that is expected to make states poorer with depleting FAAC Account, is higher than the 2022 budget of all states in the country, except Lagos State.

The freight cost is indeed only a little less than the budget of all the six North East states of Adamawa (N163b), Bauchi (N197b), Borno (N269b), Gombe (N155b), Taraba (N149.7b) and Yobe (N164b). The North East geopolitical zone has about N1t appropriation for the year.

According to the NNPC, the total sale of white products for the period – July 2019 to July 2020 stood at 18, 362.84 billion litres, with PMS accounting for 18, 243.77 billion litres, or 99.35 per cent.
In July 2019, N36.6b was spent as freight cost for the 1. 7 litre that was sold by the NNPC and N39.9b spent in August for 1.9 billion litres. The one billion litres for September cost N21b, and the 1.1 billion litres sold in October 2019 cost N23b. 

The sum of N189m was spent in November for the 900 million litres consumed that month, and in December, when 2.7 billion litres were consumed, the freight cost jumped to N56.7b.
In January 2020, on 1.2 billion litres, the freight cost was N25.5b. The following month, N36.6b was spent on 1.7 billion litres, while in March it was N33.6b for 1.6 billion litres; N23.1b spent on 1.1 billion litres in April 2020; N21b was spent for one billion litres in May, while N27.3b was the freight cost for 1.3 litres in June, and N21b for the one billion litres in July 2020. 
In August of the same year, the volume of the product was 1.1 billion litres, and it cost N23.1b. The 1.5 litres consumed in September cost N33b, in October of 2020, it rose to 2.3 billion litres, making the freight cost N50.2b. In November, consumption stood at 1.6 billion litres, and cost N33.6b, while in December of 2020, it was 1.5 billion litres, translating to N33b. The sum of N33.6b was spent in January of 2021 for 1.6 billion litres, and N36.6b for 1.7 billion litres in February of the same year.
In March, it rose to 1.9 billion litres, and it was the same volume for April translating to N41.8b respectively. In May, it was 1.5 billion litres, and the cost stood at N33b. For June and July, it was 1.9 billion litres respectively that were consumed and that cost N41.8b. The 1.7 billion litres that the country consumed in August 2021 translated to N36.6b.

In decrying the development, an energy and economic scholar at the University of Ibadan, Prof. Adeola Adenikinju, insisted that the return of the subsidy regime means that Nigerians would continue to bear its consequences.

“Later in the year, subnational governments will find it increasingly difficult to meet their basic responsibilities of paying salaries, pensions and meeting contractors debts,” Adenikinju stated.
The academic, who is also a member of the Central Bank of Nigeria’s Monetary Policy Committee, lamented that fuel subsidy was killing the nation’s economy, stressing “yet we bury our head in denials. Do we calculate the costs of queuing for fuels or the amount spent on fuels at the black market?”

According to him, the current system is a convenient means of empowering corruption through fuel imports, repairs of refineries and sundry ways of making money from the fuel subsidy regimes.

The passage of the Petroleum Industry Act (PIA), raised the hope that an end had come to fuel subsidy and regulated downstream market in the petroleum sector, but President Muhammadu Buhari, tainted that optimism by ordering the continuous payment of subsidy, a move most stakeholders said was politically motivated to buy favour for his party in the 2023 elections.

While the development meant that importation may continue to thrive, the financial implications are expected to stand above N3t, which is higher than the 2022 budget of over 20 states combined.

A geologist and publisher of the African Oil & Gas Report, Toyin Akinosho, stated that subsidy payment and the importation of petroleum products remain unsustainable. “And this so-called cost of freight, I’m afraid, I’d like to compare the numbers with the equivalent cost to other jurisdictions. Once you have a poor quality of oversight at the port of entry, poor oversight of standards, and of basic terminal administration that Nigeria has, you will always lose money,” he said. Akinosho insisted that the country must remove the petrol subsidy, allow filling stations to sell at market prices, while the government’s job must be reduced to “simply focusing on quality assurance and competition crimes.”
“For the first time in our history, a surging increase in crude oil prices does not mean anything to Nigeria’s revenue. It’s a shame,” he added. An energy expert and Executive Secretary of the Major Oil Marketers Association of Nigeria (MOMAN), Clement Isong, noted that it was better for Nigeria to refine products in the country than to import, stressing that the total savings from freight are worthwhile among other benefits.
Isong also noted that a lot of figures bandied as what is consumed in the country included products smuggled to neighbouring nations from Nigeria.  While acknowledging that the unit cost of freight at N17 per litre was marginal when compared to the unit cost of a litre of PMS, Isong said: “We still need to do the things that are necessary to wean ourselves off subsidy, which includes providing gas as alternative fuels, alternative mass transportation, and reducing the cost of staple foods in Nigeria.”

The Executive Director, CISLAC, Auwal Musa Rafsanjani, had noted that the freight cost when juxtaposed with the country’s regime of a crude swap deal, which means the commodity will first be exported, refined and imported into the country, shows that the country was taking uneconomical decisions that are detrimental to the citizens.
Pointing out that the development is “a challenge,” another energy expert, who pleaded anonymity told The Guardian that the freight cost reflects the passage of the burden of inefficiencies to the consumers, as inherent loopholes, compounded by corruption, bad management, poor system, smuggling and port challenges, show in the eventual cost.
Without a good depot, functioning pipelines, efficient supply network, the source maintained that the new refineries coming on stream could face more challenges.
An energy scholar, Prof. Wunmi Iledare, equally noted that if domestic refineries were working, the fund would have been an elixir to the nation’s struggling economy.
While the country has already shut down state-owned refineries, and a total overhaul is ongoing, petrol scarcity triggered by double freight crude-for-products of the NNPC Limited still leaves long queues across the country.
With only a few stations opened in major cities, especially Lagos and Abuja, motorists are still unable to find petrol, a development that is laying siege to the nation’s economy.
In Abuja, yesterday, many fuel stations were still not selling products. Oando, located around the Mabushi area, near the Ministry of Works had no products. Total Station on Sultan Abubakar Way, Zone One was also not selling. Enyo Station near GSM Village, Zone One also had no products to dispense. The NNPC Station on Olusegun Obasanjo Way, which was selling had long queues that stretched for almost a kilometre.

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