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Onyekakeyah: Why the fuel scarcity amidst oil glut

By Luke Onyekakeyah
09 March 2015   |   11:00 pm
ORDINARILY, the glut in the global oil market ought to bring succour to consumers of fuel products in not only enjoying surplus supply but also low price of the commodities. When there is surplus in product supply, the market price naturally falls due to low demand. This simple economics principle applies to the current oil…

ORDINARILY, the glut in the global oil market ought to bring succour to consumers of fuel products in not only enjoying surplus supply but also low price of the commodities. When there is surplus in product supply, the market price naturally falls due to low demand. This simple economics principle applies to the current oil glut. Nigerians are already enjoying reduced pump price of petrol offered by President Goodluck Jonathan in tune with the regime of surplus. By this token, there ought to be availability of petrol in surplus across the country. That is why the fuel scarcity, which is already easing off came as a surprise. 

   The latest scarcity came at the most inauspicious time. Like a similar scarcity that occurred last December 2014, two weeks before Christmas, the latest came unexpectedly without prior notice. Although fuel scarcity is recurrent in Nigeria, the latest incident wants to erase the excitement Nigerians had when the president announced a slash in petrol pump price from N97 to N87 per litre. It is generally believed that increase in the price of oil price would push the pump price of petrol high while the reverse is the case. That is what has happened.

   As usual, since the past week, many petrol stations stopped selling fuel claiming scarcity of the product from the Nigerian National Petroleum Corporation (NNPC), the main importer of fuel. Greedy marketers capitalised on the situation to hike prices. A litre of petrol that officially goes for N87 was sold for as high as N100 in some petrol stations. And of course, black marketers made brisk business. They sold a litre for N140 in some places!

    It is noteworthy that largely, under the Jonathan administration, there has been steady supply of petrol until mid last week when fuel scarcity hit Abuja (FCT), from where it spread to Lagos almost immediately. It spread to 23 other states, according to reports. It is not that fuel scarcity is an unusual phenomenon; Nigerians are used to queuing and buying petrol under very chaotic situation.  Some of the previous scarcities occurred during high price regime or as a result of industrial action by different oil-sector industrial unions. At other times, policy changes like deregulation induced scarcity. By and large, why does fuel scarcity recur every now and then in Nigeria even when there is glut? Is there nothing that could be done to stop the recurrent problem?

   Before answering that question, I would like to disabuse the minds of many Nigerians over the political shenanigans heaped around the fuel scarcity. For instance, I don’t agree with insinuations making the rounds that the latest scarcity was caused by any person or group. I don’t know how that is possible. I don’t subscribe to the accusations flying across party lines. I don’t agree that the Peoples Democratic Party (PDP) caused the fuel scarcity. How could President Jonathan induce fuel scarcity on the eve of a crucial presidential election he is seeking for re-election? Neither President Jonathan nor the Minister of Petroleum Resources, Diezani Alison-Madueke, nor the Nigerian National Petroleum Corporation (NNPC), nor any other person in government caused the scarcity. What is the gain for doing that?

   To think that the PDP could induce fuel scarcity now is like one pulling down a house when he is right inside and knows quite well that he would be a victim. It is tantamount to suicide bombing. One needs to be the biblical Samson to decide to pull down a house in which he would be killed along with others. But before that, the one would have had his two eyes gorged out like Samson, so as to be desperate enough to do the unthinkable. The fuel scarcity affected PDP members the same way it affected other Nigerians.

     In the same vein, it is inconceivable to allege that the opposition party, the All Progressives Congress (APC), caused the scarcity. How can? How could a party that does not hold the reins of government cause fuel scarcity? Even if the APC is the only body importing fuel for the country, could they decide to stop making money at a time they need it most to fund their electioneering campaigns? I don’t think the APC could afford to induce fuel scarcity when they don’t have the reins of power. The truth is that government has the power to stop anyone sabotaging its efforts.  Besides, government has the power to prosecute where it has concrete evidence that anyone had sabotaged it. Until government does that, the accusations flying around are better treated as mere imaginations lacking validity. 

   The cause of the fuel scarcity is systemic dysfunction arising from years of mismanagement of the oil sector. The Jonathan administration merely inherited it and is trying to redress it. The absence of functional refineries to satisfy local demand of petrol is the primary cause of fuel scarcity in the country. Not until there are functional refineries that would put a stop to fuel importation, fuel scarcity will continue to be a recurrent issue irrespective of who is president or which party is in power. The question is who should own the refineries? Who should operate them to ensure functionality? That is where the problem lies.

   Before now, Nigeria had four refineries owned by the Nigerian National Petroleum Corporation (NNPC), located in Port Harcourt, Warri and Kaduna but here are now three. The two refineries in Port Harcourt built in 1965 and 1989 were merged into one in 1993, with a total refining capacity of 10.500 million metric tonnes per year. The Warri refinery was built in 1978 with a refining capacity of 5.5 million mt/yr. A Carbon Black Plant and a Polypropylene plant were added in 1986. 

   The Kaduna refinery was built in 1980 with a refining capacity of 5.5 million mt/yr. The three refineries have a combined refining capacity of 445,000 barrels per day (b/d), which amounts to 70.75 million litres of petrol. The daily demand of petrol in Nigeria is about 40.32 million litres, meaning we have 30.43 million litres difference. That means, if the three refineries in Nigeria were producing to full capacity, there would be more than enough petrol and an excess of 30.43 million that could be exported to earn foreign exchange. Unfortunately, the refineries are producing far below their installed capacity to the extent that they are not even meeting the meagre 40.32 million litres needed daily in Nigeria.

    Following years of low performance and high Turn Around Maintenance cost (TAM), the Federal Government decided to hands off the building and running of refineries and to allow private investors to take over. As for the existing refineries, government has offered an equity share of 51 per cent to the oil industry unions to assuage them. As it were, private investors are the ones that should henceforth operate refineries. That is where we are now. Private investors should take up the challenge and let there be steady supply of petrol in Nigeria. Operators of modular refineries are equally welcome.