23 November 2015, Lagos – The recurring experience of pervasive social stress that comes with fuel shortages seems to have become an abiding motif in the tapestry of our social and economic life, despite our nation’s benevolent endowment with substantial crude oil revenue. Nonetheless, there is the popular local adage that you do not wash your hands with spittle when you are standing by the riverside; similarly, it is inexplicable that so much social agony can be caused by our ‘inability’ to adequately refine the surplus crude oil endowment in our backyard into petrol and other derivatives.
In this event, traditionalists amongst us may readily conclude that anyone with such an unusual predicament must have been “jazzed” by an unforgiving enemy! This ‘no be ordinary eye’ they would say. Yet, successive governments have inexplicably appeared helpless and shamelessly condoned this odious aberration for so long.
The unwillingness or inability to establish efficient domestic refineries and related industrial plants, has clearly resulted in loss of thousands of job opportunities. Sadly, in addition to higher pump prices, imported fuel and crude oil derivatives currently consume about 40% of our total foreign exchange earnings and also account for the lion’s share of the loan portfolio of commercial banks.
Worse still, the present fragile imports supply chain often precipitates fuel shortages which, in turn instigate, unauthorised price hikes, hoarding, and other such commercial malpractices, which further distort fuel supplies and economic activities nationwide. Ultimately, desperate motorists could remain trapped for several hours in long winding queues just to buy fuel.
The economic cost of the man hours lost and the health implications for such drivers have never been computed, but the results of such investigations will clearly be disturbing. What is however undeniable, is that liberal access to reasonably priced fuel supply, conversely has immense economic, social and health benefits that would contribute to a better quality of life for more Nigerians.
Evidently, the establishment of new domestic refineries would clearly diminish or completely eliminate incidents of fuel scarcity and the attendant stressful and economically wasteful queues at petrol stations; yet, unexpectedly, past administrations have never shown serious interest in adding to the four old refineries in Warri, Port Harcourt and Kaduna.
Regrettably, despite the hundreds of millions of dollars voted annually for Turn Around Maintenance (TAM), these refineries have rarely produced up to 20% of total national requirement, yet, inexplicably, the privatisation of the Port Harcourt and Kaduna Refineries under former President Obasanjo was later reversed as inequitable by late President Yar Adua; sadly, however, production output remains grossly modest and inadequate.
Instructively, some industry experts suggest that four new refineries could have been established with the billions of dollars expended on unprofitable TAMs in the preceding two decades. Indeed, Soon after President Buhari’s inauguration, the NNPC management raised hopes that the ailing refineries have spurted back into action after lying comatose for several months.
Ibe Kachikwu, the new NNPC helmsman, who is now also Minister of State, has indicated that the corporation would rehabilitate and expand the existing refineries all which are presently operating below 30% capacity. Indeed, early in September this year, Kachikwu had happily reported that the TAM of the two Port Harcourt refineries was completed at a total cost of $10million instead of the $297million earlier quoted by foreign companies; in other words, according to him, patronage of local engineers for the rehabilitation, had saved Nigeria over $280million!
Going forward, the GMD, therefore assured Nigerians that the government would ensure that the four refineries would also be rehabilitated to operate at their optimum capacity of about 400,000 barrels/day, even though, such capacity would still fall significantly short of current market demand.
Notwithstanding, the Minister has ruled out any plan by government to sell off the refineries for now, but, has suggested instead, that government may look favourably at the possibility of establishing joint venture refineries. However, until that happens, Kachikwu concluded that “I will import as much as I need and, I will try and refine as much as I can… I certainly will hope that someday, in my tenure we would stop importing. But, it is not going to happen on a 100% basis unless you build new refineries”.
The NNPC helmsman had also earlier noted that the existing refineries needed to attain a minimum output of 60% operating capacity, for them to be profitable. Regrettably, however, as at October/November 2015, production in all four refineries is probably below 5% of installed capacity; thus, in view of the unexpected poor returns, the Minister has warned that any refinery that does “not attain the required minimum output of 60% capacity after completion of the ongoing TAM, by the December deadline, may be sold, because such refineries would be grossly unprofitable to run”, and the NNPC may indeed require about $500m to fix these refineries next year.
Ultimately, the combined impact of the minimal output from local refineries and the reduced volume of imports caused by the outstanding huge subsidy refunds owed marketers, have invariably led to fuel shortages and the attendant unending queues at petrol stations nationwide. Clearly, the new TSA regime, which prevents the NNPC from unilaterally deducting its own subsidy claims on its imports without Legislative appropriation, may have inadvertently also hamstrung the corporation’s financial capacity to fully replace the 40% open share of the fuel market that is normally supplied by private marketers.
It is not yet clear if the present supplementary bill for appropriating N413bn for fuel subsidy will actually cover all the outstanding debts owed marketers, or if indeed, the amount includes the controversial differentials demanded by marketers for interest on delayed payments and Naira exchange rate devaluation.
It is unlikely that private sector marketers would happily proceed to fill their fuel import quotas and relieve NNPC of supply pressure if critical issues relating to prompt settlement of subsidy claims are not fully resolved, especially when marketers allegedly pay cumulative high double digit interest rates to banks for delayed payments on loans incurred to finance their fuel imports. In this event, fuel queues and the attendant economic wastage and social agony may not totally disappear anytime soon, particularly when the earliest private refinery is scheduled for commissioning two years or so from now!
Ironically, open doors for liberal fuel importation and unfettered deregulation will result if crude oil price remains consistently below $40/barrel, as the domestic pump price will also fall below the current subsidized price of N87/litre if the Naira exchange rate remains unchanged from the present N200/$. Nonetheless, crude price below $40/barrel will also create severe revenue challenges for all levels of government.
- Henry Boyo, Vanguard