How oil subsidy creates boom in Nigeria-Benin border black market for fuel – Report

Oscarline Onwuemenyi 12 December 2015, Sweetcrude, Abuja – A new report by Chatham House has blamed the convoluted subsidy regime in Nigeria as reason for the thriving black market in petroleum products along the Nigeria-Benin border.
fuel TankersThe report entitled: ‘Nigeria’s Booming Borders — The drivers and consequences of unrecorded trade,’ also described the export trade in refined fuel as one of the largest and most visible components of the black market or informal trade that crosses the Nigeria-Benin border.
“This traffic – locally known as ‘kpayo’ – is almost entirely informal and accounts for the overwhelming bulk of refined fuel sold in the Beninois domestic market, including probably more than 80 per cent of petroleum products as well as 20 per cent of diesel and other products,” the authors of the report, Leena Koni Hoffmann and Paul Melly, said.
According to the authors, the driver for this traffic is Nigeria’s system of fuel subsidies, which make fuel smuggled in from Nigeria more competitive than that supplied by the formal-sector Benin national fuel distributor, SONACOP, which has been driven to the brink of collapse and is largely inoperative.
The report said, “The attraction of smuggling is enhanced by the fact that Beninois traders and consumers are using the CFA franc for payment since this, being pegged to the euro, is a much stronger currency than the naira.
“Moreover, the depreciation of the naira further reduces the cost of the smuggled Nigerian fuel in CFA franc terms, increasing its attraction for Beninois consumers. These factors are sufficient to drive a further substantial trade in smuggled fuel to Togo (which also uses the CFA franc).”
The report explained how petroleum products are smuggled into Benin on both an artisanal and a more industrial scale. Modes of transport include motorbikes carrying plastic jerrycans, cars in which the back seats have been replaced with fuel tanks, and trucks – with smugglers using both main roads and back roads.
Smugglers also use small boats in the coastal lagoons or sailing offshore, often towing groups of jerrycans tied together, or even larger barges, it said.
“Fuel may be stolen during discharge in Port Harcourt or directly from the pipeline network of the Nigerian National Petroleum Corporation – which loses 40 per cent of all oil products to leakage, sabotage, theft and equipment failure.
“Diesel is less prone to being smuggled because it is not subsidised in Nigeria.
However, there is an illicit trade in diesel made from stolen crude, which can easily be distilled informally, though the quality of the resulting product varies enormously. (Petrol cannot be made this way, so it tends not to produced from stolen Nigerian crude)”
On the economic impact of the trade, the report said the trade represented a significant fiscal cost for both Nigeria and Benin. “For as long as Nigeria maintains fuel subsidies, it is actually also subsidising the supply of fuel to the citizens of Benin and Togo.”
“The governments of those countries lose fiscal revenue from taxes or duties on formal fuel sales, which are much lower than they would otherwise be. For example, in 2012 the trade in smuggled fuel cost the Benin state revenues equal to 2 per cent of its total fiscal receipts.”


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