BY EMEKA EJERE
With the recent upturn in global oil prices signaling an imminent increase in pump price of premium motor spirit (PMS), stakeholders are wondering why Nigerians should continue to pay for government failure to address the nations refining crisis.
Nigeria relies on crude oil for about 50 per cent of government revenues and over 90 per cent of export earnings, with rising oil price meaning increased revenue. Ironically, rising oil price also translates to increased cost of petroleum products as the country depends heavily on imports due to a lack of domestic refining.
On Tuesday the Trade Union Congress (TUC) took a swipe at the Minister of State for Petroleum Resources, Timipre Sylva, who told Nigerians to prepare for the pain associated with the increase in crude oil price.
Sylva, who spoke at the launch of the Nigerian Upstream Cost Optimisation Programme in Abuja, said, Since we are optimising everything, NNPC (Nigerian National Petroleum Corporation) needs to also think about the optimisation of product cost because as we all know oil prices are where they are today: $60.
As desirable as this is, this has serious consequences as well on product prices. So we want to take the pleasure and we should, as a country, be ready to take the pain.
Today, the NNPC is taking a big hit from this. We all know that there is no provision in the budget for subsidy. So, somewhere down the line, I believe that the NNPC cannot continue to take this blow. There is no way because there is no provision for it.
As a country, let us take the benefits of the higher crude oil prices and I hope we will also be ready to take a little pain on the side of higher product prices, he added.
Findings revealed that the landing cost of PMS imported into the country had risen by 13.34 per cent in one month to about N180 per litre on the back of the increase in global oil prices.
The international oil benchmark, Brent crude, which rose to $59.34 per barrel on Friday (February 5) from $53.70 per barrel on January 7, crossed the $60 per barrel mark on Tuesday for the first time in over 12 months.
The deregulation of petrol price by the federal government last year means that the pump price of the product will reflect changes in the international oil market, as crude oil price accounts for a large chunk of the final cost of petrol.
Since November 13, 2020 when the pump prices of PMS were last increased in the country, the oil price has increased by over 45 per cent. Going by the petrol pricing template of the Petroleum Products Pricing Regulatory Agency (PPPRA), the landing cost of petrol rose to N179.67 per litre on February 5 from N158.53 per litre on January 7, with the expected pump price of the product increasing to N202.67 per litre from N181.53 per litre.
The rising price of crude oil pushed the cost of petrol quoted on Platts to $543.25 per metric tonne (N157.99 per litre, using N390/$1) last Friday (February 5) from $480.25 per MT (N139.67 per litre) on January 7.
The NNPC, which has been the sole importer of petrol into the country in recent years, is still being relied upon by marketers for the supply of the product despite the deregulation of the downstream petroleum sector.
The federal government removed petrol subsidy in March 2020 after reducing the pump price of the product to N125 per litre from N145 on the back of the sharp drop in crude oil prices, a price reduction that lasted till June.
Also there were increases in the pump prices of petrol in four months, rising from N121.50N123.50 per litre in June to N140.80-N143.80 in July, N148-N150 in August, N158-N162 in September and N163-N170 in November.
The upturn in global oil prices has again brought to the fore marketers concerns over the non-implementation of the full deregulation of the downstream petroleum sector as the pump prices of petrol have been left unchanged for more than two months.
Fuel marketers had in December expected another upward adjustment of PMS prices to reflect the further rise in crude oil prices, which closed at $51.22 per barrel on December 31. According to the marketers, the pump price of petrol should be between N185 and N200 per litre.
However, a N5 reduction in petrol price, effective December 14, was announced by the federal government, a development that left the marketers shocked and questioning the deregulation of petrol price.
So, we know that depending on what exchange rate you use, the pump price should be between N185 and N200 per litre, the Executive Secretary/Chief Executive Officer, Major Oil Marketers Association of Nigeria, Mr. Clement Isong, reportedly said.
For as long as we continue to sell the product at what we are currently selling it, then somebody is bearing the cost of subsidy, and the country really cannot afford subsidy at this time.
But what many still find inexplicable is why successive governments have not been able to make the nations refineries operate optimally despite huge budgetary allocations to that effect.
Questioning the TAM
Nigeria has four refineries linked by a network of pipelines and depots located across the country. The four are located in Kaduna, Warri and Port Harcourt.
In October last year, the Nigerian National Petroleum Corporation (NNPC) declared that Nigerian refineries are damaged beyond the regular Turn around Maintenance (TAM). NNPC also attributed the prolonged neglect of rehabilitating the refineries to the delay in making them functional.
Speaking on the third day of the virtual Oil Trading and Logistics (OTL) Africa Downstream Expo 2020 with theme Petroleum Refining Trends and Outlook for Tomorrows Energy Supply, the Managing Director of the Kaduna Refining and Petrochemical Company (KRPC), Ezekiel Osarolube, said the NNPC had yet again begun the rehabilitation of all the facilities.
Theres a difference between turnaround maintenance and what we are doing now. The traditional TAM, which the whole world knows is usually statutory, which is done two to three years, is to open and clean the system, a ThisDay report quoted him as saying.
But because of the long neglect, we have gone beyond that level of turnaround. What we are talking about now is comprehensive rehabilitation, which will involve replacing very obsolete equipment that can bring the plants back to optimum performance.
However, revelations from the NNPCs annual report questioned the rationality of sustaining the running of the refineries with huge resources without commensurate value in oil refining.
Although figures on the actual amount Nigeria has expended on TAM of the refineries have been a subject of controversies, the nation may have spent about $25bn on the refineries in 25 years, according to a report in BusinessDay.
The Guardian editorial of September 7, 2020, cited an NNRC report which revealed that in the past four years, a princely sum of $36 billion has been spent on importing petroleum products, which it has been estimated, is sufficient to build four brand new refineries of similar capacity with the 650,000 barrels per day processing as the forthcoming Dangote Refinery.
Instead of selling off these moribund and relatively unproductive national assets, the government is still spending scarce tax-payers money to sustain them, the editorial stated.
At a recent meeting of the Society of Petroleum Engineers, these facts were clearly brought to the fore when it was stated that the country spends a whopping N120 billion annually on these non-performing refineries.
The editorial board, however, recalled: In the twilight of the Obasanjo administration in 2007, these refineries were sold off to Dangote and Otedola, two prominent Nigerian investors. But the deal had hardly been sealed and signed when hell was let loose championed by the then President of the Nigerian Labour Congress, Adams Oshiomhole.
The YarAdua administration that took over power could not stand the heat and in no time, reversed the sale and continued with business as usual. And here we are in a mess. With the benefit of hindsight, can we claim today that, that sale reversal was the best thing that could have happened to those unproductive refineries?
Raising the alarm
In January last year, the Senate agreed to probe the NNPC over the $396m expended on Turn-Around Maintenance of refineries in the country between 2013 and 2015.
The Red Chamber also mandated the committees on Petroleum Downstream, Upstream, and Gas to carry out investigation on the expenditure incurred by the nation within the period.
The decision to investigate spending on the maintenance of refineries by the NNPC was reached after consideration of a motion brought to the floor by Yusuf Yusuf, a senator.
Mr. Yusuf had noted that the refineries were established to adequately supply and serve the needs of Liquefied Petroleum Gas, Premium Motor Spirit, Dual Purpose Kerosene, Automotive Gas Oil, Low Pour Fuel Oil, High Pour Fuel Oil and Aviation Turbine Kerosene for both local consumption and exports.
He regretted the refineries had not served the purposes for which they were built and being run.
The country through the NNPC has in the past 25 years, spent billions of U.S. dollars in Turn-Around Maintenance of the refineries, the latest being over $396m spent between 2013 and 2015 without meaningful result, he said.
The refineries have remained in the moribund state in the last 15-20 years and are almost reaching total collapse due to lack of proper maintenance of the facilities with a poor average capacity utilization hovering between 15 percent and 25 percent per annum.
Despite the huge spending on Turn-Around Maintenance of refineries, NNPC recently announced a cumulative loss of N123.25bn in 10 months (January to October 2019). NNPC put the total revenue of facilities at N68.82 bn, while total expenses incurred were N192.1bn within the same period.
Such huge wastage and slippages amidst the nations tight economy, if not addressed, may lead the country back to recession.
While the position of the committees mandated by the Senate remains unclear, the recent declaration by the NNPC suggests that the nation has a long way to go in fixing the refineries.
Wrong path to toe
Reacting to the looming fuel price increase, an economist and Senior Lecturer, Lagos Business School, Dr. Bongo Adi, told Business hallmark that Nigerians are facing social and economic challenges imposed on them by the government and an increase in the pump price of fuel will further drive more Nigerians into poverty and misery.
He said, From all around, the Nigerian citizens are facing enormous risk to their livelihood, to their safety and of course to their health, owing to the coronavirus pandemic. The times have never been worse than it is right now in 2021.
On his part, a professor of Economics at the Olabisi Onabanjo University, Sherrifdeen Tella, cautioned that government should not punish citizens for their own failings.
He said, It is not fair. Personally, I do not believe in subsidy because the subsidy they say theyre paying, they are just making money out of it. I think what is important is for us to have our refineries working, rather than we talking about adjusting prices because we are importing refined fuel.
The government is supposed to bear the brunt of not doing what is right by producing refined fuel for us to buy. The government should have a way of punishing itself rather than punishing the citizens.
The Director-General of the LCCI, Dr. Muda Yusuf, cautioned that the country must find a balance between social considerations and the commercial and economic considerations, pointing out that the deregulation policy of the downstream sector of the petroleum industry posed a dilemma at a time like this.
He said, From a purely economic and commercial point of view, it is a policy that we need to sustain irrespective of what the oil price is because the capacity to be able to continue with fuel subsidy and its problems is not there, and it is also not in the interest of the economy for us to continue along that route.
According to him, the subsidy regime comes with a lot of fiscal pressure on government finances, the problem of corruption, and the problem of diversion of petroleum products to neighbouring countries, among others.
But the dilemma is the implications for the welfare and social conditions of the people because we are dealing with a situation of a great deal of extreme poverty among the majority of Nigerians.
We are dealing with an economic recession, cost of production and transportation that is already high, and a populace that is already on edge because of the challenges of the environment. We are dealing with a population that is characterised by high income inequality, Yusuf said.