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Removal of fuel subsidy, Dangote refinery fail to resolve scarcity

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Removal of fuel subsidy, Dangote refinery fail to resolve scarcity

… as product shortage worsens economy’s outlook

Nigeria in the past couple of weeks faced another round of fuel scarcity , which has become perennial, and one of the reasons given by government to end subsidy on May 29, 2023. But with a 400 percent hike in the price of product, which demand dropped from as high as 68 million litres per day to just over 30 mlpd, availability has continued to be a problem with only NNPCL remains the sole of importer, as government capped the price and subsidy seems to have surreptitiously returned with the devaluation of the naira and high price of crude oil since the Israeli-Hamas war.

Assurance by the President of Dangote Group, Aliko Dangote, that following laid down plans of the Dangote Refinery, Nigeria would have no need to import gasoline from next month, is raising hopes that better days are ahead for the Nigerian ailing economy. But that is only for diesel, as it has not started the production of PMS, fuel.

On one hand, self-sufficiency in premium motor spirit (PMS), otherwise known as petrol will not only end the persistent scarcity of the product in the country. It will also bring about a more reasonable pricing in Africa’s largest oil producer.

On the other hand, ending petrol importation will, among other things, give a serious boost to the efforts of the Central Bank of Nigeria (CBN), to achieve stability in the foreign exchange market.

President Bola Tinubu’s removal of subsidy on PMS, through his inaugural address on May 29, 2023, had plunged the country into turmoil, with petrol prices climbing by 350 percent.

However, Nigerians had thought the skyrocketed price would put an end to the recurring scarcity of the product, as perceived increased profitability would attract a lot more investment in the business of importing and distribution of gasoline.

Unhealthy monopoly

But the disturbing reality is the Petroleum Industry Act (PIA) has failed to break the monopoly in Nigeria’s petrol import market, as the Nigerian National Petroleum Company (NNPC) Limited continues to dominate the sector, remaining the sole importer of petrol into the country.

Analysts say the monopoly is being fueled by the persistent foreign exchange volatility, which has significantly weakened the ability of major and independent oil marketers to participate in the importation of petrol, despite having active licences to import.

At a meeting between key oil marketers in the country and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) on Tuesday to address the issues of incessant scarcity of petroleum products, the NMDPRA chief executive officer, Farouk Ahmed, emphasised that the NNPCL is currently the sole importer of petrol into the country.

The PIA, which was signed into law in August 2021, was aimed at reforming the country’s oil and gas industry, including the downstream sector. One of the key objectives of the PIA was to encourage competition and attract private investment in the importation and distribution of petrol. But this has not been the case..

According to industry observers, the NNPC Limited has maintained its stranglehold on petrol imports due to its ability to access foreign exchange. This advantage has made it difficult for independent marketers to compete.

“The NNPC Limited’s dominance in petrol imports is a direct result of the forex challenges faced by independent marketers,” said an industry analyst, who spoke on condition of anonymity.

“Forex volatility has also led to a significant increase in the cost of importing refined petroleum products, with independent marketers bearing the brunt. This has resulted in a situation where many independent marketers have been forced to either scale down their operations or exit the market completely.’’

Ahmed blamed the recent shortage of petrol across the country on the logistics problem faced by NNPC Limited in moving the product from offshore to onshore depots.

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He stressed that though the government was encouraging local refining of petroleum products to reduce imports, it would compel oil marketers to buy from Dangote Refinery as the decision was commercial.

“We allayed the fears of the marketers and we told them that Dangote refinery is a major achievement in our country because in the past we were importing every litre of petroleum products we required except those supplied by modular refineries. And as an oil producing country, we believe at NMDPRA that we should support our local industry. And that is why we encourage our marketers to patronise our local refineries.

“But, at the same time, it is a commercial decision that they will have to make between the suppliers and the clients. NMDPRA will not determine how much it is sold or how much you are buying. It is their own decision to go to Dangote refinery and purchase, and for Dangote refinery to determine the price it sells.

Speaking at the Major Energies Marketers Association of Nigeria (MEMAN) Quarterly Press Webinar and Engagement with the topic ‘‘Advantages of Autogas (LPG and CNG) and the Evolving Price of PMS, the Executive Secretary of MEMAN, Clement Isong, said he would not be able to speak categorically on the landing cost of petrol because members of his group had ceased to import fuel. He expressed worry that when the market operates an exchange rate model that is speculative, it further fuels inflation and makes the cost of replacement difficult.

Isong said: “With this scenario it becomes difficult for me to determine the actual landing cost of petrol because rates have moved from N1,900 to a dollar to N1,800 and now to N1,600. So, in this case, it becomes difficult to adopt a particular exchange rate for the purposes of calculation.

“If I give you a number that doesn’t contextualise what I am saying to you, and I don’t know the opportunities in the market because I am not in the market, so, I want to be extremely careful in telling you what the landing cost is. Rather, I would rather say you should direct the question to NNPC because it is in a better place to answer since it is the one importing,’’.
Efforts to get the actual landing cost figure from the NNPCL had not yielded result as at the time of filing this report.

The Board of Trustees (BoT) treasurer, IPMAN, Elder Chinedu Okoronkwo, in his reaction, said speculations of possible deployment of Dangote petrol may have further created such scarcity.

“I don’t know if that is why marketers are not taking volumes because Dangote petrol would certainly provide availability and sustainability. There is every possibility that it will take away some costs and contract prices, but until that is achieved, so far I cannot point to any single cause for this situation,” he said.

Rekindling hopes

Speaking at Africa CEO Forum Annual Summit in Kigali on Friday, Dangote, while expressing optimism in the transformation of Africa’s energy landscape, said:

“Right now, Nigeria has no cause to import anything apart from gasoline and by sometime in June, within the next four or five weeks, Nigeria shouldn’t import anything like gasoline; not one drop of litre.”

He also outlined progresses made by the oil company to ensure that Africa as a continent becomes self-sufficient when it comes to the energy sector.

“We have enough gasoline to give to, at least, the entire West Africa, diesel to give to West Africa and Central Africa. We have enough aviation fuel to give to the entire continent and also export some to Brazil and Mexico.

Speaking further, Dangote said, “We just commissioned in February and now we are producing jet fuel, we are producing diesel and by next month, we will be producing gasoline. What that would do is that we would be taking most of the African crude that are being produced and also be able to supply not only Nigeria, because our capacity is too big for Nigeria, but it would also supply West Africa, Central Africa and also South Africa. We have 650,000 barrels per day, one million tonnes of polypropylene, we have.

The estimated $19 billion 650,000 barrels per day facility established by Africa’s richest man, Aliko Dangote, is widely expected to trigger activities that will see the struggling Nigerian economy recover from decades of almost total dependence on import of petroleum products and associated depletion of foreign reserves among other loses.

A litre of petrol currently sells for between N800 and N900 at most filling stations in Lagos, Port Harcourt and other major cities across the country, while consumers in many rural areas by the product for as high as N1,000 per litre, Business Hallmark’s survey showed.

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