AMID persistent shortages of petrol and the attendant damage to the economy, the Nigerian National Petroleum Corporation has continued to entrench itself as the sole importer and supplier of petrol in the country. Its latest claim to importing 55 million litres of petrol is alarming. The response of the government to this unsustainable situation, however, has been disturbingly indifferent. President Muhammadu Buhari should recognise the crisis as a national emergency and initiate immediate action to overturn the vexatious monopoly.
Structural reforms and sound macroeconomic fundamentals are clearly necessary conditions to attract capital flows. Privatisation, especially of strategic sectors, has contributed significantly to Foreign Direct Investment inflows in many emerging economies. Countries that actively search for outside investors through privatisation stand out among transition economies in terms of attracting large flows of FDI. For instance, a report says Hungary has succeeded in turning a liability – a huge international debt at the outset of its full-fledged transition to competitive markets – into an asset. But what is playing out today is the culmination of the imprudent polices of this and previous Nigerian governments in the downstream sector of the oil and gas industry. Rather than the sensible option of privatising its loss-making downstream assets and liberalising the operating environment for private investment and foreign capital, they have held on tenaciously to them, thereby squeezing out private enterprise and saddling the economy with an inefficient, corrupt state bureaucracy and condemning the country to depending on imports for refined petroleum products.
Even when marketers and independent operators left the import of petrol to the NNPC, it was enough to galvanise any responsible government to act swiftly. The government, however, failed to act, even after marketers warned that shortages were imminent as the state oil company could not alone cope with the daunting task of being the sole importer and distributor of premium motor spirit for a country of about 190 million people and Africa’s second largest economy.
The Group Managing Director of the NNPC, Maikanti Baru, last week again highlighted the distortion in the Nigerian economy. Appearing before the National Assembly Joint Committee on Petroleum Downstream, Baru repeated his claim that daily supply of PMS to the country since December 1, 2017 had risen to 55 million litres per day, an increase of 20 million litres per day from the previous known figure of 35 million litres daily.
He attributed the sharp increase to diversion of petrol by syndicates operating a thriving cross-border smuggling trade. He blamed shortages on this illegal trafficking, saying it would be “absolutely difficult to guarantee round-the-clock availability of petrol throughout the country.”
He highlighted the implications: the huge resources it spends on 100 per cent import at N170 per litre when pump rice is fixed at N145 per litre means that the NNPC would not be able to meet its Joint Venture Cash Calls and other obligations. Already, the NNPC is in arrears to the tune of $6.6 billion. In case the legislators did not comprehend the implications, the Minister of Finance, Kemi Adeosun, had spelt it out: while subsidy cash payments were no longer being made to marketers, the burden of NNPC’s massive importation is being borne by all the three tiers of government – federal, state and locals government – through reduced revenue allocation and by ordinary Nigerians who have to contend with the reduced public spending.
Both the Presidency and the National Assembly have been negligent. First, there ought to have been serious action to call the Nigeria Customs Service and the security agencies to account. Lawmakers, who are ever so overzealous in summoning public officials for trivial issues, surprisingly did not pursue Baru’s smuggling claims further. At the pump head price of N145 per litre, the 20 million litres purchased and subsidised by the taxpayer and smuggled everyday amount to N2.9 billion daily and at N25 per litre in subsidy, N500 million is lost outright each day as marketers say the realistic price is about N170 per litre.
It is crucial to establish the veracity of NNPC’s claims: if indeed, about 20 million litres of petrol or more is smuggled, it calls for swift and urgent action from the government. Customs should be called upon to explain since it would require 606 trucks of 33,000 litres capacity each to ferry 20 million litres across the border each day. If the smugglers use smaller vessels, lorries, motorbikes and cars, then the scale of the daily operation defies imagination and suggests we have no customs service at all.
Second, combined daily consumption of the entire West African region outside Nigeria can hardly take an extra 20 million litres per day. Ghana’s National Petroleum Authority, for instance, puts average daily consumption at 4 million litres per day. While about 80 per cent of refined petrol consumed in Benin Republic is smuggled from Nigeria, according to an International Monetary Fund report in 2012, total daily demand there is less than 3 million litres. Where then does the smuggled product go to?
Spending resources on importing 55 million litres per day is bad enough, yet the NNPC said last week that it planned to import 100 million litres per day for the rest of this month, translating into greater leeway for the corporation to incur extra expenses in subsidies, withhold revenue from the Federation Account and continue its monopoly.
This is not sustainable. Despite the NNPC’s claim to higher supplies, many retailers do not have products. Outside Lagos and Abuja, consumers routinely buy petrol at higher than the regulated price of N145 per litre. So where does the 55 million litres go? At 55 million litres, there should be enough to smuggle as well as take care of local consumption. When daily supplies were much less, petrol was available countrywide. This deserves a thorough investigation.
But we are here today because of government’s refusal to exit direct involvement in refining, storage, distributing and retailing petroleum products. Reneging on his campaign promise to liberalise the sector, Buhari has given free rein to the NNPC that has promptly rolled out ambitious plans entrenching its downstream operations. Though some of its 23 depots are idle, it plans to build more; its retail arm is expanding despite massive losses being made by the refineries; it plans to build an additional refinery in Katsina to be served by a 1,000 kilometre pipeline conveying crude from Niger Republic, also to be jointly financed by the NNPC.
Buhari should stop this expensive rigmarole as a matter of urgency. The Presidency should work to bring private marketers back to importing. In the long run, we should end the folly of importing when we can make the quick wins of privatising the refineries to attract foreign investment and create jobs, while conserving resources currently being wasted on import and the accompanying massive subsidies and fraud.
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