With rising foreign exchange rates and crude oil prices in the international market, Nigeria’s economy is, no doubt in dire straits.
Since May 29, 2023 when the President, Bola Ahmed Tinubu, announced subsidy removal on Premium Motor Spirit (PMS) popularly known as petrol, Nigeria’s economy has continued to face excruciating challenges.
With the removal of subsidy, the government intended to quench Nigerian National Petroleum Company (NNPC) Limited’s age-long monopoly of the market as every attempt by successive governments’ policies to liberalize the market failed while prices of fuel were kept within the regulated range.
The PPPRA, now merged with NMDPRA (as a result of Petroleum Industry Act) whose responsibility was to regulate the market, became a toothless bulldog since NNPC was the only player in the sector.
The removal of the subsidy raised the hope of oil marketers who had for so many years agitated for full downstream deregulation through a level playing ground with access to forex at the Central Bank of Nigeria (CBN) official rate like the NNPC does. The idea really was that with market-determined prices, all players in the sector will be able to operate on an even keel.
With enthusiasm, marketers rushed to submit applications for fuel import through the Nigerian Midstream and Downstream Petroleum Regulatory Authority. To date, the Authority has issued a total of 94 importation licenses to oil marketers.
According to the Chief Executive, NMDPRA, Farouk Ahmed, out of the 94 petrol permits, only eight suppliers delivered eight cargoes of PMS totalling 251,000 metric tons within the period June – September 2023 due to devaluation of the naira and high foreign exchange rate.
According to him, “94 wholesale suppliers were issued permits to import PMS into the country. Eight suppliers delivered eight cargoes of PMS totalling 251,000 MT within the period June – September 2023. This low performance was due to the challenge of forex liquidity which has constrained the Oil Marketing Companies’ ability to import the product.”
He, however, said the Federal Government was hopeful that the measures being taken to improve the stability of the harmonized forex market; would help to ensure that more oil marketing companies alongside the Nigerian National Petroleum Company Limited are able to participate in fuel importation.
Also, just last week, Chief Executive Officer, Northwest Petroleum and Gas Limited, Dame Winifred Akpani, lamented the state of fuel supply in the country, saying that less than 10 percent of the licensed marketers since May, could import due to the stifling Naira exchange rate, leading to a high cost of operations.
Market watchers have expressed optimism that the challenge of fuel importation arising from forex shortage may soon be addressed with the Minister of Finance and Coordinating Minister of the Economy hinting last week that some 10 billion US dollars would be injected into the economy in the next few weeks.
Silas Olaniyan, a former banker and an Investment analyst posited that the federal government should prioritise fuel importation by the big oil marketers and depot owners once these funds are injected into the economy.
He said: “Nigeria’s economy is fuel powered. The economy runs almost 85 per cent on PMS. If all is well with fuel supply and distribution, all will be well with the economy. It is the reason why the federal gov should prioritise forex supply to oil marketers once the foreign inflow comes in. It is the right way to go.”
Over the years, access to Forex has been the main albatross to smooth fuel import into the country by the oil marketers, thereby making a mess of every attempt to break the stranglehold of NNPC on the market and ensuring that every half-hearted attempt at deregulating the sector came to grief.
Meanwhile, the 21 depots operated by NNPC are not functioning, according to the Independent Petroleum Marketers Association of Nigeria (IPMAN). Industry sources insist that NNPC Limited may not be as liquid, PMS-wise, as much as it is claiming.
A the current selling price of between N595 and N610 per litre in Lagos and between N610 to N620 elsewhere, the contention is that NNPC Limited is not coming clean to Nigerians on the realities of the fuel market regarding pricing and product supply. Yet, the value of the naira has been steadily sliding downwards, reaching an abysmal low on the parallel market on Friday, October 27, 2023 with one dollar exchanging for N1, 180, although CBN is steady at N1,025 to a dollar.
The price of crude oil has also been on an upward swing, hovering between $89 to $92 per barrel in one week. This was against average $75.47 in May when the government announced removal of subsidy on petrol. Yet, the pump price of fuel in Nigeria remains the same at N595 and N617. One of the oil marketers stated categorically that, “even if the government provides us with foreign exchange today, nobody is going to be in a hurry to import petrol and sell at that price”.
Recall that between 2010 and 2016, the Depot and Petroleum Products Marketers Association (DAPPMAN) and Major Oil Marketers Association of Nigeria, MOMAN relied on Federal government’s promise and resorted to massive fuel importation only to get their fingers burnt as the Federal Government failed to honour its own side of the bargain. At a point, their unpaid subsidy claims and matured Letters of Credit (LCs) arising from the old subsidy regime rose to $2 billion. Of this amount, only 20 marketers were paid
N69 billion after the National Assembly’s intervention three years later. Some of them are still owing to date.
Market watchers contend that the President Bola Ahmed Tinubu government, having demonstrated enough courage by ending the fuel subsidy regime, should walk the talk by ensuring that oil marketers are not put in a dire straits again as this will spell doom for the new policy and indeed the economy.
Experts reasoned that allowing NNPC to continue as sole importer of fuel into the country has not only returned the country to subsidy regime, but has also weakened the economy.
Already, there is a report that N169.4 billion was paid as fuel subsidy in August. If that is the case, analysis of data provided by marketers and some industry stakeholders showed that the federal government could be paying as much as N1.68 trillion from September to December as subsidy this year as actual price of PMS and going by international market dictates local price at the pump should be between N890/900 per litre. Nigeria is in the grips of foreign currency shortages, which have seen the naira weaken to record lows on the parallel market. The new Central Bank Governor, Mr Yomi Cardoso had last week said that policymakers faced a nearly $7 billion backlog in foreign exchange demand.
Despite this, the Chief Executive Officer of NNPC Limited, Mele Kyari told energy experts audience last week that government had not reintroduced a decades-old petrol subsidy scrapped at the end of May, despite concerns from investors of a de facto return as pump prices have not moved since July, despite a more than 30% rise in oil prices. “We are recovering our full cost from the products that we import. No subsidy whatsoever,” he said.
Experts, however, warned that returning fuel subsidy at this time will lead to policy somersaults which could have very grave implications for the economy. It is for this reason that they urge the government to spare no efforts in ensuring that right incentives are put in place to bring the oil marketers back into business and ensure keen competition among all players including NNPC Limited.