Refineries: NLC’s unenforceable demand



Nigeria Labour Congress (NLC) last week stopped short of declaring war with the federal government over the recent increase in the price of petrol. The NLC rejected the spurious increase and demanded a return to the old price. The statement was curiously silent on what the union would do if the demand was not met. It did not even set the deadline for return to the old price.

Ironically one of the NLC demands boils down to flushing billions of dollars down the drain in spurious turnaround maintenance (TAM). The NLC ordered the federal government to fix Nigeria’s four archaic refineries to stem the spurious pump price hikes.

That is practically impossible. Successive governments in the last 30 years have failed to fix the refineries. The present government on its part has dawdled between complete and partial privatization, only to cling tenaciously to the retrogressive statist posture. No one in the federal government knows precisely what to do to the refineries. A call on government to fix them amounts to demanding the impossible. It is an exercise in futility.

NLC was right on target when it said in its condemnatory statement that Nigerians are paying for the inefficiency of the federal government with the atrociously high pump price of petrol. Locally refined petrol is clearly cheaper than imported one because it is devoid of the huge freight paid in dollars in the face of a weak naira. The cost of the commodity itself is paid in over-valued dollars against a persistently depreciating naira.

Vessels hauling petrol and other refined petroleum products to Nigeria are often stuck in the endemic congestion at Apapa Port. They incur huge demurrage which is passed to consumers.

That explains why the pump price of petrol and other refined petroleum products are unacceptably high in Nigeria even as the federal government does not tax them.

A casual analysis of the cost of refining a barrel of crude oil and the attendant products from it gives a clear picture of what corruption and government inefficiency imposes on Nigerian consumers.

An efficient refinery churns out 78 litres of petrol, 40 liters of diesel, 16 litres of aviation fuel (dual purpose kerosene), 16 litres of Liquefied petroleum gas (LPG), 10 liters of fuel oil and 20 liters of residuals from a barrel of crude oil. The cost of refining a barrel of crude oil in an efficient refinery is $0.28 (N100.8 at the official exchange rate of N360 to the dollar).

The six different outputs from a barrel of crude oil carry different price tags but for the purpose of this discussion let us put the ex-depot price of each of them at an average of N100 per liter. The 180 litres of different refined petroleum products from a barrel of crude oil would sell for N18, 000.

At the current crude oil price of $42 per barrel (N15, 120), the refiner makes a margin of N2, 760 per barrel of crude oil after factoring in the cost of refining.

If Nigeria’s four refineries with capacity for 450, 000 barrels per day were operating at that level of efficiency, they would be making profit of N1.2 billion daily. Above all, petrol would be selling at the pump price of N115 per litre at the current price of crude oil.

The logic behind the above analysis is that Nigerians currently pay an additional N30 per litre of petrol as the cost of the inefficiency of the federal government.

That is what the federal government has inflicted on Nigerian consumers of imported petrol and other refined petroleum products by clinging tenaciously to its retrogressive statist posture on refinery ownership.

Nigerian consumers are fleeced from two ends with the perceived regulator of petroleum products prices gleefully watching the exploitation.

The Petroleum Products Pricing Regulatory Agency (PPPRA) is the greatest enemy of fuel consumers. The agency’s business begins and ends with enrichment of marketers at the expense of consumers. PPPRA’s connivance with marketers is seemingly endless. It has persistently manipulated the price of petrol in favour dubious marketers.

When the Nigerian National Petroleum Corporation (NNPC) mischievously dropped the ex-depot price of petrol to N108 per litre and maintained a curious silence on the pump price of the commodity, it took PPPRA something close to three weeks to fix the pump price.

For the period it took the price regulator to wake from slumber, marketers swindled consumers and were making something close to N100 as profit from a liter of petrol.

The less dubious among the marketers complained that they have reminded PPPRA with written request for a position on the pump price commensurate with the new depot price fixed by NNPC, but the price fixer would not move.

Even when the PPPRA felt consumers have been sufficiently swindled and grudgingly announced a new pump price, it still took the marketers several days to adjust their pumps to the new price.  

No one lifted a finger in protest against the humiliating rip-off. Last week when PPPRA suddenly pushed up price of petrol by N20, the meters were adjusted within minutes of the announcement.

What happens to petrol consumers is child play compared to the development in the so-called deregulated diesel and aviation fuel markets.

Even when the price of crude oil tumbled to record lows in the middle of April 2020, the pump price of diesel never dropped below N200 per liter. PPPRA defended the rip-off with the lame excuse that the pump price of diesel was fixed by an inter-play of market forces of demand and supply since the market was deregulated.

The price was actually fixed by ruthless marketers with the tacit connivance of a cruel regulator. Consumers have no one to cry to.

NLC has given the federal government a tall order on the refineries. No one in the federal government has the political will power to stop the looting in the refineries and execute a TAM at reasonable price.

The NLC should tell government to sell the refineries and provide the required incentives to encourage private sector investment in the industry. That is the solution to the eternal swindling by marketers with the tacit connivance of PPPRA.    

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