Tackling fuel scarcity with forex subsidy, by Jerry Uwah

Fuel queues have persistently defied the federal government’s orders to the Nigerian National Petroleum Corporation (NNPC). In the last two weeks, the embarrassing queues have returned to Abuja and the neigbouring states at a spate that triggers resentment from intrinsically docile consumers.

Last week, Ibe Kachikwu was so embarrassed by the intractable queues that he ordered NNPC to slap together an ad-hoc measure that would reduce the queues, at least for the period that Nigeria would host the International Petroleum Summit (IPS) in Abuja.

The minister of petroleum does not want his colleagues in the global petroleum industry to know that Africa’s largest producer of crude oil cannot refine the commodity for domestic consumption. NNPC’s ad-hoc measure might ease the supply bottleneck in Abuja at least for one week. However, fuel queues would almost certainly return after the departure of the IPS delegates.

Kachikwu boasted last week that fuel queues have disappeared in Lagos. The tenuous relief in Lagos is not because supply has returned to normal. The truth is that the Department of Petroleum Resources (DPR), the industry policeman has opted to look the other way while some retail outlets including major marketers like Oando, sell petrol at anything from N170 per litre.

Those at the upper end of the market buy from there, while the less privileged patiently wait for outlets selling at N145. Kachikwu is a very honest man. While NNPC is busy parading a handful of impounded fuel trucks and blaming the recalcitrant supply crisis on diversion by marketers, the minister of state for petroleum openly admits that fuel queues are the products of logistic and policy problems. From all indications, it is more of policy than logistic problems.

The crisis would end when the federal government removes the policy obstacle on petrol supply chain. NNPC lacks the capacity to single-handedly import and manage the country’s petrol distribution chain. The corporation can at best handle 30 per cent of the supply, while major and independent marketers normally handle the remaining 70 per cent. With the landing cost of petrol surging to N171.3 when the federal government adamantly fixes the pump price at N145 per litre, it is obvious that only NNPC can import fuel at N171.3 and sell to marketers at N133.

The easiest way out of the supply deficit now at the root of the lengthening queues at fuel retail outlets would be a quiet restoration of fuel subsidies to marketers. Unfortunately, that option is out of the question because most of Nigeria’s fuel marketers are mega criminals. The federal government is still writhing from the pains of the N1.7 trillion stolen from fuel subsidies by marketers in 2011.

The process of auditing the books of fraudulent marketers to ensure that no one claims money for fuel that has not reached the shores of Nigeria is a very expensive and cumbersome process that could even worsen the supply problem.

The option of deregulating the downstream sector of the oil industry and allowing marketers to import petrol and sell at open market price the way they handle diesel, is politically inexpedient in an election year. If the federal government dares to deregulate the price of petrol, greedy marketers would sell it at N200 per litre.

That is the current price of diesel in most parts of the country, despite the fact that diesel is supposed to be cheaper than petrol. Under normal circumstances, the open market price of diesel should not be higher than N160 per litre. However, marketers’ greed pushes it to N200. That is what would happen to the price of petrol if it is deregulated.

The danger is that unlike diesel, petrol consumption is higher and cuts across all rungs of the social strata. A slight increase in petrol price would push the cost of food items and commuter fares through the roof and get inflation rate sailing above 20 per cent. The National Bureau of Statistics (NBS) currently blames the unofficial fuel price hike for the stubborn resistance offered by food inflation at a time when the consumer price index (CPI) is persistently heading south. NBS puts Nigeria’s average price of petrol in January at N191 per litre.

The official pump price of N145 is a political decision that makes some economic sense. However, anyone who is serious about ending the debilitating fuel supply crisis must get major and independent marketers back into fuel import business.

Anything out of that is a huge joke with a colossal supply problem. The federal government should fashion out a way of subsidizing petrol imports for marketers from the forex end of the transaction. Government should sell forex to marketers at anything from N206 to the dollar for petrol imports.

To avoid round-tripping of the forex by fraudulent marketers, the payment should be made directly to fuel exporters by the Central Bank of Nigeria (CBN). Besides, an external body should be set up to monitor the supply of the subsidised petrol. Given our previous experience, the Petroleum Products Pricing Regulatory Agency (PPPRA) is too lawless to verify marketers’ subsidy claims.

The agency failed Nigeria during the fuel subsidy scam of 2011.

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