It is now two weeks into another round of petrol shortages. For many, Christmas was marred as commuting became tedious and expensive. Many others travelling to their country homes either had to shell out much more than the usual fare or shelve the annual journey back to their roots altogether. The spectacle of long queues, empty petrol stations and thousands of commuters stranded at bus stops is a national disgrace. President Muhammadu Buhari can end this cycle now by pulling government out of, and liberalising, the downstream oil sector.
Nigerians are suffering greatly for the short-sightedness of successive administrations. The latest crisis is a replay of what happens in the country every year, sometimes several times a year. Shortages were first reported in parts of the North-Central states, later they spread. Before then, a contrived crisis had shaken the national distribution system for a few days when independent petroleum marketers refused to lift fuel for distribution in protest against alleged discriminatory pricing by the Nigerian National Petroleum Corporation. Immediately they were persuaded to return, the Petroleum and Gas Senior Staff Association of Nigeria declared a nationwide strike on the basis of a dispute between its members working at a little known oil firm. As the union called off the strike a day after it began following desperate pleas by the government, the National Union of Petroleum and Gas Workers Union of Nigerian was preparing to launch its own strike.
But these were just side shows: shortages hit all parts of Nigeria. Lagos, the industrial and commercial hub, soon joined Abuja, the federal capital, in the agony of scarcity, high prices and black markets as the national distribution apparatus faltered once more. Rival narratives emerged from the NNPC, currently the sole importer of refined petroleum, and the marketers. The latter had been warning that they were running out of stock as the NNPC could not meet replacement demands; the state oil company dismissed this, saying that there was adequate stock to last 25 to 30 days, while additional cargoes were on the way in ships. It also accused the marketers of hoarding and ordinary people of panic buying.
But the NNPC’s excuses have collapsed as it failed to deliver on repeated assurances that the scarcity would end. Importing is prohibitive for marketers because of the high exchange rate, rising crude prices and hitches in getting subsidy and bridging costs refunds. The bitter truth is that Nigeria is paying for state entrenchment in the downstream oil sector and failure to liberalise the environment to allow private sector dominance. The revelation by the Independent Petroleum Marketers Association that marketers had left the importation to the NNPC was enough to foretell scarcity. Importing, storing and distributing 35 million litres of petrol are a daunting logistical challenge; it is nightmarish when driven by an inefficient, corruption-driven state bureaucracy. Apart from the five biggest oil companies, many firms move the 300 million gallons of petrol consumed daily in the United States to 123,289 dispensing outlets through part of 200,000 miles of pipelines, over 100,000 tanker trucks, 144 refineries, 38 ships, 3,300 river barges, 200,000 rail tanks and 1,400 terminals, according to the US Energy Information Administration. They are privately run with federal and state governments regulating and influencing prices through taxes.
Two issues are seriously distorting the Nigerian economy and creating room for sharp practices: regulated downstream sector and foreign exchange control regime. Government must take the hard decision of demystifying both in order to create an efficient market environment. Scarcity in the official exchange window and bureaucratic procedures will always affect the value of the currency at the parallel market. It must be emphasised that deregulation does not guarantee lower prices, but fair prices and stable supply. Adjustments in domestic oil prices are reflective of price movements in the international market and foreign exchange rates. Domestic oil prices will decrease as world oil prices decrease. Deregulation will make the downstream oil industry more competitive, eliminate corruption-driven subsidy regime and ensure stable supply of products.
The NNPC should exit the wholesale and retail end of the market to make way for private capital. Government should immediately privatise its 22 depots and all its pipelines and sell off the loss-making refineries. It should undertake immediate reforms to liberalise the midstream and downstream and limit the NNPC to the upstream with an independent investment arm.
Freed from wasting money on moribund refineries and retail stations, the government should invest in building very strong regulatory machinery, robust security for pipelines, highways, waterways and rail tracks and a judicious fiscal policy to encourage private investment in refineries, rail, depots and pipelines.
As regulator, the Department of Petroleum Resources is weak and inefficient; it is too closely tied to the NNPC, an operator it should be regulating. It should be completely reorganised, well-funded, decentralised and de-coupled from the Ministry of Petroleum Resources as an independent agency. The admission by the NNPC that demand rose sharply because of massive diversion of fuel-laden trucks across the borders is an indictment of the Nigeria Customs Service and the entire security apparatus.
As long as the government remains dominant in refining, importation and distribution, major private investors will not follow the Dangote Group’s calculated risk with its $12 billion planned refinery in Lekki.
It is time to reframe the system. There should be an end to multiple currency practice. The current corruption-inducing template of enforcing price parity across the country is unsustainable. While the government can for some time subsidise prices to protect jobs and the most vulnerable, rigid adherence to same price and bridging should give way soon to regional variations. South Africa regulates wholesale margins and controls retail price, but makes allowance for demand, global, oil prices and exchange rate fluctuations. Its 4,600 service stations, 100,000 direct consumers are efficiently served by pipelines, 200 depots, rail, road and sea craft operated by private companies. There should be urgent, deliberate policies to instil competition by attracting reputable global brand names into refining, pipelines and retailing.
Buhari, as petroleum commissioner (minister) 40 years ago, tackled shortages; he should abandon the ignominious record of his predecessors who failed to privatise downstream assets and left Nigeria worse off than they met it.
