Tackling the Unending Fuel Crisis

Optimal operation of the existing refineries is fundamental in efforts to create an environment conducive to the building of private refineries, which would help to minimise fuel importation and end the era of fuel scarcity. Vincent Obia writes   

Nervous anticipation and rash speculation about fuel scarcity have become part of everyday life in Nigeria. The fears hardly prove to be groundless. In the latest round of scarcity, Nigerians across the states in the last one week struggled to buy the premium motor spirit, the most consumed petroleum product in the country. Long queues of vehicles and crowds of people besieged the filling stations in a largely fruitless search for petrol – a throwback to a fuel crisis that has been festering for decades. 

Executive secretary of the Petroleum Products Pricing Regulatory Agency, Mr. Farouk Ahmed, attributed the latest fuel crisis to a recent “supply gap” caused by payment problems and the inability of the oil marketers to raise letters of credit from the banks. The federal government had, apparently, delayed the payment of subsidies to fuel importers who, consequently, failed to place fresh orders.

President Muhammadu Buhari has approved the payment of N413 billion in petrol subsidies to try to resolve the problem. And by directive of the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, the Directorate of Petroleum Resources has embarked on the confiscation and free dispensing of petrol to the public at filling stations found to be hording the product. But these can only be a palliative. They can only reduce the pain of the fuel crisis without curing the cause of the problem that has lingered for nearly three decades. A permanent solution lies in a fundamental restructuring of the downstream sector, and a deliberate effort to enforce the rules.

The federal government since the Fourth Republic has tried to deregulate the petroleum downstream sector. But experts say to really reap the benefits of deregulation the government must strike a balance between creation of an environment conducive to private investment and protecting the populace against ruthless exploitation by private capital. To this end, the government must be an active participant in the petroleum products refining and distribution business. The country’s four refineries must be made to operate optimally and other facilities in the sector, especially, the depots, must be reactivated and put to proper use.

Resuscitation of the local refining capacity would reverse the current anomalous situation where the country is about 70 per cent dependent on imported fuel. Nigeria is said to be the only member of the Organisation of Petroleum Exporting Countries that depends so heavily on imported fuel. The common practice is for countries to import to make up for shortfalls in local production.    

With a population of over 160 million, Nigeria, the sixth largest exporter of crude oil in the world, has only four virtually rundown refineries. The installed refining capacity of the four refineries is 445, 000 barrels per day, but they are said to operate below 40 per cent of their capacity. Experts say with the less than 40 per cent efficiency rate, the country’s four refineries are only able to supply about 13.26 million litres of PMS, 6.8 million litres of diesel, and 2.72 million litres of kerosene/jet fuel per day.

This is a far cry from the daily national demand for refined petroleum products. Nigeria is said to consume on a daily basis 30 million litres of PMS, 12 million litres of diesel, 8 million litres of kerosene, and 900 metric tons of cooking gas (liquefied petroleum gas). Only about 30 per cent of PMS consumed in the country is refined locally. The rest are imported.

What with the expensive and controversial government subsidy on imported fuel, which is bedevilled by numerous allegations of fraud, the huge importation strategy is clearly unsustainable.  Removal of fuel subsidy and enhancement of local refining capacity are key in efforts to resolve the fuel crisis.

The federal government has licensed a number of private refining companies, but only one, Niger Delta Petroleum Resources, is said to be operational; others are yet to install their plants. The price regulatory regime, which seems to make imports cheaper, and fears about the security of the refining infrastructure have been identified as some of the disincentives to the establishment of refineries by the licensed investors.

The federal government needs to end the price regulatory regime to encourage private investors to build refineries. But it should first ensure that the national refineries are in perfect working order and the government depots, too, are in use. The current method of relying almost wholly on private depots unnecessarily increases the distribution cost of petroleum products.

Another critical area in the fuel supply chain is security. The federal government needs to guarantee adequate security for the refining facilities. There are allegations that even when the four national refineries are technically ready for use, their operation is often hampered by insufficient supply of crude oil arising largely from pipeline vandalism.

The Petroleum Industry Bill, which the current Senate and House of Representatives are planning to reintroduce for passage, contains vital provisions for the smooth operation of the oil industry, which would also help to eliminate some causes of the fuel crisis. The Buhari government should push for the early passage of the bill.

There is need for the government to pursue deregulation alongside a policy of active participation in the oil industry to create fair competition and an environment conducive to local fuel production without putting the whole country at the mercy of a few private investors.