Nigeria, the world’s seventh largest oil exporter, is unable to meet its domestic fuel needs. In the past four weeks, Nigerians have been groaning under a biting fuel scarcity. Where they get petrol to buy, they pay through the nose. This has paved the way for adulteration, among other sharp practices. For how long will this continue? Is deregulation, as some suggest, the way out? EMEKA UGWUANYI examines the issue.
AN acute scarcity of petrol has led to long queues of vehicles, motorcycles and people clutching jerry cans at filling stations.
It appears there is no solution to the problem. The marketers and the Ministry of Finance are waiting to see who blinks first. The citizens are bearing the brunt as marketers sell at over the regulated price of N87 per litre. Currently, most of the retail outlets don’t sell to vehicles; they prefer to sell to hawkers who sell to motorists in 10-litre containers at between N250 and N400 per litre.
The marketers claim the government owes them over N200 billion in subsidy arrears and are insisting on “no pay no fuel import”; the government, which has three days to the end of its tenure, is buying time so that the incoming administration will inherit the debt – and its consequences.
The government’s inability to pay its debt, according to the operators, seems to confirm the allegation that Nigeria is broke. But the Minister of Finance and the Coordinating Minister of the Economy, Dr Ngozi Okonjo-Iweala, has refuted the allegation several times. If the government is not broke, why did it issue a post-dated N100 billion cheque last month to the marketers? Why can’t it pay its debts, which accrued from a business deal and save Nigerians from going through this harrowing experience? operators asked.
Petrol scarcity has been caused by delays in the payment of subsidies to marketers, a situation that adversely affects economic activities. Besides, the failure to pay subsidy encourages marketers and tanker drivers to cut corners.
Is fuel subsidy sustainable?
The fight for the removal of fuel subsidy and full deregulation of the downstream sector of the petroleum industry started during President Olusegun Obasanjo’s administration. At a point, Mr. Funsho Kupolokun, a former Special Adviser to the President and a former Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), was nicknamed “Mr. Deregulation,” for his campaign for the deregulation of the sector. The government wanted to deregulate the sector then, but the coalition of labour and civil society groups rose against it and the plan was stopped. Every government since, then, has made attempts to stop fuel subsidy, but couldn’t achieve it owing to protests and strikes.
A former Group Managing Director of the NNPC and Minister of Petroleum Resources, now a traditional ruler in Rivers State, the Amayanabo of Nembe Kingdom, Mingi XII, Dr. Edmund Daukoru, noted that the reasons for lack of support and hostility towards the government’s deregulation policy were as a result of broken promises by past governments, poor implementation record, poor track record of price decline in the country, mistrust, and lack of proper approach to public enlightenment. He said the government could not sustain deregulation because the number of consumers increase yearly and the refineries were not working to make the petroleum products available.
However, each year, the cost of subsidy continued to soar reaching its zenith in 2011, when over N2.1 trillion, about half of the federal budget for that year, was spent on subsidy. Rattled by that expenditure, the Federal Government on January 1, 2012 announced full deregulation of the sector and a litre of petrol sold about N140. Supported by the public, labour and civil society groups, again, rose against it. The opposition grounded economic activities across the country for over a week, and the government, again, succumbed to regulation and fixed the price of a litre of fuel at N97 after series of engagements with the labour and civil society groups. Despite entreaties by the government and operators of the downstream sector to persuade the populace to embrace deregulation, which will attract investors to build refineries and make petroleum products cheaper, labour groups opposed it.
From 2006 to date, trillions of naira have been spent on fuel. For instance, a breakdown of the subsidy payments showed that N261.105 billion was spent in 2006, N278.859 billion in 2007, N630.571 billion in 2008, N463.517 billion in 2009, N673 billion in 2010, over N2.1 trillion in 2011, N1.5 trillion in 2012, and N1.1 trillion 2013 and, certainly, 2014 subsidy shouldn’t be less than a trillion naira. The regrettable aspect of the fuel subsidy regime, according to an official of the Finance Ministry, is that the government pays for the interests on bank loans taken by marketers as well as the foreign exchange differentials. For example, the government last year paid the marketers N345 billion, which was subsidy for 2013 and part of 2014 leaving an outstanding of N264 billion for the remaining part of 2014 and January, this year. Out of the N264 billion, the main subsidy was N164 billion while the foreign exchange differential and interest on loans from banks was N100 billion. By end of February, the debt has risen to N354 billion, of which the Federal Government paid N154 billion in April, leaving a balance of N200 billion, which is the reason marketers refused to import fuel. Also by the time the government agrees to pay, the debt could have risen to over N300 billion. However, the outgoing government should endeavour to settle its debts to the marketers because it is an agreement, so that the incoming government should decide whether to continue with subsidy or not, the official said.
Also, the oil majors in the downstream, such as Total and Mobil Plc have at various yearly general meetings told their shareholders that their inability to build refineries in Nigeria is because of regulation of fuel price, adding that shareholders’ money cannot be subjected to such risks. It is also in view of the recurring fuel scarcity coupled with dysfunctional refineries that the Minister of Petroleum Resources, Mrs Diezani Alison-Madueke, said the dependence on imported petroleum products and payment of subsidy would not help the country, adding that the only remedy is the deregulation of the downstream sub-sector. “We can’t eat our cake and have it, without deregulation of the downstream oil sector; investors will not come and invest, so we must think of deregulating our downstream sooner or later for us to have a lasting solution,” she said.
Why marketers refused to import
Earlier, whenever the government makes a part payment to the marketers on how huge the outstanding debt is, it calls the marketers to a meeting, assure them on the payment of the balance and plead with the marketers to resume importation. But it is not so this time. Besides, the National Assembly has reduced subsidy money in the budget to a very insignificant level, sending signals of full deregulation of the sector. The banks have also stopped funding fuel import by marketers because of fear of owing.
However, operators have condemned the action of the government for avoiding payment because the subsidy model instructs the oil marketers to import petroleum products with their money, while the government pays them the differential between the actual cost of pump price and the regulated price as well as the interest on bank loans and foreign exchange. Therefore, if these patriot marketers commit their money to this project, exposing them to huge financial risks and interests on bank loans, the government should fulfill its part of the agreement. The agreement as enshrined in the Petroleum Support Fund (PSF) is that within 45 days of import with verifications of documents by the Petroleum Products Pricing Regulatory Agency (PPPRA), payment will be made. But the government is not faithful to this agreement as payment is delayed into several months and years leading to unwarranted accumulation of interests on loans, the operators said. The recent drastic fall in value of the naira substantially affected the subsidy debt profile as the petroleum imports are carried out in dollar. Therefore, when the costs of transactions are converted into naira, the amount soars. They said the administration should clear the arrears of outstanding claims before handing over to the new government on May 29, this year because the new government might further delay payment under the guise of probes, which could lead to another round of scarcity.
The Executive Secretary, Major Oil Marketers Association of Nigeria (MOMAN) Mr. Obafemi Olawore told reporters that after a meeting with the Minister of Finance and Coordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala, in January to discuss the mode of payment of the subsidy, she assured the marketers the debt would be cleared by the end of March, a promise she didn’t fulfill. The government only paid us N154 billion, out of N354 billion, he added.
The debt covered money owed MOMAN members, which consist of Mobil, Oando, MRS, Total, Conoil and Forte Oil and members of Depot and Petroleum Products Marketers Association (DAPPMA) as well as members of the National Association of Road Transport Owners (NARTO) that lift the products to the various parts of the country.
However, the conflicting figures of the actual amount owed the marketers also worsened the non-payment of subsidy and import of fuel. According to Olawore, the marketers are owed N200 billion while the Ministry of Finance said it is N131 billion. He said the N200 billion debt has been confirmed by the Central Bank of Nigeria (CBN) and the Petroleum Products Pricing Regulatory Agency (PPPRA) but that Mrs Okonjo-Iweala still went on to set up a committee to verify the claims. The government is blaming the delay in the payment to the non-completion of the verification, which according to Olawore, is a ploy to pass the debt to the incoming government on May 29.
The implication of this approach by the President Goodluck Jonathan government is that if the debt is passed on to the new government, the process of verification and approvals by PPPRA, CBN, Debt Management Office (DMO) and Minister of Finance, would start afresh and could take some months to complete, thereby compounding the fuel scarcity.
The marketers have held a meeting on the issue of the conflicting debts. It was attended by the CBN and other stakeholders. But the matter wasn’t resolved. Mrs Okonjo-Iweala, it was learnt, said the outstanding claims would be paid by the new government, adding that government is a continuum. “The understanding reached with the marketers, is that all the outstanding debts owed will be paid based on claims processed by Petroleum Pricing Products Regulatory Agency (PPPRA).
