How Govt’s Illegality Causes Fuel Scarcity- Akabuogu

How Govt's Illegality Causes Fuel Scarcity- Akabuogu
Akabuogu

 

Nigeria is a typical example  of the Theatre of the Absurd.

Despite being the largest producer of crude oil in Africa, scarcity of petroleum products continues to be an  incessant problem in  Nigeria,touted as the giant of Africa

 Over the last, 50 years, fuel scarcity has often happened prior to a hike in fuel price.Intrestingly ,all past governments of this country had  at one time or the other increased fuel pump price.

During Gowon’s tenure as Head of State, he was said to have increased the price of petrol from 6k to 8.45k.

Murtala Muhammed increased the pump price of petrol from 8.45k to 9k

Obasanjo increased the pump price from 9k to 15.3k during his time as Military Head of State 

Alhaji Shehu Shagari  increased the pump price of petrol by over 30% from 15.3k to 20k

The pump price remained the same during Buhari time as President, but when Babangida assumed power, he increased the pump price a total of four time-20k to 39.5k;5k to 42k;42k to 60k (Private Vehicles);60k to 70k

During Ernest Shonekan’s brief tenure, he increased the price of petrol by over 700% from 70k to N5

Abacha was in power for 5 years and his tenure was accompanied with fuel scarcity. Initially, he reduced the petrol prices but later increased it before reducing it again.

N5 to N25k;N25k to N15;N15 to N11

 Abdusalam Abubakar was the interim President between 1998 and 1999 and his tenure saw some movements in terms of fuel price. N11 to N25;N25 to N20

During Obasanjo’s tenure as president, the price of petrol only saw a single change but when he returned in 1999, the price experienced several changes over a period of eight years. N20 to N30 ;N30 to N22 ;N22 to N26;N26 to N42;N42 to N50;N50 to N65;N65 to N75

Musa Yar’Adua was able to drop the price of petrol from N75 to N65 during his tenure as President.

The pump price changed three times during the tenure of Goodluck Jonathan:N65 – N141;N141 – N97;N97 – N87

Despite his campaign promise to reduce the price of fuel, President Buhari increased the price of petrol from N87 to N143 in 2016 later to N175 few years back.Today fuel is sold between 250 to N350 depending on the area.

Barrister Emeka Akabuogu, is a widely recognized expert in the field of maritime law and policy in Nigeria and leads the resourceful and enterprising team at Akabogu and Associates. Akabuogu who specializes in Maritime, International Trade, Energy, and Natural Resources Law,in this interview with MMS Plus takes the blame on why there is fuel scarcity to the government. Why has previous governments increased fuel pump price instead of fixing our refineries? He spoke extensively on issues in the petroleum Industry, including non -implementation of the Petroleum Industry Act (PIA), dis-functional refineries and others.He shared his thoughts with Frank Odinukaeze.Enjoy it.

 We are once again witnessing fuel scarcity and long queues in filling stations.What are the possible micro and macro reasons responsible for the current fuel scarcity in the country?

I think I would only look at the macro factors because I am not up to date enough with the details of what is precisely causing the current scarcity we are facing, but I do know that there is scarcity, and for me scarcity is macro issue,scarcity in the sense that there is unavailability of petroleum products readily available to either off takers or to retailers at pricing which is suitable in all the circumstance. There are two broad issues:One relates to product availability while the second relates  to product  pricing. These are the two macro issues which need to be dealt with to ensure that  we have sustainable availability of petroleum products.

With regards to availability, the  reality as everybody knows and has been for the last couple of years is  that we have only one  supplier of petroleum to the country and that   is the NNPC. In a situation when you have only one supplier of products, it means  that if the logistics arrangement,  financing arrangements or any other arrangements of that one  supplier is compromised  in anywhere or  is faulty in  any  reason,then the entire value chain would be impacted and that is the danger of a single supplier. A product like fuel requires that you have multiple suppliers ensuring that alternatives exist across the country at every point in time. As far as availability of petroleum product is concerned the key challenge is the existence of a sole supplier to the Nigerian market ,even if that sole supplier is a mega organisation like  Nigerian National Petroleum Corporation (NNPC).

 Underlining this issue of a sole  supplier is actually the more structural issue of pricing and also the fiscal and monetary policy. Now ,I use monetary policy adviseably  with regards to the issue of foreign exchange  availability. There is no law or no policy or law which says there should just be one supplier of petroleum products in Nigeria. The reality of one supplier has been occasioned simply by the very practical situation where  petroleum products need to be paid in foreign exchange. Foreign exchange is not available to individual, marketers or traders of petroleum products and as a result even if they have licenses to proceed, realistically they can’t; because they have  to deal with a dual foreign exchange rate.  With some persons or organizations getting  foreign exchange rate at lower rate others getting at a higher rate; obviously that does not encourage competition. Also, there is a price cap which means that  irrespective of the rate at which you bring your petroleum products, you have to sell at a particular price. So, these are monetary and economic issues at a macro level which need to be dealt specifically to ensure we have supply going forward on a sustainable basis. The  PIA which expressly deregulates the petroleum industry market but it is being breached violently.

We have a situation where the deregulation of the market is not exactly in place because the government directly has  directed that petroleum products at the retail  stations must be sold at a certain price. That directive is  a breach of the Petroleum Industry Act.  It is a violent breach. And Government is aware that it is a breach.If you recall, that is why  at the beginning of the year.or sometimes last year,  the government announced through the Ministry of Finance that it would be delaying the implementation of the Petroleum Industry Act. They announced that they were going to send a bill to the National Assembly to amend the Petroleum Industry Act to deal with that issue of deregulation. I am not aware that they ever did.  And even if they did, Nothing came out of it.So, as far  as  the Law is  concerned, the Petroleum Industry Act exists in the form in which it came and it’s being breached as we speak. So ,It could be valid to assert that the fuel scarcity and issues undergirding the fuel scarcity are direct results of illegality perpetrated  by government as far as the petroleum products market is concerned. Whatever is happening today, at the end of the day is really directly or indirectly the result of things I have said.

Lately, we may now have specific or more granular issues which are arising, all of which are  a subset of these  broad issues. I understand that even the NNPC makes petroleum products available to the marketers or to the depots via mother vessels. It means that the ex-  depot price which determines the price which NNPC is making the products available is the price  which ends at the point in time calculated up to  the loading of the products from  the mother vessels.

 These operations cost  you come across which have been argued ,have not been factored in to the ex- depot cost, and into the recommended price cap which  the government has given. If at the end of the day, many operators are finding it difficult to work within this line, they simply would not load even if you have products.  And  when they  do load,  they would be tempted to tamper with their liters, under dispense or simply mark up the rates to ensure that  they are able to make profit. So we need to stop pretending. Sometimes  I  hear government say they  go after petrol stations , the truth is that they are not attacking the main truths which are causing fuel scarcity . All you are seeing are symptoms. There are more fundamental issues in the petroleum products market.

 

Oil theft and pipeline vandalization are said  to be some of the reasons why there are fuel hike and scarcity .What is your take on this? 

I can’t really  directly link it, because the oil theft you are talking about is crude oil theft. Crude oil theft, unless the crude oil that is being stolen is crude oil directly meant for refining,locally, then in that case crude oil theft could be the reason.  But we know that the fuel product we are consuming is not refined locally. You know there is direct purchase arrangement by which certain partners of government are given crude oil and in exchange for that ,they are supposed to give Nigeria refined petroleum products.The argument linking crude oil theft to unavailability of petroleum products is farfetched, because the crude oil being stolen was not crude oil that was meant for refining locally for us to say now that because there is no crude oil to refine there are no petroleum products. All the petroleum products which we use in Nigeria are imported.  To that extent, I may not accept  hundred per cent that that is the reason for fuel scarcity.

 Another reason linked to the fuel scarcity is the absence of functional refineries in the country.What is your reaction, sir?

 Yes, refineries in the country  should ordinarily ease the availability of petroleum products. However, we still need to  deal with the fundamentals. The fundamentals go to petroleum products pricing .So if you have a refinery in your country and the refinery  for instance is privately owned , are we going suddenly to say that the privately owned  refineries should supply the products  at a  certain price cap ,without recourse to their cost of production?  I doubt.  If the refinery is government owned, are we going to say that the government owned refineries should be  operating at  a loss?  That is neither here nor there.If that is the government policy- that is fine. It means that the government would be subsidizing the cost of crude oil which is going to that refinery, that could be a policy  option ,but don’t forget  that at some point, accounting must, be done to know who bears that cost.And if that cost is borne by whoever, don’t forget it would impact on the revenue which is accruable  to the country from crude oil field.  It all seems to come to a position where we once and for all clearly define what should be our petroleum availability so that we are clear as to the  direction we want to go. If it is that we want to ensure that we have crude oil production which is available exclusively for local use as indeed we actually have on paper, and that crude oil is crude oil which is outside the numbers that are already ear marked for export, then so be it. It means also that the joint venture partners  who are involved in the production of that crude oil would not have  to  concentrate on market rate for whatever crude oil is being pumped into the Nigerian system at costs which are below the market  price. Otherwise there must be accounting and reconciliation between the joint partner ventures and the  government  to ensure that it is taken into account. Whatever is the case we have to clearly articulate and firmly implement whatever it is which  we agree ,which must also be  consistent with sound economic  policy and national development interest.

Despite the suspension of subsidy removal you just talked about Petroleum Industry Act  some people have argued that government should  totally remove the fuel subsidy  and divest  the money into other sectors of the economy,for the benefit of the common man Do you share this view?

 Yes I do. There has been deregulation of the market under the Petroleum Industry Act but that  is not being implemented. So I do share the idea that the market should be deregulated. Nigerians should begin to get  more disciplined in the use of petroleum products ,and my reason is that countries which have less robust economy in the west African coast are already operating a deregulated market.  It cannot be true that the Nigerian market cannot handle deregulation. That can’t be true, because  Ghana,we know is operating deregulated market. Ghanaian economy is less robust than  the Nigerian economy. So if Ghanaian economy can handle it ,then Nigerian economy can handle it. We need to get the economies right, pay properly for the things to which we consume and where  necessary,moderate fuel consumption because it is too much.

 Recently you had your OTL program, what are some of the highpoints of that  event?

 The programme was undertaken in collaboration with the key downstream regulatory authorities and market operators. There were several high-points. The market remained  very active and innovative, given the feeling  downward trend in oil trading. So we are seeing  a lot more activities in the retail end , in gas,  and obviously technology and innovation. What is evident is that there is a lot of room for innovations within the Nigerian market and expanding across the continent . The markets are ready to take on the outcome of government policies that favour deregulation . Most specifically, there is an increasingly readiness to ensure that not just  Nigeria but other countries implement  important global bench mark as far as sulphur content   to petroleum products  is concerned. We  see countries  across the West African coast.

Again, countries like Ghana  have already  set  very important sulphur  specifications that are consistent with  global sentiment,but Nigeria  still have a long way to go in that line. But Nigeria is already making effort towards that .

For that market, the OTL,the downstream oil market,there is a lot that is pending the  actual implementation of the PIA. There are lots of new regulations coming on stream and it is expected in the next couple of months , particularly after the new government come into play,  a lot more  clarity  may begin to be   evident.

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