Despite the global oil glut, queues returned to Nigerian filling stations Last week, writes Solomon Elusoji

Last week Monday, Nigerians woke up to a nightmare. The signs had been there for quite a while, with filling stations beginning to ration their sale of Premium Motor Spirit, popularly referred to as petrol. In fact, in late February, the Independent Petroleum Marketers Association of Nigeria (IPMAN) had issued a warning that fuel might become very scarce, due to the Nigerian National Petroleum Corporation’s (NNPC) inability to import enough petrol into the country.

“There is supply gap over a period of time now, the NNPC imports 78 per cent of the petrol needs of the country,” the National Operations Controller of IPMAN, Mr. Mike Osatuyi, had said.

But while some Nigerians still held hope that a crisis would be averted, the glut hit a crescendo during the past week, as several filling stations across the country closed shop and motorists had little choice but to resort to the black market, where exorbitant prices were charged. The few stations which continued to sell petrol were besieged by hundreds of people carrying kegs, and the line of vehicles waiting to be served spilled towards the road leading into the station, contributing to static traffic, especially in big cities like Lagos.

Expectedly, the scarcity created a plethora of avaricious incentives for filling station attendants to collect bribes and divert the scanty petrol to the highest bidders. The motorists, who rely on petrol to drive their vehicles, are the direct victims of this capitalistic evil. This has led to a drastic spike in the price of transportation. This, higher transportation costs, has had a negative effect on the production of goods and delivery of services, adding to the contraction of an already shrinking economy.

“I had to park my bus somewhere,” one commercial driver, Joshua Olatuyi, told THISDAY. “We cannot get fuel anywhere. I was at a station for more than five hours yesterday, but they didn’t attend to us.”

The reason for the fuel scarcity, as hinted earlier, can be narrowed down to a drop in the product’s supply. Since Nigeria, one of the biggest producers of oil in the world, does not produce its own petrol, the NNPC has become the biggest importer of petrol into the country. The huge fluctuations in the foreign exchange market have discouraged more marketers from continuing with petrol importation. But the NNPC, a government entity, has special access to the country’s dwindling foreign exchange reserves and can arrange for swapping the country’s crude oil for processed petrol.

The NNPC’s emergence as the biggest importer of petrol into the country was not a consequence of random market forces, but conscious decisions made by the Buhari-led government. Late last year, the government scrapped a “costly” subsidy scheme that paid importers the difference between international prices and capped local prices of fuel. This has reduced the incentives available to petrol importers. Also, considering the severe dollar shortage the country is currently facing, marketers, even the NNPC, are finding it increasingly difficult to access funds for the purchase of petrol products. To solve this problem, the NNPC decided to turn to local refineries.

But the results were not encouraging, as they, all four of them, could not run consistently and failed to meet their production targets. So, the country was stuck with the import option. But if dollar was scarce, what could the country give in return for petrol?

A partial solution was the country’s physical crude oil cargoes – the country would give crude oil in exchange for processed petrol. This was a practice that had been in existence before the dollar scarcity, but it represented just a part of the country’s petrol imports. This time, the NNPC signed deals with refiners like Total, Varo Energy, Cepsa and ENI, to exchange oil directly for petrol and other products beginning in February. However, due to legal and logistics complexities, it takes time for deals like these to take effect and have a visible impact on the supply chain.

Still, on February 2, the Nigerian government jettisoned its policy of exchanging crude oil with refined petroleum products, from foreign suppliers, due to the controversial nature of the deals that had been signed. There had been the usual whisperings of corruption involved in the agreements. The Minister of State for Petroleum Resources, Ibe Kachikwu, said in its place the government was adopting Direct-Sale–Direct-Purchase (DSDP) arrangement billed to take off from March 2016.

The minister announced the new arrangement while appearing before the House of Representatives Ad-Hoc Committee set up to investigate NNPC’s offshore processing and crude swap arrangements for the period between 2010 to date. The new DSDP arrangement, he said, was adopted to entrench transparency into the crude oil-for-product transaction by the corporation in line with global best practices.

The minister stated that the DSDP option would save the government over $1 billion, as all cost elements of middlemen would be eliminated, giving the NNPC the latitude to control crude oil sale and purchase transactions with its partners.

“When I assumed duty as the GMD of NNPC, I met the Offshore Processing Arrangement (OPA) and like you know there is always room for improvement. I and my team came up with the DSDP initiative with the aim of throwing open the bidding process,” Kachikwu said. “This initiative has brought transparency into the crude-for-product exchange matrix and it is in tandem with global best practices.”

According to him, the DSDP initiative whittles down the influence of the minister in the selection of bid winners as it allows all the bidders to be assessed transparently based on their global and national track record of performance before the best companies with the requisite capacities are selected.

But none of these policies could avert the fuel crisis experienced last week, as Nigerians scrambled to get fuel, plunging the economy to new lows.
The Trade Union Congress of Nigeria (TUC) has come out to decry this sorry development. In a statement signed by the TUC President, Comrade Bobboi Bala Kaigama, the Union said it was pained by the scarcity and wondered when this torture will become a thing of the past.

‘‘In fact, by our judgment it appears government has abandoned Nigerians at the mercy of the private depots owners who sell the product above the ex-depot price of N76.50 per litre,” the statement read. “For us, it is bad enough that the N18, 000 national minimum wage has become meaningless in the face of the prevailing economic realities. But worse than that almost on a monthly basis Nigerians are made to spend more money on transport fare and purchase of fuel at an exorbitant prices.

“The idea of the change mantra the way we see it should be to free the country from the clutches of a few that are manipulating the system, which of course has brought the country to its knee. The pains we bear today are needless if the people in authority are serious and wish to do something positive about it.”

There is no doubt that the Buhari government is currently undergoing a torrid season, in light of the refreshing hope inspired by his victory at the polls. But last week’s fuel scarcity really puts this government’s image in bad shape.

To end the queues, the NNPC has come out to say that it is stepping up collaboration with the Major Oil Marketers Association of Nigerian (MOMAN) and other downstream industry players. In a statement by its spokesman, Ohi Alegbe, the Corporation stated that it has secured the commitment of the leadership of MOMAN for effective collaboration in this regard and assured that the queues will disappear very soon, as supplies increase.

To achieve this, the statement explained, truck-out to filling stations in the Lagos area has been increased from the regular 245 to 295 trucks per day, about 9.7 million litres, while truck-out to fuel stations in Abuja from Suleja depot has been stepped up to 210 trucks per day, about 6.9 million litres, from the regular supply of 160 trucks per day.

The NNPC explained that similar increment in supply volume has been activated in the Port Harcourt, Calabar, Kano and Kaduna areas to ensure seamless availability of petroleum products across every nook and cranny of the country.

“Within the last 48 hours we have received six cargoes of petrol, about 270 million litres, and beginning from March 1st, 2016, we shall begin to receive one cargo of petrol every day, about 45 million litres,’’ the statement informed.

The statement added that the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, has directed the full activation of an Intra-Ministerial Joint Monitoring Task Force to enforce compliance to laid down rules and regulations governing the supply and distribution of petroleum products.
Still, Nigerians can only hope that the scarcity goes away, and never comes back.