NNPC’s Increasing Burden of Petrol Importation

With the petrol importation by the marketers dropping from 60 per cent at the peak of the subsidy regime in 2011, to zero at the moment, NNPC is again saddled with the responsibility of bridging the supply gap and incurring huge losses that could fuel allegation of corruption in the future. Ejiofor Alike reports

Prior to 1999, the Pipelines and Products Marketing Company, a subsidiary of the Nigerian National Petroleum Corporation, was the sole importer of petroleum products into the country. With the refineries’ relatively better performance in the period, the locally-refined products effectively augmented the imported products by the NNPC to meet domestic demand and check scarcity.

After 1999, private marketers such as Ascon Oil, Sahara Energy, and Ocean & Oil (now Oando), joined the PPMC to import petroleum products into the country.

When the Petroleum Support Fund started in 2006 after former President Olusegun Obasanjo had announced its introduction in the 2005 Independence Day speech, more marketers joined in the importation of petroleum products, as the federal government started paying subsidy to eliminate the effect of volatility of crude oil on the price of imported products and ensure stability of domestic prices.

At the peak of the subsidy regime in 2011, about 101 marketing companies and independent importers were importing approximately 60 per cent of products consumed in the country, while the NNPC’s PPMC accounted for the balance.

However, with the participation of several marketers in the PSF scheme, there were several manipulations and infractions, which culminated in the infamous subsidy scam.

After the various subsidy probes and the reform initiated by the then Executive Secretary of the Petroleum Products Pricing Regulatory Agency, Mr. Reginald Stanley, the number of participating companies dropped to less than 40.

Persistent Fuel Crisis

Section (5) (I) (b) of the NNPC Act of 1977 empowers the corporation to engage in “refining, treating, processing and generally engaging in the handling of petroleum for the manufacture and production of petroleum products and its derivatives.” Subsection (c) vests in the corporation the powers to engage in “purchasing and marketing petroleum, its products and by-products.”

However, with the collapse of the refineries, the country became almost 100 per cent dependent on imported products, thus, putting pressure on the NNPC to ensure availability of products. The entry of the private marketers in the downstream business effectively complemented the efforts of the NNPC. With the marketers accounting for a reasonable chunk of imports, NNPC was relieved of a lot of pressure.

Since 2009, fuel scarcity has occurred in the country each time the marketers stopped importation of products.

Before the country exited the subsidy regime in May 2016 with the increase in pump price of petrol from N86.50 to N145 per litre, the marketers had stopped importation on several occasions to protest unpaid subsidy claims, plunging the country into fuel scarcity. This had led to frequent crisis in the downstream sector as the NNPC alone could not bridge the supply gap as a result of lack of adequate reception and distribution facilities that could feed the whole country with products.

NNPC lacks facilities to receive imported products from vessels and distribute to the whole country. Though the corporation has about 21 depots across the country, where trucks can lift products and wet the whole country, the vandalism of pipelines hampers the pumping of imported products to these 21 depots through pipelines.

Forex Challenge

After the exit of the country from the subsidy regime in May 2016, marketers were encouraged to participate actively in importation with the partial liberalisation of the sector. But today, importation by marketers has dropped to almost zero as a result of high cost of forex, which makes the N145 pump price unprofitable and, therefore, unsustainable.

Speaking on this latest challenge, the chairman of Depots and Petroleum Products Marketers Association (DAPPMA), Mr. Dapo Abiodun, said it was not by choice that the marketers allowed NNPC to currently import 95 per cent of products.

According to him, between July and October 2016, there was enough forex and the marketers imported in large volumes.

“But around November 2016, the equation changed because the pump price was based on certain exchange rate – N285,” Abiodun said. “We thought that the price would be modulated every quarter. But the price has remained N145 even when the exchange rate and the price of crude oil have increased. We are not happy about this because our facilities are under-utilised. The only way to go is to remove the lid on N145. NNPC is today warehousing subsidy that is not in the budget.”

Abiodun, who is also the chief executive officer of Heyden Petroleum Limited, said in addition to paying the marketers’ outstanding $2 billion claims arising from the old subsidy regime, the permanent solution was to remove the cap on the pump price of petrol and fully liberalise the downstream sector.

Similarly, the chairman of Major Oil Marketers Association of Nigeria (MOMAN), Mr. Akin Akinfemiwa, said only the complete liberalisation of the downstream sector would resolve the persistent supply and distribution challenges of fuel in the country. According to him, complete liberalisation would ensure the realisation of a potential turnover of $5 billion in downstream sector and boost investments.

“There is one thing that gives me a lot of worry and there is one question I always ask myself and that question is: when will this sector be completely liberalised?” he asked. “The complete liberalisation of the sector is what is going to provide that solid foundation for investments to flow. Without that, we will not realise the potential of this $5 billion revenue in the sector.”

Burden on NNPC

With oil marketers shunning the importation of petrol due to dwindling margins, NNPC is incurring losses of between N8 and N10 per litre through the allocation of the product to marketers at a coastal price of N126.63 per litre. This translates to a loss of N350 million daily at the current estimated daily domestic consumption of 35 million litres of petrol.

Investigations further revealed that for both NNPC and the marketers to import petrol and sell at the official price without incurring losses, the appropriate pump price should be N155 per litre.

But NNPC spokesman, Mr. Ndu Ughamadu, told THISDAY that the corporation had not said it was subsidising petrol, stressing that even though the corporation also plays the role of a social supplier of products in periods of national challenge, there is no room for corruption under the present management.

Ughamadu said to end the persistent fuel crisis that reared its head each time marketers stopped importation in the past, the Group Managing Director of the corporation, Dr. Maikanti Baru, had reactivated some of the 21 NNPC depots across the country to ensure that products are pumped into the facilities via pipelines.

When the current retail price of N135-N145 per litre took effect in May 2016, PPPRA had fixed the indicative ex-depot price at between N123.28 and N133.28 per litre for petrol. However, for petrol that is still in the mother vessel on the high sea, the ex-depot price or coastal price was fixed at N116.63 –N126.63 per litre, as marketers incurred additional expenses to hire daughter vessels to move the product to the depots.

It was gathered that at the international market price of $510 per metric tonne for petrol, the corporation was absorbing N10 per litre by allocating the product to the marketers at the coastal price of N126.63.

On concerns being raised that the losses being absorbed by the corporation could fuel allegations of corruption in the future, Ughamadu said there was no room for corruption under the present NNPC management.

He said, “The corporation, in addition to its numerous responsibilities, also plays the role of a social supplier of products in periods of national challenges to keep the nation wet. It is a priority. The present NNPC management is very prudent, effective and efficient in managing resources.

Therefore, no room for corruption.” Ughamadu said NNPC had contained vandalism and brought many of the 21 depots back to operation in an effort to avert the fuel crisis that occurred each time marketers stopped importation.

He added, “In the immediate past, we had more use of private tank farms for the throughput because many of our depots were down due to massive pipeline vandalism. We could not pump to depots.

“Today, NNPC management under Dr. Maikanti Baru, with the support of the federal government, has contained vandalism with many of the depots – Atlas Cove, Mosimi, Kano and others – now functional.”

Some of the marketers, who spoke with THISDAY, stated that at the international market price of $510 per metric tonne, the landing cost of petrol stood at N141 per litre at the private depots.

“So, when the products are allocated at N126.63 at the high sea, the corporation absorbs losses of about N8 to N10 per litre. Marketers cannot land the product at their depots at N141 and sell at the recommended ex-depot price of N133.28 per litre,” one of the marketers, who did not want to be named, explained.

It is not certain how long the NNPC can sustain these losses without being accused of massive corruption and non-remittance of monies due to the Federation Account.