In Attempt to Lower Price, NNPC Intervenes in Diesel Market

Chineme Okafor looks at the recent disclosure by the Nigerian National Petroleum Corporation, which has almost solely assumed the task of supplying petrol in the country, that it had crashed the pump price of diesel by about 42 per cent

Several factors are responsible for the current domestic market fundamentals for Automated Gas Oil, also known as diesel. They include fluctuations in foreign exchange, refining costs, and international crude oil prices. The cost of crude oil purchased by refineries, their refining costs and profits, distribution, marketing, and retail station costs and profits, as well as extant taxes basically determine the pump price of diesel at service stations. But the most significant factor has always been the price of crude oil, which has for some time remained relatively unsettled.

 

Intervention 

While the above factors would always affect the prices of refined products, including diesel, the Nigerian National Petroleum Corporation recently revealed that it had reduced the pump price of diesel by about 42 per cent across the country through its key strategic interventions. By its disclosure, the NNPC gave an indication that there was, perhaps, a situation of supply exceeding demand, which forced down price. But, on the contrary, the corporation seemed to have engaged several other measures to ensure the price reduction.

In a statement signed by its Group General Manager, Public Affairs, Mr. Ndu Ughamadu, in Abuja, the corporation explained that the downward price trend for diesel was observed over the last six months after diesel price in the country had skyrocketed. NNPC stated that in the first quarter of 2017, the retail prices of diesel, which is one of the deregulated petroleum products in the country, the other being kerosene, was N300 per litre in major demand centres across the country. It noted that over its period of observation, prices began to drop to between N175 and N200 per litre.

Commenting on the hike before its intervention, NNPC stated, “Such unpleasant situation placed a huge burden on truck drivers, who need the product for transporting their vehicles; the nation’s manufacturing sector, which requires it to run its operations; as well as on the masses, who need it for household power generation…

“However, following strategic intervention efforts by the NNPC towards sustained improvement in the supply of the diesel, the product’s retail prices as at the end of May 2017 ranged from N175 to N200 across the country – a significant price drop of about 42 per cent, while ex-depot prices also dropped to between N135 and N155.”

 

Measures 

Considering that the market for diesel is completely deregulated, it was expected by experts that whatever intervention the corporation initiated to bring down the price of the product would also be commercially driven. It was believed that the corporation’s involvement would not be in the form of subsidy, as is the case with petrol, which the government has placed a price cap on.

NNPC stated that some of the strategic interventions it initiated to reverse the AGO price hike included improving its supply and remodelling the product distribution to address sufficiency issues across the country. It also indicated that the impact of the intervention was huge on the supply chain, as it made efforts to close up supply shortages which may have been occasioned by the inability of other marketers to adequately satisfy the domestic market.

NNPC stated, “Since January this year, we have worked very hard with relevant stakeholders to improve distribution from refinery depots, by implementing a robust loading programme.” It said it was able to resuscitate its critical pipelines and depots in places like Atlas Cove-Mosimi; Port-Harcourt Refinery-Aba; and Kaduna Refinery-Kano, in it is quest to improve the distribution of diesel.

But the corporation did not state if any of its refineries produced part of what it supplied to the domestic market. It added that efforts were equally on going to revamp and commission other critical pipelines across the country, indicating that it perhaps initiated proactive measures to ensure that supply and distribution of its imported diesel to end users were seamless.

NNPC said another key intervention that enhanced its supply and distribution of diesel in the country was the robust engagement with critical downstream stakeholders where salient issues were raised and duly addressed. These stakeholders included the Major Oil Marketers Association of Nigeria (MOMAN); Nigerian Association of Road Transport Owners (NARTO); Petroleum Tanker Drivers (PTD); as well as Independent Petroleum Marketers Association of Nigeria (IPMAN).

Equally important in the intervention efforts of the NNPC was the consistent positive engagement it said it had with the Central Bank of Nigeria and the latter’s expansion of foreign exchange intervention schemes for petrol to accommodate diesel and aviation fuel importation by marketers.

The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, disclosed recently that the CBN devoted about 30 per cent of its foreign exchange allocations to the importation of petroleum products.

NNPC said with these plans it would continue to ensure seamless supply and distribution of diesel and other petroleum products across the country.

The corporation’s monthly operations and financial reports for April, which it recently released, also indicated that importation of diesel to supplement volumes that were produced from its refineries had been sustained, though on a commercial term. The report stated, “On Automotive Gas Oil (AGO) and Aviation Turbine Kerosene (ATK), NNPC has continued to import to supplement local refining and CBN makes available foreign exchange to marketers to import AGO and ATK.”

It also noted that a total of 78.99 million litres of diesel was sold by the NNPC in April, from which it made N12, 206,421,032.

 But in an interaction with Ughamadu on the tendency for abuse of the intervention by officials of the corporation, as well as its sustainability, he said the process was initiated in line with NNPC’s current commitment to transparency and accountability in its business engagements. Ughamadu disclosed that since diesel was a deregulated product, NNPC was only in the importation and sale to make profit as a commercial entity. He noted that profits were been recorded by the corporation on its diesel sales.

According to Ughamadu, “The past went with the past. We cannot go back to the past that we have gone past. The current NNPC under Baru is a very prudent and transparent entity and would not be involved in shady businesses.”

He further stated, “You would recall that Baru headed the anticorruption unit of the NNPC for a while, and that ensured things were done the right way, and even fired a general manager. So the issue about fraud in the intervention is completely eliminated because the NNPC of today is not what it used to be in the past.”

Asked if the corporation was incurring any losses from the intervention, and if such was impacting its books if they existed, he said, “The diesel market is highly regulated and everybody in it is free to bring in products at competitive market rates.

“That crash in price was possible because there are more quantities of diesel in the market, which makes the market fundamentals very good. In fact, in terms of opportunity cost, we are earning some profits from sale of diesel, which makes the market competitive and good for us.”