Curbing Perennial Fuel Crisis

To end the incessant fuel crisis, Ejiofor Alike writes that the NNPC should rejig the Direct Sale-Direct Purchase Contracts, previously referred to as offshore crude oil processing agreements and crude-for-products exchange arrangements, to include big local and international players with credible footprints in the downstream sector and capacity to supply the country with petrol

Since the federal government partially liberalised the downstream sector by increasing the pump price of petrol from N86.50 to N145 per litre on May 11, 2016, there has been stability in fuel supply. However, the serenity in fuel supply was interrupted recently, shortly after the Independent Petroleum Markers Association of Nigeria threatened to shut down over 900 filling stations in Lagos and Ogun states by December 11, if the Nigerian National Petroleum Corporation continued to undersupply petrol to its members.

 

Allegation 

 IPMAN had accused NNPC of supplying petrol to private depot owners and undersupplying the corporation’s Ejigbo Depot, which serves more than 900 filling stations in Lagos.

Though the spokesman of NNPC, Mr. Ndu Ughamadu, insisted that the Ejigbo Satellite Depot was fully stocked and carrying out regular loading services, contrary to the claims by the marketers, IPMAN had argued that depot owners were given priority by the corporation.

Chairman of Lagos State chapter of IPMAN, Mr. Alanamu Balogun; Vice Chairman, Pastor Gbenga Ilupeju; and Secretary, Prince Kunle Oyenuga, alleged in a statement that the NNPC was undersupplying its members and also frustrating them by reneging on the bulk purchase agreement it signed with its members to supply the product to them at ex-depot price of N133.28k per litre.

IPMAN argued that with undersupply from the NNPC, its members sourced products from the Depot and Petroleum Marketers Association, which allegedly buys at N117 per litre from the NNPC and resells to IPMAN members at N141 per litre. The marketers said at that price it would be unrealistic for them to continue to sell to the end users at the regulated price of N145 and break even in business.

 “We have held many meetings with both the NNPC and DAPMAN, questioning why the NNPC supplies fuel to DAPMAN at N117 per litre and DAPMAN will turn around to sell the same fuel to IPMAN members at N141 and the NNPC wants marketers to sell to the public at N145 per litre,” IPMAN said.

The association added, “The NNPC made it as a condition that we must renew our agreement with it or we will not get fuel supply. This agreement has been renewed, yet, the NNPC has refused to supply us with fuel. The same agreement the NNPC signed with us is what it signed with DAPMAN. While DAPMAN gets supplies, IPMAN members are being denied fuel supply, which means the NNPC officials are into a game. The federal government should step into this matter between now and December 11 to avoid fuel crisis.” ‎

But the NNPC spokesman insisted that the Ejigbo Satellite Depot had consistently dispensed petrol at the approved price of N133.28 per litre, contrary to allegations that it was sold at a higher price.

 

Veracity of IPMAN’s Claim

 In a circular with reference number A.4/9/017/C.2/IV/690 dated May 11, 2016 and signed by the then acting Executive Secretary of the Petroleum Products Pricing Regulatory Agency, Mrs. SE Iyoyo, the federal government had directed the marketers of petroleum products to sell petrol within the retail price band of N135 to N145 per litre. PPPRA also fixed the indicative ex-depot price between N123.28 and N133.28 per litre for petrol that had been discharged by vessels into the depots.

However, for petrol that is still in the mother vessel on the high sea, the ex-depot price or coastal price was fixed between N116.63 and N126.63 per litre, as marketers incurred additional expenses to hire daughter vessels to move the product to the depots.

After the May 11, 2016 partial liberalisation, there was stability, as the private marketers were able to import product. But with the scarcity of foreign exchange, the capacity of the private marketers to access forex was weakened, and the NNPC gradually became the sole importer of petrol for all the private marketers.

While the NNPC imports cargoes and discharges in the private depots at N123.28 and N133.28 per litre, the corporation also sells directly from the mother vessels at the high seas to the major marketers and depot owners at the approved coastal price of between N116.63 and N126.63 per litre.

The marketers, however, alleged that they paid unofficial fees to NNPC officials to access products at government-approved prices.

So, after paying unofficial fees to buy from NNPC at official prices, the depot owners jerk up ex-depot price to between N140 and N143 per litre, against the approved range of N123.28 to N133.28, which seems to validate IPMAN’s claim.

 

Current Shortages

 Investigation reveals that the marketers actually jerk up the ex-depot price of petrol due to the inability of NNPC to wet the whole country with product, which stems from the failure of some oil trading companies to abide by the terms of the Direct Sale-Direct Purchase contracts between them and the NNPC. Under the DSDP scheme, some oil traders take NNPC’s crude to refiners abroad and bring back equivalent value of petrol.

But due to lack of capacity to import petrol, some of the oil trading companies, it was learnt, opted to import diesel for November/December 2017 contracts instead of petrol as stipulated in the DSDP contracts.

NNPC had in April this year signed about $6 billion worth of deals with local and international traders to exchange about 330,000 barrels per day of crude oil for imported petrol. The deals, which were previously referred to as offshore crude oil processing agreements and crude-for-products exchange arrangements, are now known as DSDP agreements.

Under the latest DSDP scheme, the NNPC excluded the big players with strong footprints in the downstream sector, such as Italy’s ENI, India’s Essar, Shell-BP, Forte Oil, Mobil (11Plc), Oando, Conoil, and NIPCO, in an apparent move to empower smaller companies.

Even international oil trading giants, such as Total, Vitol and Trafigura, that made the list were allocated the same small volumes of crude – 33,000 barrels per day – with smaller Nigerian downstream players in the list.

THISDAY gathered that these oil traders engaged by the NNPC were supposed to bring back petrol into the country after taking crude oil to the international refiners. It was, however, learnt that in the months of November/December, some of these companies converted their DSDP contracts into diesel, as they could not bring back petrol as a result of the high cost of the product in the international market.

The implication, it was learnt, is that the market is flooded with diesel, which is also imported by the other private marketers as a deregulated product, while petrol, which other marketers lack capacity to import and have been relying on NNPC for supply, becomes a scarce product, leading to the current crisis.

A source at NNPC, who confirmed this development, told THISDAY that when petrol became expensive in the international market, some of the oil traders approached NNPC to convert their contracts to diesel and the corporation obliged their request. The source explained: “Ordinarily, diesel is not supposed to be under the DSDP contracts because all the marketers import diesel since it is deregulated. The problem is petrol, which is not fully deregulated and not imported by the private marketers. Some of the companies engaged in DSDP agreements lack capacity and only execute the contracts when it is convenient for them. When petrol was expensive, they requested the NNPC to change their contract to diesel and the market was flooded with diesel because all other marketers also import diesel. Now, there is shortage of petrol in the market because the NNPC, which should import petrol, mismanaged the DSDP by allowing the trading companies to import diesel instead of petrol.”

He explained that unless the NNPC reviewed the DSDP and involves the big players, the supply gap may widen and linger till Christmas.

Though the NNPC’s spokesman had exonerated the DSDP scheme from the current fuel crisis, he acknowledged that the crisis was as a result of the threat by the IPMAN to shut down filling stations on December 11.

Speaking on the DSDP contracts, Ughamadu said the scheme had its own challenges like every other new concept but added that these challenges were not responsible for the current queues in some filling stations.

Indeed, the threat by IPMAN led to panic-buying, which aided the crisis as Ughamadu observed, but IPMAN would not have made the threat if there was sufficient petrol in the system to wet the whole country. It was the inadequate supply to its members, resulting from the mismanagement of DSDP scheme, that triggered IPMAN’s threat, which fuelled the current crisis.

To avert the impending dangers, the NNPC needs to involve the big players in the DSDP contracts.

Since the NNPC has become the sole importer of petrol, the corporation must rejig the DSDP scheme to boost importation of cargoes by the big players that have bold footprints in the downstream sector.