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Fuel shortage madness

by January 18, 2018 General

It is only a mad person who does things repeatedly in one fashion and expects  to get different results. The political economy of petroleum resources is too important and critical in Nigeria to be left to the government alone. Supply and distribution of petrol (benzene) for fueling internal combustion engines whether vehicles or generators are not rocket science or neuroscience to be left to experts alone. It is simple economics of supply and demand. Countries that do not  have or produce petroleum  have to import and distribute the stuff without the agony and trauma that regularly befall Nigerians especially annually at Christmas.

Our basic problem is that we are not refining enough petroleum for domestic use. We have four refineries, two in Port Harcourt, one each in Kaduna and Warri. These are refineries established at different times and with different capacities starting with the first one in Port Harcourt in 1965. The one in Kaduna is poorly located and its location was probably influenced by political considerations. This was a wrong decision for a purely economic matter. This is because transportation of refined petroleum is easier and cheaper than  the transportation of crude oil. This is more so since the Kaduna refinery was built to refine heavy crude imported from Venezuela at a point in time. We may in future be able to refine in Kaduna crude oil from Niger republic. However, the locational issue is now academic.

The reality is that all the refineries are not working  at optimal level. This means we rely on imports to satisfy local need. The cost of imported fuel is subject to the vagaries of the up and down of global cost of petroleum. When the cost is low, government does not need to subsidize but when it is high the government in order to keep  pump price low has to subsidize to keep importers to continue in business. Unfortunately this scheme has been so thoroughly abused in the past to the extent that trillions were used in one calendar year as subsidies. People who knew nothing about the oil  and gas trade jumped unto the bandwagon and overnight became gas and oil business men and instant billionaires.

During the Jonathan regime politicians and their children used their connection for financial aggrandizement at the expense of the state and poor struggling Nigerians who bought fuel at prices dictated by cartels in cahoots with people in government. The huge amount spent on importing petrol led to the downward spiral of the Naira. So much foreign exchange was used for oil importation that the real sector of production was neglected because there was no hard currency to import spare parts and raw materials for local industries that unreasonably depended on imports. But because crude oil was selling sometimes close to $120 a barrel, it was easy for operators of the domestic economy to allow all kinds of imports thereby giving a feel-good effect for everybody while kicking forward the lean years which were bound to come when the price of crude oil drops. This came with the change of government in 2015 and drastic drop of crude oil production and price globally due to over supply of the world market. This overproduction came as a result of increased oil production in Russia, Saudi Arabia and the re-entry on a large scale of Iraq, Iran  and the United States whose local production increased exponentially because of fracking which is now responsible for 50 percent of America’s oil output.

When this Buhari government came two years ago, subsidies were mercifully stopped to wide acclamation and trillions of naira were  therefore saved.  Subsidies could not continue because the country was broke. If Jonathan had won  the election, he would have had to cancel the subsidy regime or allow the country to go bankrupt like Venezuela. The  Buhari government however failed to educate Nigerians that the price of petrol would rise if the depressed price of crude oil at that time about $35 rose. The price of crude oil is now double what it was two years ago so the pump price of petrol must go up  unless huge subsidies are again paid to importers. If  after subsidies current pump price is maintained, Nigeria through smugglers will be providing refined petroleum products and gasoline to her neighbours. The point to make is that as long as we do not refine  adequate amount of petroleum for domestic use, the price of petrol at the pump will vary with the vagaries of international price of crude oil. How much will be enough at the pump to encourage oil importers to continue in business without subsidies? How much can the people pay in a period of economic depression? What price is politically wise to ask hard pressed and struggling Nigerians to pay? Should market forces be allowed to operate without government intervention? These are the issues.

First of all, what can be done to speed up local refining of petroleum? The answer is not annual Turn Around Maintenance ( TAM). Some have wickedly described it as “ Automated Teller Machine)  those working in NNPC. Can anyone blame them? This is a drainpipe of government revenue which has been going on since these refineries were built. Any sane man would have expected government to have signed maintenance agreements with those who built the refineries right from the start. I remember Sani Abacha asking TOTAL petroleum of France to do a TAM at the Kaduna refinery at a cost of US$100million when he was in power. This was at a time when a modest new refinery in Singapore was costing the same amount.Now we are being told  again that NNPC is planning TAM for the old four refineries at $1.2 billion. This contract should be stopped immediately. The refineries should all be sold to oil companies doing business in Nigeria at buyer determined price.

If I was advising President Buhari, I will ask him to give them away at zero price with the condition that the companies buying them will make them work within a year.  The other condition will be that continued business of these oil companies will depend upon cooperation with government to make these refineries work. The money saved from TAM will be used to import petrol while waiting for the repairs to be carried out at no cost to the national exchequer. The huge cost of TAM would therefore have been saved and used for importation and what would have been used for importation will sit pretty in our foreign reserves and be used to support economic development. Former president Olusegun Obasanjo had a plan like this in 2007 but those who moved in with President Umaru Yar’Adua sabotaged this plan and forced the health-challenged president to change course so that they could benefit and did benefit in the shady and corrupt Nigerian oil and gas business.  These same people for two years prevailed on the Yar’Adua government to cancel contracts for building much needed electricity generating plants. It is not too late for Buhari to go back to the past and embrace this solution so that he can leave a lasting legacy.  The annual Christmas headache of fuel shortage will end hopefully by the time the old refineries come alive at no  cost to government and the much ballyhooed Dangote refinery in Lagos comes on stream. A private company would have come to the rescue of Nigeria and we will all be able to say like Martin Luther  King junior “ Free at last,  Free at last ,Lord God Almighty , we are free at last”.