… Fuel depots, filling stations shut down
… Marketers can’t compete with NNPCL for forex
… Motorists bemoan queues
Uncertainty in the foreign exchange market and oil marketers’ inability to access forex is one of the far-reaching consequences of the sudden removal of fuel subsidy by President Bola Tinubu as more fuel depots, filling stations shut down; BENJAMIN UMUTEME writes.
Nigerians are not having the best of times as regards to their energy needs. And this has in no small measure been aided by President Bola Tinubu’s announcement of the removal of petrol during his inaugural speech.
According to President Tinubu, the payment of subsidy had become unsustainable as it had increasingly benefited those it was not meant for in the first place.
“We commend the decision of the outgoing administration in phasing out the petrol subsidy regime which has increasingly favoured the rich more than the poor.
“Subsidy can no longer justify its ever-increasing costs in the wake of drying resources. We shall instead re-channel the funds into better investment in public infrastructure, education, health care and jobs that will materially improve the lives of millions,” the president stated in his inaugural speech on May 29, 2023.
The President’s pronouncement jolted all sectors of the economy as prices of goods and services shot up astronomically immediately.
However, it opened up the sector making it possible for other oil marketers to get licenses to import the product which had hitherto been the prerogative of the Nigeria National Petroleum Company Limited (NNPCL).
Marketers raise the alarm
What should ordinarily have been a catalyst to drive down the price of petrol in the country has become a source of worry to many players in the oil and gas sector.
Recently, at its National Executive Council (NEC) meeting in Abuja, the Natural Oil and Gas Suppliers Association of Nigeria (NOGASA) warned that an energy crisis was on the horizon if the present difficulty by its members to access foreign exchange was not addressed.
NOGASA National President, Bennett Korie, noted that if the situation was not addressed many marketers may be forced to close shop.
While expressing worries that the removal of fuel subsidy and the volatility of the forex market were taking its toll on oil marketers given their inability to access forex, Korie said there were increasing losses of lives, businesses and jobs with the accentuation by mass shut down of filling stations and packing up of petroleum tankers. All this he said was due to unattainable high cost of importation, lifting, transportation and distribution of petroleum products.
He insisted that owners of filling stations find it extremely difficult to secure funds to procure products for their retail outlets as both the Independent and Major Marketers were terribly affected adding that filling stations were shutting down because of their inability to secure funds to facilitate orders for their stations.
Korie said: “NOGASA is seriously worried that between now and December this year, in the absence of Government urgent intervention, there increasing losses of lives, businesses and jobs with the accentuation by mass shut down of filling stations and packing up of petroleum tankers, all due to unattainable high cost of importation, lifting, transportation and distribution of petroleum products.
“Just today, a major newspaper confirmed the price of diesel to have hit N1,000 per liter. This is just a flash in the pan, and suppliers are at the very bitter receiving end of this precarious development.
“It will be recalled that while NOGASA applauded the removal of fuel subsidy, we warned and advised that right steps be taken to cushion its effects for the survival of citizens and businesses.
“Similarly, depots owners are so terribly affected by the increasing cost of the crude and exchange rate to the extent that many depots are practically deserted as their owners are unable to secure bank loans to fund their business due to high interest rates.
“Banks are not willing to guarantee funds release to stakeholders as a result of the difficulty, instability and galloping rates of foreign exchange and high cost of the Dollar. Many depots are presently dried up or out of stock, and this is no gainsaying as it is evidently verifiable.
“The worst hit is filling stations whose owners find it extremely difficult to secure funds to procure products for their retail outlets and both the independent and major marketers are so terribly affected that as at today, filling stations are shutting down in great numbers on a daily basis and dealers are going out of business with many more on the verge of bankruptcy because of their inability to secure funds to facilitate orders for their stations.
“Government must, therefore, urgently come to the aid of the industry to save it from an impending colossal collapse which will in turn result in a more devastating blow to the economy at large.
“Indeed, the success of this government highly depends on the survival of the oil industry, whose critical stakeholders are presently most negatively affected.”
Forex challenge
The bid to unify the exchange rate has left in its wake, unexpected result the naira now exchanges as high as N1,000 to a dollar.
For many businesses, the high exchange rate is not the challenge at the moment but the inability to access it.
President Tinubu in his inauguration speech had promised to “ensure that investors and foreign businesses repatriate their hard-earned dividends and profits home,” he said.
“This will direct funds away from arbitrage into meaningful investment in the plant, equipment and jobs that power the real economy.”
And despite the CBN’s effort to set the forex market on the right path, old experiences still persist as speculators continue to hold sway which has led to the situation the country now finds itself in.
‘Queues’ll persist, unless…’
For Associate Professor of Finance and Management at Baze University, Dele Olaolu, the forex crunch has made it difficult for oil marketers to compete with NNPC Limited especially with regards to accessing foreign exchange to import fuel.
According to Olaolu, they also cannot access credit facilities from overseas suppliers like NNPC due to credibility issues.
“That leaves NNPC as sole importer for now and they may likely remain sole importer for a very long time unless there is an urgent turnaround in our foreign exchange management dynamics.
“NNPC being the sole supplier even though they may have enough quantities to meet the domestic market, they need the support system of the independent marketers through their storage facilities and farm tanks to store and dispense the products to filling stations.
“Independent marketers also have certain costs to meet in performing this role effectively and adding this cost to the landing cost of fuel which has increased to about N700/ liter due to the increase of crude oil in the international market to about $ 95/barrel, the effective landing cost of fuel today in Nigeria is estimated at about N780-N800/litre.
“And because the Federal through NNPCL has pegged the domestic price at between N615-617/litre, there is no way the independent marketers can break even selling at this price. Even NNPCL selling at N615/litre implies that the government is subsidising the difference and that is a statement of fact.
“Due to the above, many independent marketers have closed their filling stations and have refused to dispense petrol to the public even with most of them still having stock in their pumps.
“So, the present queue is not caused by unavailability of petrol, but because of the above reason, there is no cooperation and handshake between NNPCL and the independent marketers in resolving the all-in cost issue in making this product available to the public.
“And unless this issue is urgently resolved, the recent queues seen in our filling stations will remain for some time and that may be the beginning of another energy crisis in the country,” he explained.
Marketers should be given special consideration – Transporter
A commercial transport operator told Blueprint Weekend that the queues that had begun to build up in filling stations were frustrating.
He wondered why Nigerians would pay so much N617 for a litre of petrol and still have to queue to get the product.
“I read that oil marketers cannot get dollars to import petrol. If the government knows that petrol is a very important commodity in the country it should give special consideration to oil marketers so that the queues do not become a permanent feature like during the Buhari era.
“If people who are not businessmen have so much access to the dollars, why is it difficult for those that need it to get access to it,” he said.
Bad roads fueling queues
What NOGASA said seems to be playing out already as queues have now returned to the filling stations leading to a hike in pump price by their owners.
However, NNPC Limited GCEO, Mele Kyari believes, the present situation will not lead to an energy crisis. According to him, the bad roads and competition among members is fueling the pockets of queues.
“We understand why marketers are unable to import. We hope that they begin to do so very quickly and these are some of the interventions the government is making. There is no subsidy,’’ he said.
Kyari further stated that the pockets of low queues witnessed across some states recently were due to bad roads that had made transporters divert the product to other routes.
“We have seen in very few states pockets of very low queues. This is not unconnected with the road situation and that’s why we’re seeing some blockades on our roads.
“Moving the products from the southern depots into the northern part of the country takes much longer time now than it used to.
“They have to re-route their trucks around many locations for them to be able to reach their destinations and that created delays and some supply gaps. But, that has been filled and we do not see any of such problems again.
“Secondly, because of the full deregulation that we have in this sector, marketers are now competing amongst themselves,” he said.
Kyari also said that some of the queues were caused by the preference of customers to patronise filling stations that offered low prices.
“You must have noticed that some fuel stations will reduce their prices by N2 or N3. So, customers will naturally run to the places where you have that reduction in prices and probably create panic.
“This is because those who don’t know why they are doing it will think that there’s something happening or that there’s an ominous sign of scarcity,’’ he said.
Nigeria already in energy crisis – Expert
However, the opinion of Political Economist, Adefolarin Olamilekan, differed from that of the NNPCL GCEO. He told this reporter that with the situation in the oil market, Nigeria was already in an energy crisis.
He said, “We are already in an energy crisis, considering the uncertainty in global crude oil price, a case is the fluctuating oil price that is transmitted in our economy internationally.
“Regrettably, we are having a share of this global energy high cost, and we are more at the receiving end because of our importation drive economy that includes PMS importation.”
Case for ‘price differentiation’
In a chat with Blueprint Weekend, Olamilekan said it was necessary that the federal government brought back subsidy through the backdrop.
According to the development researcher, the action of the government is in line with the realities on the ground.
For him, rather than pay full subsidy, the government was only augmenting the price differentials.
“For us, we believe the authority is doing the needful to avoid a full-blown energy crisis. That is why intervention in a form of ‘price differentiation’ is against popular subsidy that cause huge national budget deficits,” he told this reporter.
Fix roads, remove bottlenecks
Speaking further on the development, Korie said that the state of Nigerian roads has continued to severely hamper petroleum products distribution.
The way out, he said, was for the government to engage the local communities in the maintenance of bad roads across the country.
“Lastly, to Nigerians the state of our roads continues to make a very strong statement against the government’s responsibility for infrastructural provision and maintenance. Petroleum products distribution is, and has been severely hampered by unmotorable roads.
“Therefore, road networks and maintenance need to be positively impactful. This development is already a waiting threat to the laudable CNG driven transportation innovation of Mr. President and this time, conscious and practical solutions are therefore suggested to engage the local workforce to speedily refurbish and/or resuscitate bad roads across the country.
“This will also create thousands of jobs for jobless youths and other restive people in our communities; which will definitely be a plus for this administration. These suggestions are highly important as effective product distribution requires effective road provision and management.
“Finally, government should do everything to ensure the removal of everything that has to do with challenges in the areas of importation as well as clearing in NIMASA, NPA, DPR and other agencies that are involved with dollar transactions for marketers.
“The bottlenecks are simply killing us. Our businesses are dying and the system is not helping us at all. An urgent action is highly required to save our industry from total collapse.
Way forward
To address the situation, Prof Olaolu explained that the “short to medium solution to the forex issue is for government and CBN to be more transparent in its management as this will motivate foreign investors and other Nigerians in the diaspora to bring in more forex into the country to increase the supply side.
“If this can be sustained overtime, it will ease the pressure on the demand side & gradually, the exchange rate will come down provided other parameters also remain favorable.
“However, more importantly, the Government must come clean and avoid favoritism in allocation. Other independent marketers approved to bring in petrol should be treated like NNPCL in allocating forex for petrol importation.”
