Nigeria and the Diseconomy of Fuel Scarcity and Subsidy




Fuel scarcity in Nigeria has become an ugly recurring decimal for an economy that exports crude petroleum. The Nigerian economy has four refineries and in the late 1970s and early 1980s, the country was even exporting refined products. Thereafter, the fuel scarcity has become a nightmare. Millions of dollars have been spent on the turn-around maintenance of the refineries with no positive outcome. The refineries, when functioning, produce below installed capacity [about 40 per cent]. The country currently exports, on the average, 2 million barrels per day of crude and imports refined petroleum products. What an irony that a nation exports what it needs to the rest of the world without taking care of its own citizens, to wit, its domestic market! It is like a cassava farmer starving his family by exporting all the garri derived from his cassava. The sensible thing would have been to first feed the family and then sell or export the surplus.

The refineries were, at some period, functioning. What happened? There is no mystery here. Those elites interested in primitive accumulation ensured that the refineries did not function in order that we could import petroleum products, thus enhancing their primitive accumulation instinct.

The government created an agency, namely the Petroleum Products Pricing Regulatory Agency, PPPRA, to determine the price payable to fuel importers, etc. Recently, a probe of the subsidy matter revealed the rot in the system. Some operators collected licenses to import petroleum products. They kept the money without importing any petroleum product. The trial of those alleged to be culpable is, unbelievably, endless!

The marketers claim they are owed almost N200 billion by government in terms of subsidy payments and exchange rate differential, among others. Thus, they have refused to load and supply fuel. They further claim they are not making profit. If they are incurring losses, then why remain in the business? The arithmetic suggests that with $4 per litre profit margin, the marketers are making huge millions of naira in profit. So, who is fooling who? The Nigerian people, particularly the masses, are suffering because of the exploitative tendencies of both the fuel importers and government. The people have been subjected to the impact of market and government failures.

The current fuel scarcity has lasted for almost a month with no solution in sight. It has brought severe stress on the economy: transport, food and other items have increased because petroleum determines the structure of the economy. The black market pump price of almost N400 per litre (due to shortage) some three weeks ago, has raised the cost of essential items/goods. This is often known as structural inflation. Even when normalcy returns, prices may not return to previous levels because, more often than not, prices are very sticky downwards. Small-scale businesses, including micro-businesses, cannot function because they need petrol and diesel to run their generators. Government has been sending confused signals to the people. The NNPC has often boasted of always having 90 days stock. Is this not the time to release the stock, at least, to cushion the impact of the present scarcity? It is also interesting that once the marketers stop importing, the economy experiences scarcity. Why is the government not strategic about the petroleum sub-sector?

There are countries with refineries but no crude –– for example, Singapore. According to the former president of PENGASSAN, Comrade Peter Esele, “Our refineries are working, but I cannot explain why crude is not being allocated to Warri Refinery. The refinery is not as bad as being painted. The major problem is that crude is not often being allocated to it to refine. Port Harcourt Refinery worked for 21 days in November last year and generated billions of naira. What has happened since then?” It follows that the import of refined petroleum products has, for long, been a lucrative and profitable business; thus, it would be difficult to stop it given the involvement of political and state elites. Most of our foreign exchange is spent on fuel imports and with the devaluation of the naira, the so-called subsidy (from N97 to N87) increased sharply. Is it possible for the Central Bank to publish the list of those utilising our foreign exchange to import fuel?

We must do first things first. The debate on whether or not to remove oil subsidy is rather misplaced. We have no clear information on the supply side of the market. The four refineries must be allowed to function. In addition, the development of refineries, no matter how small (5,000, 10,000, 20,000 bpd), must be encouraged. The proliferation of refineries perhaps with concessionary loan terms from government, a kind of quasi-subsidy on the supply side, would stimulate competition. It is necessary to have some sense of the competitive or ‘correct’ price before debating the matter of subsidy. For now, the subsidy issue may just be a scam. It should be noted that any point on a demand and / or supply curve is a price; hence, a competitive price may only provide a guide. Since the oil sub-sector has been battered, the in-coming government must find other ways to ensure the supply of the product in the short-run with a time line for abolishing the import of petroleum products in the medium and long terms. Nigeria can refine the petroleum products required for domestic consumption.

The petroleum sub-sector has brought so much hardship and suffering to the nation, a reason for which it should be time now for government to manage the sub-sector in the interest of all Nigerians.

*Ekpo, a professor of Economics, is director-general, West African Institute for Financial and Economic Management (WAIFEM), Lagos.  





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