THE fresh round of petrol scarcity, particularly in the South-West, is a bitter reminder of the needless years of nightmarish pains Nigerians have endured even though their country produces crude oil in abundance. Queues have returned to petrol stations in Lagos and Ogun states in the past week and many independent stations have shut down their operations. In a terse, late response, the Nigerian National Petroleum Company Limited blamed the shortages on criminals, who it said vandalised a major pipeline in Satellite Town, Lagos. President Bola Tinubu’s government must devise an effective programme to reform the petroleum sector and end the perennial shortages.
Clearly, the NNPC has failed in another of its core mandates, primarily because it remains a state-owned enterprise that is being run inefficiently despite its recent attempt at rebranding into a limited liability profit-oriented corporate entity.
For Africa’s largest crude exporter at 1.31 million barrels per day (in July as per OPEC data), the shortages not only puncture the official claim that the removal of subsidies will cure all the ills associated with the market and the distribution chain, but they also expose the deep rot in Nigeria’s downstream oil industry.
On the one hand, the NNPC claims that it has enough petrol stocked up, but there is scarcity because System B2, a major pipeline serving the South-West, was vandalised. This is confusing because the NNPC finally conceded that it would take till the end of September to conclude repairs of the damaged pipeline. There should be more effective protection of pipelines, fault detection and swifter response to damage and sabotage.
Fundamental issues and challenges persist. For one, petrol subsidy removal, which Tinubu prematurely implemented on May 29 and one month ahead of schedule, has been disruptive, causing convulsions in the economy. Like his predecessors and the strident anti-subsidy lobby, he glossed over the fundamental root of the downstream crisis; the absence of effective domestic refining in the supply matrix. He failed to anticipate and prepare for the effects too.
Achieving substantial local private sector-led refining in the shortest possible time is the solution to scarcity, price turbulence and infrastructure security. Over time, the NNPC’s colossal mismanagement of its four refineries with a nameplate installed capacity of 445,000 bpd has turned Nigeria into an import-dependent country in refined products. In 2020, the country imported refined petroleum products worth $71.28 billion and sold crude valued at $27.73 billion. Therefore, the unwise importation of refined products is a major factor fuelling the unending shortages and the government’s unsustainable borrowing.
Similarly, the NNPC, which owns 21 depots nationwide, has run the storage facilities down and relies on private depots. This is uneconomical. Unable to control its own assets, it suffers repeated pipeline vandalism. In the nine months to September 2021, the NNPC estimated losses to pipeline vandalism at N898.93 billion. So, not only are products imported at great cost to the economy, the NNPC’s inefficiencies create a turbulent distribution system.
And despite its incapacity, it has continued to deepen its involvement in the wholesale and retail segments, where it operates with accustomed inefficiency and wastefulness. This shuts out private sector investment, competition, and innovation.
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Along with the subsidy stoppage, Tinubu’s similarly hurried merger of the naira exchange rates without analysis and preparation for its aftershocks has imposed additional burdens on independent marketers. Ordinarily, they are intended to compete with the NNPC that has been the sole importer, but are unable to do so effectively because the naira depreciated from N450 to $1 in early June to around N900/$1 in August. This defeats the official projection that deregulation will automatically sanitise the downstream sector.
It will do so only when accompanied by liberalising policies, effective regulation, and separation of the state from being both the regulator and an operator in a market that requires a level playing field to deliver desirable outcomes. The NNPC’s disruptive and dominant presence in the market defeats efficient deliveries, affordable prices and security of infrastructure.
As the NNPC dawdles, other national oil companies are improving on their deliverables. Petrobras, Brazil’s oil company, increased its production to 3.5 mbpd in July, an 18.6 percent jump on the 2022 figures, says the Brazil National Agency for Petroleum. With its internecine war subsiding, the World Bank said the Libyan economy was back in the black in 2022. The IMF adds that after oil sales of $22 billion in 2022, it expects “Libya to top the list of growth for Arab countries with 17.9 per cent” for 2023. In contrast, Nigeria’s GDP growth rate for the second quarter of 2023 was 2.51 per cent, the National Bureau of Statistics said.
From the foregoing, Tinubu, who has retained the Petroleum Ministry portfolio, needs to quickly implement some drastic reforms in the sector. The incumbent NNPC top management has presided over significant losses and shortages. It has been associated for so long with the rot. The President should send it packing wholesale. Instead, the government should break up the NNPC, and immediately undertake the targeted privatisation of the four refineries to international players, which former President Olusegun Obasanjo did in 2007 before his successor unwisely reversed it.
This will enable the government to cut its losses, ensure domestic production and jobs, provide competition for the upcoming Dangote Refinery, save on forex, and firm up the value of the naira. Additionally, there should be a strategic programme to guarantee crude supply to the modular refineries.
Crucially, the government should exit the downstream petroleum sector entirely and quickly. It should privatise the depots, pipelines, the NNPC’s wholesale and subsidiaries and outlets, and revisit the Petroleum Industry Act to restructure the group into just two companies; a holding company, and an investment firm.
Then, the government should, in partnership with the private sector, devote resources and concentration on security, effectively protecting pipelines, production and other facilities.
Nigeria’s energy sector remains in deep crisis; Tinubu needs to quickly rally stakeholders, and harness domestic and international expertise to reform it. ,
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