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Petroleum Industry And The Challenges Before Buhari

Nigeria should be a refining hub for Africa and beyond rather than holding the unenviable record of being the largest net importer of petroleum products in Africa.

Nigerians heaved a sigh of relief when fuel marketers, under the auspices of Major Oil Marketers Association of Nigeria (MOMAN), Independent Petroleum Marketers Association of Nigeria (IPMAN), and Depot and Petroleum Marketers Association (DAPMA), called off their strike and restored fuel supply. The oil marketers had embarked on strike over unpaid and disputed subsidy claims.

The withdrawal of their services crippled socioeconomic life of the country for several weeks as Nigerians spent more time searching for the commodity while economic activities suffered. Flight operations were disrupted while service providers in the telecommunications, banking, health, education, and other sectors could not provide optimal services as they could not access fuel to power their operations.

The marketers hinged their decision to halt fuel supply on government’s failure to clear subsidy backlog, interest charges on delayed payments, and differentials caused by the recent devaluation of the naira. After much disputes on government’s subsidy debt profile, the Federal Government agreed to pay $800 million (₦156 billion) to the oil marketers to end the fuel crisis.

This followed a meeting between the Senate Committee on Petroleum Resources, Federal Government and other stakeholders in the petroleum industry.Even though the situation appears to have normalised, the deal between government and the marketers is a short-term solution to the perennial fuel crisis. There is no indication that fuel scarcity will not rear its head again with the subsidy regime still in place. It is a known fact that the subsidy programme designed to make petroleum products affordable for the masses reeks of corruption. The last time the House of Representatives set out to investigate the programme, it opened a can of worms that elicited public outcry.

Many oil marketers had been feeding fat on the subsidy fund. There were instances where they made subsidy claims for products not supplied or diverted to neighbouring countries. The issue of “briefcase” companies with no known assets in the downstream sector but issued permits to import fuel under the subsidy regime also came to light. A 2012 report by the Aigboje Aig-Imoukhuede Presidential Committee on Verification and Reconciliation of Fuel Subsidy Payment indicated that imports had been put at 59 million litres as against an estimated35 million litres per day. The report noted that from less than ₦500 billion in 2009, subsidy payments rose to ₦2.6 trillion ($16 billion) in 2011 of which ₦382 billion ($2.4 billion) was made through fraudulent process. In a recent report the Petroleum Products Pricing Regulatory Agency (PPPRA) disclosed that it paid ₦832 billion in 2013 and ₦862 billion in 2012 as subsidy claims to oil marketers.

The agency also said $3.38 billion was incurred by government as cost of subsidy on kerosene between January 2012 and July 2013 (19 months). Curiously, millions of Nigerians buy kerosene at between ₦150 and ₦250 per litre at filling stations rather than the regulated ₦50 per litre. This scam called subsidy must not be allowed to continue. Rather than retain subsidy the new regime of Muhammadu Buhari should consider deregulating the oil and gas downstream sector and increasing the country’s refining capacity. It is a shame that the country imports about 90 per cent of her fuel consumption despite being one of the largest producers of crude oil in the world. Her four refineries with a total installed capacity of 445,000 barrels of crude per day have an average capacity utilisation of only 10.5 per cent.

We urge the Buhari administration to revisit the privatisation of refineries option as this would not only free up significant resources committed to maintaining the facilities, but would also help to liberalise and open up the local value chain around the mid-stream oil and gas sector of the economy. The refineries are in various states of disrepair despite the huge resources committed to their maintenance. They are not operated as performance-oriented businesses and are plagued with severe integrity issues.

Policies should also be in place to encourage investments in new refineries across the country to meet the country’s domestic fuel needs and export. Nigeria should be a refining hub for Africa and beyond rather than holding the unenviable record of being the largest net importer of petroleum products in Africa. The reality now is that Nigeria creates wealth and job opportunities for countries from where she imports refined petroleum products when she can develop a robust refining capability and create jobs for her army of jobless citizens across the country and further boost her economy.

The issue of tackling pipeline vandalism should also be given priority because it is a major drain on the country’s economy.Nigerians expect the new regime to overhaul the entire petroleum sector which is plagued by corruption, lack of capacity, impunity and lack of transparency and accountability. Unfortunately, the Petroleum Industry Bill (PIB) designed to transform the sector is still languishing in the National Assembly without any hope that it will be passed before the expiration of this 7th National Assembly on June 6. Vested interests should not be promoted above national interest in the development and management of the country’s petroleum resources.

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