Addressing Petroleum Sector Crisis By Dr. Ahmed Adamu

 

 

Today is the one year anniversary of the historic democratic revolution in Nigeria, when Nigerians cast their votes to install a new government headed by the new amalgamated political party. This was a remarkable turning point in the history of the country. Within a year of this development, people have so far seen changes in some aspects of their socio-economic lives. Even though, the challenges are enormous, the speed of the positive change may not catch up with the expectations immediately. One area that has been of serious concern to Nigerians is the petroleum sector, especially with the recent scarcity of the petrol.  This has affected the lives and wellbeing of the people, as the price of the blood of the world i.e Petrol is up to 117% higher than its regulated price.

 

The money that people would have used to buy food or to buy medicine or to pay for the bills, they now use it to pay for petrol, thereby denying them access to basic needs of life. People may become poorer as they could not provide for most of their needs, as their savings now go toward paying for the petrol. This most surely worry the government, and will require short term, medium and long term measures for it to be addressed. The government will always have to do better to maintain the trust and loyalty of the people, and people have to be patient and play their own roles, as change never comes easy.

 

Nigerians actually expect Magic from the ruling party (APC), and it appears it needs more than the magic to handle the complex issues facing Nigeria. And this is why the junior minister for Petroleum said the truth that he cannot perform magic in fixing the shortages of petrol, and that Nigerians shall be grateful for the little they have and endure the hardship. This confession made the leader of the ruling party (Senator Bola Tinubu) to blast the junior minister for Petroleum (Mr Kachiku) for his comment, and stressing that more can be done with much better optimism and better performance, which I could not agree more.

 

The current shortages of petrol and its erratic price is partly contributed by exploitation of the suppliers, who would rather maximise their profit at the expense of the poor. The government always has its limitation, and the citizens have their own leadership roles. Most of the hardship we go through are largely due to lack of sincerity, selflessness and patriotism from the citizens. Most of the major marketers now import petrol and sell at a price of their choice to maximise profit, and this profit maximization motives is transferred down to the retailers. People would have to accept any price, as Petrol has inelastic demand and it is a necessary commodity. Even though, some of the local marketers cannot access sufficient hard currency in the money market, and they still have to pay more Naira to acquire single unit of foreign currency, and this reduces their capacity to import. Nevertheless, if the marketers adhere to the regulated margins, the price of petrol won’t have reach this level high.

 

There is apparent disregard to regulation in the Petroleum Sector. If the Price of Petrol is pegged at N86.5 per litre, why is it sold at N188 per litre? Initially, the price was regulated at N97 per litre, but due to the drop in the crude oil price, the landing cost of the litre of petrol also reduced, which motivated the downward review of the price to N86.5. This was to allow the major marketers to make marginal profit. And since the price of crude oil has increased, there is need for the upward review of the regulated price, since there is no funding for subsidy. This will discourage the suppliers from unnecessary exploitations in the name of cost recovery. Therefore, there must be strict adherence to the adjustable and viable price of petrol across the country, and the regulated price shall be benchmarked with the most expensive crude oil market price.

 

As at last ten days, the landing cost of petrol per litre was N71.49, and the retailer’s margins was just N5/litre, and that of a dealer is just N1.95/litre. Now, one wonders what is the landing cost of the litre that was sold at N188? This shows apparent exploitations and profit maximization.

 

Fixing and building new refineries have been the critical propositions for fixing the lingering petroleum crisis in the country. Nigeria has the 10th largest oil reserves in the world and is the 13th largest producer, yet it faces shortages of petroleum products. The investment cost of a refinery that can produce what Nigeria demands of petrol daily is estimated at around N800 billion. If this is too much for government to build, it can then consider a joint venture with the private sector, and by 2019, it will start producing sufficient petrol without the need to import any.

 

Providing sufficient and affordable petroleum products is the second highest point a politician can score after electricity. There is relative improvement in the electricity supply, the next big call is to ensure adequate supply of petrol and adherence to regulation. Mr Kachiku estimated that Nigerians will continue to suffer for the next two months, which I pray that should not happen, because, as a short term measure, we can use the recovered looted funds to adequately supply the petrol at the interim. The major marketers can even be incentivised to enhance their supply capacity.

 

The NNPC may not have sufficient storage and distribution capacity to meet the country’s demand, as such, the marketers must be encouraged to be selfless and patriotic and adhere to the maximum regulated profit margin. They should not quantify their profit based on the money that go into their pockets, but how many lives they put at ease, how many businesses they put back, how many lives they saves, and how fast they make the economy grow.  There is need for emergency meeting with all the major and independent marketers to address the crisis within a week.  There should be radical investment in the construction of new refineries immediately, in order to make Nigeria 100% fuel sufficient devoid of the costly importation.

 

In terms of leadership of the petroleum sector, we know how honest and active Mr President is, and he has the necessary experience in the sector, however, I would strongly advice Mr President to strip himself of the petroleum ministership and appoint a substantive Minister for Petroleum, who will dedicate 100% of his/her attention and commitment to the complex sector. The petroleum sector would require robust attention more than any other sector. We know Mr President is already faced with many daunting tasks. Mr President has been travelling outside the country in order to mend the image of the country and cement new bilateral relationship that would prosper the country, and this has been distractive one way or the other. He is also very busy trying to stabilise the security and economy of the country. As such, he may not has to be so burdened with another challenge that he could easily assign it to someone else.

 

Mr. Kachiku (the junior minister for Petroleum) who doubled as the Managing Director (MD) of the Complex Nigerian National Petroleum Corporation (NNPC) and who handles most of the Petroleum Ministry leadership roles is already overwhelmed with so many pressing issues in the Petroleum Sector. To make things easy for managing the Petroleum Sector, Nigeria needs a separate MD of NNPC, separate Ministers (Junior and Senior) for Petroleum. Mr. Kachiku should retain his earlier portfolio as MD of NNPC only, and some young competent Nigerians who are very familiar with the current global and local petroleum sector shall be appointed as Ministers for Petroleum.

 

Dr. Ahmed Adamu,

Petroleum Economist and Development Expert,

Pioneer Global Chairperson, Commonwealth Youth Council,

University Lecturer (Economics), Umaru Musa Yar’adua University, Katsina,

 

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