Energy is as important to a nation’s survival as oxygen is to man’s. For a developing country like Nigeria, the foregoing couldn’t be truer. For many Nigerians, our energy source is dominated by petroleum products; most importantly Premium Motor Spirit commonly called “Petrol”. We derive power for our vehicles, electricity generating sets from Petrol, it the therefore not out of order to say that petrol is central to sustaining our modern lifestyle.
The importance of petrol to the Nigerian economy was re-emphasized during the last industry action by the Petrol Tanker Drivers (PTD) and National Association of Transport Owners (NARTO). PTD and NARTO went on strike in solidarity with petrol importers who had several months of unpaid subsidy refunds. There were reports of GDP losses as high as 1.3 Trillion naira over the 1 week period of the strike. While the strike has since been called off, a lot still hangs in the balance and there are pertinent questions yet to be answered, which if not resolved, may likely set the stage for another shut down of the economy in the nearest future. .
The pump price of petrol in Nigeria is regulated in an arrangement between the Federal government and select indigenous petrol importers through a subsidy scheme. Unfortunately, these importers are usually left with the short end of the stick when subsidy payments for already imported products are delayed by the Government. Whereas the Petrol Subsidy Fund (PSF) scheme stipulated payment of verified subsidy in 45 days after genuine importation of allocated petrol volumes, importers may not actually receive payments up to 200 days and sometimes more, this is in spite of conclusion of verification of required claims documents. With commercial banks being responsible for more than 90% of trade finance for oil imports in Nigeria, interests at annual rates around 22% continue to accrue on the importer’s account. The foreign exchange rate volatility being experienced in the economy at present further complicates the situation, especially since oil trades are typically carried out in dollars. This is bearing in mind that Nigeria recently underwent a devaluation of her currency from 155.8 naira per dollar in October 2014 to 198 naira per dollar in March 2015.
In the last week, the tension in the country has eased relatively with the resumption of product distribution from storage terminals across the country. There is ample stock of product; 19,000 MT in Major Marketer’s tanks, 119,000 MT at berths, 338,000MT at anchorage positions around the country and an additional 316,247 on PPMC vessels; this is enough to sustain national consumption for another 26 days.
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While the supply position highlighted above may suggest that that the industry is well catered for by the Government that is not quite the true position. Nigeria’s budget for PSF in 2014 was 971 billion naira when subsidy hovered between 30 - 49 naira per liter and Petrol ex-depot price was fixed at 87.66 naira for a liter of petrol. With the decline in crude prices from about $115 to $50 per barrel and petrol subsidy falling to 3 naira per liter, the Nigerian Government reduced ex-depot price to 77.66 naira per liter and slashed PSF provisions to 100 billion in 2015. However, crude is only one element in calculating the landing cost of petrol to Nigeria. Tanker freight cost for clean products from Northwest Europe to West Africa are at their highest in years, finance costs are also rising, and there is port dues and foreign exchange fluctuations to factor. Incidentally, petrol subsidy have since increased from the low levels in January 2015 to 33 naira per liter. This means that the current PSF provision cannot cater for the current subsidy costs being incurred by government for imported products.
The Slashing of the PSF budget and subsequent pronouncements form the national assembly regarding subsidy budgets has prompted a reluctance from banks as their risk appetite for petrol import trades continue to wane. It is now easier to pass the proverbial camel through the eye of a needle than to get a Nigerian Bank to finance petrol import.
If Importers cannot get credit from banks, they cannot import petrol. No sale, no revenue. This results in companies having to downsize, existing loans from banks will go bad; the potential impacts are endless. For the masses, this means queues will resume at the stations, businesses become comatose and what was experienced in the last strike will occur again at huge losses for the economy!
As if things are not difficult enough for the importers, the Nigerian Customs service recently commenced an onslaught against importers demanding payment of $30,000 - $40,000 for every vessel bringing petrol into Nigeria.
B. Kruger said “I think people have to set up little battles. They have to demonize people whom they disagree with or feel threatened by. But it's the ideological framing of the debate that scares me”. The past dispensation did a lot to demonize all importers sometimes labelling them as “Cabals” while still benefiting from their tenacity as genuine businesses that are committed to stable petrol supply to the country even under excruciating circumstances, and in fact becoming the real back bone preventing a crash of the economy.
In spite of all these challenges, with the new Government, the Optimist in me has an unwavering hope that things will change for the better soon. The new government has to communicate a clear policy regarding already accrued subsidy as well as its intention for price deregulation. These are issues that must be handled with utmost urgency. Nigerians shouldn’t be wasting valuable time in queues at retail stations for petrol anyway.
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