Blame not Buhari for the fuel scarcity conundrum

By Baba Grumpy

The fuel scarcity during the Christmas and Pre Christmas period has been an awful one for the Nigerian government led by President Buhari. 

After two successive Christmases without fuel scarcity, it has turned out to be 3rd time unlucky for the Nigerian people and its leaders. 

Prior to when this government assumed its mandate in April 2015, petrol scarcity and Christmas / Festive periods were synonymous. The Goodluck Jonathan government even experienced a fuel scarcity where the whole country was shut down. However it is fashionable for Anti Buhari elements to reproduce newspaper headlines from 40 years ago and pretend it is all about him. 

Historically, subsidy corruption, economic sabotage, incompetence/lack of proper planning, product diversion, hoarding have been the issues behind fuel scarcity. Going through recent NNPC and government briefings, it appears the issues remain the same. 

Although the nation dodged the bullet in the last two Christmases, Nigerians still experienced massive petrol shortage in the first three months of 2016. It took a massive jump in the price of petrol from the official price of N86.5 to N145 weeks later to ensure full availability of petrol. 

The increase was a move I never saw coming giving the stance of the President on petrol price increase. I am sure Buhari must have agreed to the price increase only because he had no other choice like the proverbial gun to the head decision. The double barrel gun was in the form of extremely low oil revenue as a result of low global oil prices and sabotage of strategic oil infrastructures by forces with an axe to grind.

Increasing petrol price totally eased scarcity for a number of reasons. It ensued there was no leakage at a time when there was little or no spare money. It also led to a massive reduction in price disparity between the prices in Nigeria and that of neighboring countries, it appears diversion reduced significantly. As daily fuel consumption reduced to 30 million liters from about 50 million.  

Fast forward to 2017, global oil price has increased, crude oil facilities appear to be working without major issues. Nigeria’s foreign reserve is increasing but the petrol pump price in Nigeria has remained at N145. 

In Benin Republic, it is now N250

In Chad, it is now N290

In Cameroon, it is now N348

In Niger, it is now N301

You get the picture.

With this price disparity, with a notoriously tight fisted government (which is the right thing by the way), the fuel tanker will drive itself to Nigeria’s neighboring countries even if the fuel marketers/tanker drivers/fuel smugglers and their collaborators within the system refuse to divert the products. 

Is there a realistic solution to this problem? The rational answer might be to increase petrol price in Nigeria but I don’t think there is a solution. As the President is fully uninterested in petrol price increase and I am on his side on this issue.

It is in the economic interest of the citizens of Nigeria’s neighboring countries to purchase smuggled/diverted Nigeria’s petrol. They would be insane not to and this shock absorber helps the government in those countries avoid civil unrest and also help them with gainful employment. 

Nigeria can potentially lean on their government to crack down on trade in smuggled/diverted products but why should those governments cut their nose off for Nigeria’s benefit. Also we need them for the dreaded fight against Boko Haram. 

So the price increase thing to starve off smuggling/diversion is not going to happen. However Nigerian authorities can be a bit clever by monitoring distribution through electronic tracking of products. There is no reason why petrol distribution tankers are not fitted with standard computerized/electronic locks that can only be opened at point of loading and genuine offloading. 

If petrol consumption has suddenly doubled from 30 million liters per day to 60 million and if the country has no choice but to subsidize the price of petrol by paying N40 per litre/N1.2b per day to manage inflation and breakdown of law and order in Nigeria and also sponsor the lifestyle of our neighbors, we might as well do it properly and have something of a reasonable enforcement regime to ensure avoidable large scale diversion is curtailed. 

Just to put the N1b per day into perspective, Governor Ganduje of Kano recently inaugurated The Ginginyu Hospital at a cost of N4b plus. The hospital is equipped with ultra modern machines including digital X-ray machines, 4D ultra sound machines, dialysis machines, CT scan machines and mammography MRI machines to mention but few. So in effect, every four days, Nigeria can build one of those hospitals with the amount we spunk on subsidising petrol.

And don’t for one minute think that it is our neighbours that are benefitting from this one billion per day. If I were to guess, maybe N500m per day is being used to service the chain of diversion – NNPC/DPR officials, Tanker Drivers/NUPENG, PENGASSAN, Customs & other security agencies.

My guess is that the scarcity occurred because NNPC/DPR were unprepared for the impact product diversion will have on increased demand during the holiday period so they didn’t have enough stock to flood the market as they have been threatening for the last three weeks.

Yes, panic buying set in, yes marketers are trying to come back into the importation business because of the allure of the N40 per litre subsidy, yes the threat of strikes disrupted supply lines but the biggest issue in my opinion is the price disparity between our pump price and the price in surrounding countries.

To be fair, The Vice President has clarified that there is no subsidy per se as the NNPC is effectively using the 400k barrels of crude dedicated to local consumption in exchange for the imported petrol. Yes there is an opportunity cost argument but there is no subsidy per se if you factor in the actual production cost of the 400k barrels of dedicated crude. This has been my stance (one of them) since the subsidy debate started in Nigeria from time immemorial.

So why do I think we shouldn’t increase price in Nigeria.

1) The ordinary Nigerians shouldn’t pay for the inefficiencies of the Nigerian state. If the borders are porous, the government should bear that cost. Fix it and save cost.

2) It is political suicide for the current government to increase petrol price. With increased crude oil price, this very prudent government has been disciplined in growing the foreign reserve; we just have to grow the savings at a lesser rate. Things are lot better than when reserves were USD65B+ and oil was USD100 and the reserve was going down. And if there is any commendation you want to give this government, it is right there in your very before. They are not chopping your money.

Baba Grumpy works in financial services in the United Kingdom. He blogs mostly about football at http://babagrumpy.blogspot.co.uk. His Twitter handle is @BabaGrumpy