Reasons fuel scarcity may linger beyond April

The Minister of State for Petroleum, Dr. IbeKachukwu, last week apologised to Nigerians after public criticisms trailed his comments on the fuel scarcity ending by May. Our reporter writes that there are some problems that might even prolong the fuel crisis beyond April or May.

The scarcity of petrol has lingered since January as Nigerians crowd filling stations daily in search of the commodity. Fuel prices have soared to as much as N200 to N300 per litre in some states.
At a time when Nigerians were expecting respite from the pains of the biting scarcity, the Minister of State for Petroleum, Ibe Kachikwu dashed their hopes, by stating that the current fuel queues might not be completely eliminated until May.
Kachikwu said it was even a “magic” that petrol stations were still getting the volume of products they dispense to the public, judging from the prevailing circumstances at the Nigerian National Petroleum Corporation (NNPC).
Some stakeholders took a swipe at the minister, calling for his head for the comments but the NNPC said it was a misrepresentation of an otherwise sincere assessment of the fuel supply scenario.
The NNPC has also put up a self-defense reemphasising that the present management of the corporation and indeed the government inherited huge and complicated problems with respect to importation, distribution and pricing of petroleum products.
While the minister renounced the May deadline comments, reassuring Nigerians that the long fuel queues across the country will disappear by April 7, the question that now arises is, will these “huge and complicated problems” drag the current fuel scarcity beyond April?
Top oil firms engaged in the importation and distribution of fuel, including regulators of the downstream industry have given a very grim outlook of the fuel situation, concluding that the queues may even extend beyond April because of a number of issues.

Forex scarcity
The oil marketers have since stopped importation of petrol, citing difficulty in accessing forex, as a result, new fuel bookings have shrunk since marketers cannot get the foreign exchange needed to import fuel.
With the naira falling on the parallel market, oil marketers are unwilling to make import orders as the currency crisis has hampered their ability to get credit.
Before now, the NNPC does around 50 percent of fuel imports while the marketers complement the other half but the unavailability of forex to private importers has compelled the NNPC to be the sole importer of the product, a role the corporation is incapable of performing because it lacks facilities to effectively distribute the product nationwide.
The South-West chairman of the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG), Alhaji Tokunbo Korodo, in a recent interview with the News Agency of Nigeria (NAN) said that the only solution to the present scarcity is for the Central Bank of Nigeria (CBN) to assist the oil marketers in accessing forex to commence importation of petrol.
“Getting the forex for oil marketers will go a long way in maintaining steady supply,’’ he said. Korodo added that the nation would need regular supply of petrol to filling stations to eliminate the present fuel scarcity, urging the NNPC to urgently source for foreign exchange for the oil marketers so that they could commerce steady importation.
The NNPC is presently engaging the CBN on the possibility of making forex available to the marketers while upstream majors are also said to be willing to support. However, it is not yet clear how soon action on these efforts would commence.

Weak refineries
Two of the country’s refineries that could have complemented fuel imports are yet to restart production months after attacks on their feedstock pipelines forced their closure late January.
It is yet unknown when crude supply to the refineries and operations would resume. Before the refineries abruptly stopped production, they were contributing around 7 million litres of petrol to domestic consumption, but hitches suffered by two of them meant Nigeria would massively depend on imports that are now erratic.
The 150,000 barrel per day (bpd) Port Harcourt refinery and the 125,000bpd Warri and Kaduna plants may take a bit longer before crude oil will be delivered by alternative means for them to get back on stream.
The NNPC had said that the refineries would require between $300 million to $500 million to function well.
There are plans to co-locate new refineries within the existing refinery complexes in Kaduna, Warri and Port Harcourt, as bids for the project were open on Thursday but this probable solution, stakeholders say, is only possible in at least three years’ time about when Dangote’s 650,000 barrels refinery will start production.

Import delays
The current fuel crisis may also not abate soon because the NNPC has not been able to sign the crude- for-refined-petrol agreement (or swap) agreements quick enough after it canceled previous agreements.
The corporation had announced it would in March begin a new swap process called direct-sales, direct-purchase to make refined petrol available to Nigerians but had since made a U-turn, saying it will now commence it this month.
It is through the swap that NNPC imports refined fuel into the country and delivery of the refined fuel to NNPC takes around two months from the bill to the landing date.
The previous swaps were fraught with graft, inefficiency and massive losses to the country.
This time, NNPC is trying to sign additional long-term contracts to cover well beyond the 210,000 bpd of crude that was exchanged in the past. The extra crude allocation has been approved by the Presidency.
However, negotiations for the signing of the contract, traders have said, are taking longer than expected, leaving a gap in imports.
The NNPC recently agreed the new direct-sales, direct-purchase deals with seven refining companies – ENI, Essar, Litasco, Total, Cepsa, SocieteIvorienne de Raffinage (SIR) and Vitol refining arm Varo, with local partners, to take oil in exchange for petrol imports.
The deals, according to fuel traders, are crucial to quelling fuel shortages that have created queues across the country. Some reportedly said the deals are not yet watertight leaving them at risk of change.
The NNPC is in the middle of a restructuring, leading to a management shake-up, a situation sources said have impacted on the deals.
Traders are concerned that constant changes in staffing at NNPC meant they were at times dealing with one person one day, and a different person the next, making it difficult to conclude the contracts and raising concerns over NNPC changing the terms.
As a way out of some of these problems, the Director General Lagos Chamber of Commerce and Industry, (LCCI), Muda Yusuf, suggested that the fuel crisis of the past few weeks underscores the need to urgently review the current policy framework for the petroleum downstream segment of the oil and gas industry.
Yusuf concluded that the government needed to urgently liberalize the downstream sector for unfettered private sector participation and investment.
“The concentration of petroleum products supply in the NNPC remains a major cause for concern. The arrangement is an inherent entrenchment of the dominance of the NNPC to the detriment of private investors in the sector. The role of the NNPC needs to be clearly defined, it should not be an operator and still have regulatory powers,” Yusuf said.

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