I have deliberately chosen to write this lengthy piece in order to put the problem of fuel supply in Nigeria in proper perspective. A Yoruba adage says that when a small child trips, he looks at his front but when an elder trips he looks behind to understand the cause of his fall. This is where looking at the past of fuel supply before looking at the present and contemplating the future comes in.
For the avoidance of doubt, let me state that I believe that the President is making a very big mistake in the way he is handling the fuel supply crisis and I shudder to think that he does not know or that nobody close to him knows enough to have told him so. I hope that I am wrong in my fear that the President and (and his team?) might be doing what he is doing deliberately.
The idea of pump price marginal decrease and suspension of fuel subsidy, instead of deregulation, is absurd. The artificial pump price in many parts of the country today is higher than the PPPRA template price of about N85Lt. Travellers from the Eastern part of the country bought fuel as high as N150/Lt this new year.
The Nigerian State built four Refineries over an 18-year period and the last one was built about 26 years ago. The four Refineries are producing only 17 percent of the nation’s daily petroleum consumption today, according to the Nigerian National Petroleum Corporation (NNPC).
It is interesting to note that the first Nigerian Refinery, the Port Harcourt Refinery, was built by Shell and BP as a private sector initiative. The Federal Government acquired 60% of the shares of this Refinery in 1970 and the balance in 1978.
Prior to the PH Refinery, the Multinational Oil Companies imported refined petroleum products for sale on their stations to meet local demand. They had their depots and facilities and sold at their profitable prices, with no Government intervention!
The Marketers sold at different prices, at different locations depending on the transportation cost element in their price build-ups. There was no uniform pump price. At a point, different grades of PMS were sold, Premium, Super and Regular at different prices.
At the advent of the Refinery, Marketers bought crude oil for processing at the Refinery paying the appropriate conversion cost to the Refinery. The price differentials persisted during this period. Marketers moved products from Refinery to Depot using coastal vessels, railway wagons and road trucks. Delivery to customers followed the same pattern. Rail lines terminated in their (Marketers) Depots. This was the beautiful past.
For the records, the status of some of these IOCs has changed, either, through Government acquisition and privatization or private mergers. Shell is Conoil today, BP is Forte Oil today, Texaco is MRS today, Esso (Unipetrol) and Agip are Oando today while Elf merged with Total.
Government Intervention: After the civil war, in the early 70’s, certain events impacted our beautiful past and we have not regained ourselves ever since. The Oil Boom era suddenly caught up with Nigeria and the country was awash with petro Naira, salaries and wages were increased, increase in general economic activities after the stifling effects of the war.
Suddenly, our fuel consumption jumped up with more Nigerians buying vehicles, more commercial vehicles on the road with resultant effect of the Refinery production not being sufficient to meet local fuel demand. The Government now entered the oil industry by importing to augment the shortfall in local supply. The Multinational Oil companies were at hand to do the importation on behalf of the Government. Although successive Governments moved to build additional Refineries at Warri, Kaduna and a second one in Port Harcourt (PH 2), the nation has never looked back since (except maybe for a very brief period on completion of PH 2). We tasted the forbidden fruit of oil importation and oil cabals stepped in!
The process of ignorant or deliberate under-utilization of our Refineries had begun and it continued up to a time when 90% of PMS consumed locally was imported, from 0% import! With the foray of the Government into petroleum importation, the Industry was taken over by the Government with the Oil Minister now fixing pump price and with the establishment of PEF (Price Equalization Fund Board) in 1975, uniform pricing regime commenced.
Challenges with the present arrangement: The recent suspension of subsidy will not solve the fuel crisis in the country. A holistic approach is required. The issues of assessing foreign exchange at official price; Banks’ ability to fund petroleum importation; the unwillingness of Marketers to import due to risks inherent in it; unclear policy on the processes to import etc. will continue to plague fuel availability making PPMC the only possible importer. Any other importer may not be able to sell at the regulated pump price. For the records, PPMC alone cannot meet the local demands for PMS.
To be concluded tomorrow
n Engr. Sokunbi, General Manager, Capital Oil Plc and a Fellow of the Nigerian Society of Chemical Engineers, delivered this paper at the 2015 Annual Seminar of the Society in Lagos,
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