LAGOS — Nigeria’s downstream petroleum industry is in turmoil as clear signals emerge that the Federal Government may soon cease sustaining the cost of under-recovery, also known as fuel subsidy.
This potential shift is driven by a dramatic increase in petrol import bills, with industry operators anticipating a sharp rise in pump prices.
Industry insiders informed Vanguard that a significant hike in fuel prices is imminent to enable the Nigerian National Petroleum Company Limited (NNPCL) to cover its substantial outstanding bills for products received on credit from international suppliers.
The proposed new pump price could be around N1,000 per litre or higher, although some estimates put the landing cost of petrol, excluding delivery to stations, at approximately N1,200 per litre.
Escalating Costs and Supply Shortages
NNPCL is struggling with a shortage of petrol supply, exacerbated by international suppliers unwilling to deliver on credit and an increase in smuggling.
This shortage has worsened over the past week, inflicting severe impacts on transportation and causing widespread inconvenience for the public.
Current analyses reveal that the landing cost of petrol, including all associated expenses—product cost, finance cost, freight, port charges, insurance, storage, and regulatory fees—stands at N1,205.52 per litre.
When additional costs like transportation and marketer margins are included, the estimated official pump price rises to N1,405 per litre.
At a proposed price of N1,000 per litre, the subsidy would still remain high, forcing the government into a challenging decision between fully eliminating the subsidy or sharing the cost between the government and consumers.
NNPC Overwhelmed by Subsidy Costs
The NNPC Ltd has expressed its inability to sustain fuel importation at the current costs, with President Bola Tinubu permitting the use of the 2023 final dividends due to the federation—amounting to N2.1 trillion—to cover the petrol subsidy.
Additionally, the president approved the suspension of 2024 interim dividends to support NNPC’s cash flow.
The national oil company has reported that the subsidy payments are severely affecting its cash flow, rendering it unable to remit taxes and royalties to the federation account.
NNPC’s cumulative petrol subsidy bill from August 2023 is projected to reach N6.884 trillion by December 2024, surpassing its ability to remit N3.987 trillion in taxes and royalties.
In June 2024, NNPC revealed that the removal of the subsidy in June 2023 resulted in a monthly savings of N400 billion, enabling the company to remit N2.032 trillion in taxes and royalties to a sequestered account at the Central Bank of Nigeria (CBN) by January 2024.
However, rising fuel importation costs have led to a surge in the subsidy bill, peaking at N665.60 billion in November 2023 due to the depreciation of the Naira.
Impending Fuel Price Adjustment
Petroleum marketers anticipate that the government will announce a new fuel pump price this month to provide direction to the market.
The market is expected to be influenced by demand and supply dynamics, with the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) playing a regulatory role.
NMDPRA’s Chief Executive, Engr. Farouk Ahmed, could not be reached for comment. Meanwhile, oil marketers are reluctant to begin importing petrol due to challenges such as foreign exchange instability and high costs.
Adetunji Oyebanji, Managing Director of 11 Plc, stated that while forex conditions have stabilized, marketers are still hesitant to import without clear economic pricing.
Marketers’ Perspectives and Calls for Support
Elder Chinedu Okoronko, former national president of the Independent Marketers Association of Nigeria (IPMAN), emphasized the need for a benchmark to help marketers recover their investments and urged the government to encourage local refining and the use of Compressed Natural Gas (CNG) to reduce costs and boost the economy.
Transporters are also feeling the strain of fuel scarcity. A leading transport company’s managing director reported that fuel shortages and local government levies have significantly increased transportation costs, with fares from Lagos to the eastern part of Nigeria now reaching as high as N30,000, compared to N15,000 a few years ago.
Motorists’ Frustrations
The fuel scarcity has led to severe shortages in Lagos and surrounding areas, with many filling stations closed. Motorists have expressed frustration at the long queues and the high black market prices, which have soared to N940 per litre in some areas.
Dangote Refinery’s Role in the Crisis
In response to the crisis, the Dangote Group has commenced petrol refining at its new facility on the outskirts of Lagos.
With a capacity of 650,000 barrels per day, the Dangote Petroleum Refinery aims to alleviate Nigeria’s dependence on imported fuel. The refinery is expected to begin test runs for petrol production by mid-September 2024.
Expert Recommendations and Future Outlook
Experts suggest that the Federal Government should collaborate with local refineries, such as Dangote Petroleum Refinery, to process the daily allocation of 445,000 barrels of crude oil for domestic use.
Rabiu Bello, Senior Independent Non-Executive Director at Seplat Energy Plc., advocated for such collaboration to ensure local refineries operate profitably and efficiently.
Additionally, Mr. Henry Adigun, an oil and gas consultant, called for full implementation of the Petroleum Industry Act (PIA) to streamline operations in the downstream sector and address the current fuel scarcity by clearing outstanding debts and allowing fuel prices to align with market levels.
As Nigeria grapples with these challenges, the potential rise in fuel prices and the ongoing supply issues highlight the urgent need for comprehensive reforms and strategic planning in the country’s petroleum sector.
