With the challenges facing Nigeria as far as petrol importation and distribution is concerned, it has become imperative for government to take decisive actions towards achieving local refining sufficiency. The time to fix the refineries is now!
Various governments have promised to overhaul the existing refineries as well as construct new ones, to no avail. This has made the Nigerian petroleum downstream sector susceptible to fluctuations in oil prices at the international market, with Nigerians at the receiving end.
As oil prices hover around the $70 mark, with the prospects of gaining more, the effect is a distortion of the Petroleum Pricing Products Regulatory Agency (PPPRA), pricing template. Set in the first quarter of 2016 when oil prices was only $49 a barrel, this template can no longer hold.
At $67 a barrel, landing cost for a litre of petrol rose to N171, which is N26 more than the government approved pump price. The question then, is how do private marketers import at N171 and sell for N145 approved pump price? That is absolutely impossible and no wonder private marketers stopped importation since September 2017, leaving the Nigerian National Petroleum Corporation (NNPC) as sole importer. The consequence of this development is that because the NNPC lacks the infrastructural capacity to efficiently cope with a 100percent importation and distribution of the products, there exist a supply and distribution gap, and ultimately scarcity of the products.
On the other hand, with the N26 difference in the retail price of petrol in the country, Minister of State for Petroleum Resources, Dr Ibe Kachikwu, has disclosed that NNPC losses a whooping N900 million daily for selling petrol at government regulated price of N145 a litre. Since October 2017 when the state owned Corporation became the sole importer of petrol, it has incurred a cumulative loss of N85.5 billion on its daily 25 million litres import, Dr Kachikwu said. This cost increases as oil price increase. This is unsustainable and further begs the question; how much would be needed to fix the refineries and make them operate at installed capacity or close to?
Apart from the direct effect crude prices have on products distribution in Nigeria, other by-products from crude is lost in the refining countries. Businesses that thrive on the backs of these by-products end up importing them into the country, resulting to more demand for foreign currencies at the detriment of the naira.
That a turnaround maintenance of the refineries is long overdue would be putting it mildly. Like we pointed out in our Christmas Day editorial, when operating at full capacity, the nation’s four refineries can refine a combined 19 million litres daily. With the estimated national daily consumption put at 27 million litres, that leaves a difference of 8 million litres that could easily be made up for through imports. But sadly, the 2015 independent audit report of the oil and gas sector by the Nigeria Extractive Industries Transparency Initiative (NEITI) revealed that the refineries refined only 5 percent of the 445,000 barrels domestic crude allocated to the NNPC daily for local refining in 2015. The report highlighted the level at which the refineries have been neglected in preference for products imports.
Continuous pump price increase is not the solution, we urge the government to, apart from fixing the existing refineries, issue licenses to companies with technical and financial competence to immediately begin construction of modular refineries which can be completed within months. Those will complement the refinery being constructed by the Dangote Group, and thus reposition Nigeria as a refined products exporter rather than importer.