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Nairaland Forum / Nairaland / General / Business / Punch Editorial: Scandalous Petrol Smuggling And Subsidy (113 Views)
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Punch Editorial: Scandalous Petrol Smuggling And Subsidy by adenigga(m): 1:02am On Jul 13, 2021 |
REPORTS and pronouncements by officials reveal astronomical levels of petroleum products smuggling, the high landing cost of imports, and subsidy amid seeming helplessness by the government to resolve the crisis. Despite an alarming disclosure that the daily national supply of petroleum products shot up to 102 million litres per day in May, fuelled by massive smuggling across the country’s borders, the Federal Government remained stuck in its failed responses of continued state involvement in refining, import and distorted price-fixing. Unless it exits the downstream business altogether, ends the distortions created by the state monopoly and misdirected subsidies and effectively neutralises smuggling, there may be no end soon to the crushing burden of fuel subsidy on taxpayers. For a country badly bruised by two recessions in five years, severe revenue shortfall and mounting debts, the cost of the refined petroleum products quagmire is prohibitive. With all the 102 million litres “consumption” in May imported, the subsidy bill has risen astronomically. By March, said Mele Kyari, the group managing director of the Nigerian National Petroleum Corporation, it had climbed up to N120 billion monthly. With the landing cost of petrol now at about N240.17 per litre, but supplied to marketers at N160 per litre, the subsidy has spiked, draining N6.07 billion per day. Worse still, as oil prices rise in the international market, landing costs and subsidy liability will remain high. Smuggling is destructive because it translates to Nigeria incurring huge sums to subsidise petrol for other countries. The government must put a stop to this ruinous haemorrhage. The failure to stop the massive smuggling of petrol to neighbouring countries where pump head prices are higher is galling. A report in The PUNCH confirmed large-scale smuggling of petrol across the borders, facilitated by collusion by insiders and security agents. Another report alleged widespread over-invoicing of imported petrol cargoes and diversion of products falsely officially recorded to have been discharged inland. Without drastic action, experts fear the subsidy bill may rise above N1.5 trillion this year. Nigeria incurred N10.41 trillion on petrol subsidy between 2006 and 2019. In 2019 alone, it was estimated at N1.14 trillion, while Nigerians recall how N1.7 trillion above the budgeted subsidy vote vanished in a massive looting binge in 2011. Faced with this morass, the government’s response has fallen typically short of the radical reforms required. According to Kyari, on the orders of the President, Major General Muhammadu Buhari (retd.), a collaborative programme is underway between the NNPC, the Nigeria Customs Service, the Economic and Financial Crimes Commission and other law enforcement agencies to end smuggling and oil theft. The aim, he said, is to bring down petrol supply to about 60 million litres per day, a figure Kyari admits to being also suspiciously high. Simultaneously, it is bent on its failed strategy of “rehabilitating” the four moribund state-owned refineries and continuing the “price equalisation” policy under which the government pays out billions in a futile bid to ensure price parity in every part of the country. The ridiculous “bridging” policy gulps billions of naira each year. Officials have also been hinting darkly at possible hikes in pump price to reduce the subsidy bill and thereby pass the burden of official incompetence to Nigerians. Solving a problem requires identifying its root causes and adopting global best practices based on rational economic considerations. Nigeria’s petroleum downstream sector crisis is rooted in state involvement, import monopoly, lack of domestic refining self-sufficiency and weak law enforcement. This fuels corruption, waste, and elevation of primordial above national interests. Having run the four refineries aground, and with the 650,000 barrels per day Dangote Refinery nearing completion, quick transparent privatisation of the refineries to capable private investors is the best option to foster competition and products self-sufficiency. The regime’s preference to borrow another $1.5 billion to “rehabilitate” them entrenches state intrusion, waste, and inefficiencies. The refineries incurred N1.64 trillion losses in the five years to 2019; in the first 10 months of 2020, they lost N85.75 billion but processed no crude. Competition promotes efficiency in services, costs and pricing. Government should therefore open the space to more private investors to make Nigeria the continental refining and export hub. Ghana, with far less crude (189,000 bpd compared to Nigeria’s 1.34 million bpd currently), is seeking that title with a $6 billion energy sector ambition that has attracted significant international investor interest. Its decision in 2005 to liberalise its downstream sector, said the Oxford Business Group, and to overthrow state monopoly; independent operators now control 95 per cent of the domestic market in the country. There should be a drastic action to contain smuggling, beginning with a massive shake-out at the NCS. Customs and other law enforcement agencies have failed the country woefully. They should be reformed and the porous borders through which fuel, arms, and ammunition, as well as bandits and terrorists, move unhindered, secured. Buhari should probe the curious rise in daily petrol supply as verified by the National Bureau of Statistics, from 38.2 million litres in 2017 to 57.2 million litres in 2019, and over 100 million in 2021! It is pernicious and cynical for the government to inflict further hardship on Nigerians through inflation-fuelling price hikes simply because it has failed in its responsibility to contain smuggling, apprehend, and prosecute smugglers and their corrupt official accomplices. At N162 per litre, compared to N346 in the Niger Republic, N359 in the Benin Republic, N366 in Chad, N449 in Cameroon, N300 in Togo, and N332 in Ghana (all 2020 figures), Nigeria’s pump price remains the cheapest in West Africa, providing an incentive for smugglers. It is the responsibility of the state, through intelligence- and technology-driven law enforcement, to prevent smuggling, arrest and punish criminals, fund, equip and ensure an efficient customs service and stamp out corruption. Government should stop transferring the consequences of smuggling to the economy. Subsidy and its abuse arise only because the country unreasonably relies on imports for refined petroleum products. Bizarrely, the opaque, graft-ridden, and highly politicised NNPC has been the sole importer. To solve this, let the government exit the downstream, liberalise the operating environment to foster competition in production, distribution and exports and thereafter end subsidies. The equalisation policy should be dropped today: it only fuels massive corruption and has failed to achieve price parity. Source: https://punchng.com/Editorial/Scandalous-petrol-smuggling-and-subsidy
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