Some operators of Nigeria’s downstream oil industry have blamed the Federal Government’s fixation on the price at which refined products are delivered to motorists for the lingering fuel shortage that has virtually grounded the economy and brought pain and misery to Nigerians.

According to them, problem began after the government tacitly excluded any provision for fuel subsidy in 2016 without deregulating the sector.

Instead, the government went ahead in January 2016 to alter the PPPRA template for determining petrol price by eliminating the importer’s margin of N10 per litre and cutting the terminal charge of N2 by 50 kobo by litre.

It was gathered that once government did this, many of the private importers who were already facing acute shortage of foreign exchange, completely abandoned the business of importing petrol.

According to one senior industry chief, “today’s scarcity can be traced to the decision taken by government that there will be no subsidy in 2016. There would not have been any problem with this if the price were deregulated. However, the government insisted on maintaining the regulation of the sector and at the same time, taking away the margins, so some of the importers simply walked away.”

It was to rescue the crisis that this created that forced NNPC to take over the task of importing 100 percent of the petrol requirement for Nigeria and because this was done without any proper planning, orders were not placed on time and in sufficient volume to meet the entire domestic demand. More importantly, many of the refineries abroad were re-tooling ahead of the summer busy period, producing reduced volumes of PMS, thereby resulting in a significant decline in availability, especially for unplanned requests like those from Nigeria.

Stunned by its policy failure, the Federal Government has now made a volte-face and admitted that subsidy will be paid, while also adjusting the pricing template by restoring a margin of N2 per litre to the importers and also increasing the terminal or storage charges by a third to the old level of N2 per litre.

The government has also begun discussion with the IOCs to sell foreign exchange directly to importers without crude oil producing affiliates to improve their access to foreign exchange.

Some importers like Mobil Oil and Total Oil were already enjoying this relationship with their IOC affiliates.

Under the new dispensation, the NNPC will by itself import 60 percent, while the private companies will bring in the balance of 40 percent going forward.

About $16 million is required daily to fund Nigeria’s petrol requirement.

The allocation documents were sent out by NNPC to the oil companies in the last one week and even if the firms were to issue purchase orders this week, the earliest that the bulk of the consignments will arrive Nigeria and spread out to areas outside Lagos and Abuja will be the end of the month or May, which Ibe Kachikwu, Minister of Petroleum had mentioned last week, when he got into trouble.

“The minister was being honest when he said May,” said one industry chief. “He probably did not reckon that he would be quoted, and given the pain people were already feeling, he was bound to get into trouble once it was published.”

Our reporter learnt that the success of this arrangement will be contingent upon the IOCs making enough foreign exchange available to the importers and also upon NNPC playing its role of supplying the 60 percent of the daily requirement of 40 million litres.

Because there is no guarantee this will happen, operators cannot bet that the days of fuel shortage in Nigeria can be forgotten for as long as government fails to deregulate the sector to promote the flow of the required investment into a sector nearly abandoned.

Meanwhile, fuel queues across the nation continue to grow longer by the day, while fewer and fewer stations are getting fuel to dispense and the black market is thriving, while hapless Nigerian households and businesses are being cut off from this lifeblood.

There are three categories of businesses selling fuel across the country. The first two are fuel stations owned by the major marketers and independent operators respectively. Then there is the black market operating from the roadside.

As at yesterday in Abuja only a few stations were selling petrol while desperate motorists resorted to buying from the black market at N150 per litre.

In Benin, the black market price for petrol rose to between N230 and N300 per litre. The same was the case in Jos and Abeokuta.

In Lagos, motorists endured long queues at petrol stations, some of which had no petrol to dispense while independent marketers sold at N180 and the black market operators sold at N220.

http://www.financialwatchngr.com/2016/04/05/cause-fuel-scarcity-blamed-fg-rigidity-pricing/

thank god say dem nor blame jonathan

Removing subsidy without proper planning

That is what a country get when no room for proper planning

I think perhaps FG chose a fixed price to show transparency and minimise confusion.

I think it is the best policy, because if you allow the cartel to overcharge it is bad for the economy, and they would still create artificial scarcities just to force the price higher.

What is happening now is that a lot of fuel marketers are deliberately creating scarcity to force prices up, they are hoarding fuel or diverting them to be sold illegally to neighbouring countries at a higher price.

Perhaps what the FG could do is increase fuel prices just enough to make it unprofitable for it to be diverted abroad to neighbouring countries, perhaps to N100.

The additional revenue realised could be used by NNPC to build more fuel stations and downstream infrastructure.

Godgay:
thank god say dem nor blame jonathan

If jonathan had done well, nobody will mention sai baba,let alone voting for him.

Nigerians would have given him a "third term" if he did well.

So do not always bring jonathan into issues that are very important in our National Life.

Somersault till 2019.

The government doesn't want to make the unpopular decision, which by the way is the best decision, to deregulate the sector. I see people happily queueing by the road side to buy from black marketers at 150 naira -200 naira per litre yet years ago a wise man deregulated the market, filling stations were told to sell at 141 naira but we occupied the streets revolting. We are paying the price today and putting money in the pockets of those who want the price fixing to continue. Nobody wonders how the fuel ends up in jerrycans. Petrol stations don't necessarily have to divert tankers to make gains. They just sell all their products to the black marketers at 100-120 naira a litre. Let Magu be chasing yam eaters while petrol stations commit even greater financial crimes and corrupt practices.

This makes sense, and I'm in full support of the price rigidity, because it's done in the best interest of Nigerians who will be the beneficiaries in the end once the new orders are supplied, our refineries are back in production, and Dangote completes his refinery which has the capacity to satisfy our domestic demand and even export.

The fact is that the greedy importers are not ready to sacrifice their huge profits, and are upset by the government's decision to remove the subsidy, while cutting into their insane profits (N10 margin per litre, really?) and refusing to deregulate which will give them the latitude to push prices much higher than the average Nigerian can afford. Hence the continuous sabotage.

This is good news for Nigerians since the FG has now made forex available to the IOC's, as we are sure the scarcity will soon end once the orders are delivered, and it will end for good as we have concrete plans (Kaduna and Dangote's Lagos refinery) to start refining locally, which will sieze the power from the importers, and they will be forced to end their shakara.

The non payment of workers salaries by this Fulani regime is beginning to make me think there's a plan Nigeria doesn't know of yet

Stylz69:
The government doesn't want to make the unpopular decision, which by the way is the best decision, to deregulate the sector. I see people happily queueing by the road side to buy from black marketers at 150 naira -200 naira per litre yet years ago a wise man deregulated the market, filling stations were told to sell at 141 naira but we occupied the streets revolting. We are paying the price today and putting money in the pockets of those who want the price fixing to continue. Nobody wonders how the fuel ends up in jerrycans. Petrol stations don't necessarily have to divert tankers to make gains. They just sell all their products to the black marketers at 100-120 naira a litre. Let Magu be chasing yam eaters while petrol stations commit even greater financial crimes and corrupt practices.

Right now those saboteurs diverting products for their selfish gain are terrorizing Nigerians, and no sane government negotiates with terrorists.

Giving into their blackmail by deregulating will only legalize their insane profiteering, and if you think it's horrible buying fuel at N150/litre, wait till deregulation is implemented and your petrol station boldly displays N300/litre without the DPR having any power to do anything about it, and you're forced to pay that price, not for the period of any scarcity, but for the next 4, 8 or 12 years.

Deregulation at this time when our pipelines are ineffective, the industry is inefficient, and our marketers/importers are so greedy and undisciplined is a no no in my opinion.

sabotage everywhere. profit derived on pms should be like call cards(tied to volume), but here we have people wanting to breakeven in a single day.
God help us oo

fulanimafia:


Right now those saboteurs diverting products for their selfish gain are terrorizing Nigerians, and no sane government negotiates with terrorists.

Giving into their blackmail by deregulating will only legalize their insane profiteering, and if you think it's horrible buying fuel at N150/litre, wait till deregulation is implemented and your petrol station boldly displays N300/litre without the DPR having any power to do anything about it, and you're forced to pay that price, not for the period of any scarcity, but for the next 4, 8 or 12 years.

Deregulation at this time when our pipelines are ineffective, the industry is inefficient, and our marketers/importers are so greedy and undisciplined is a no no in my opinion.

kudos, that's one area the deregulation advocates fail to see. these people are just too greedy, they are not happy with the no subsidy and reduced margin, they caused artificial scarcity, we have cartels in all business, unlike telecommunications that each company is fighting to have all possible customers is can get, these ones don't need to solicit for customers to come, so anytime they want an increase in their pay, they just create an issue, deregulation will make it worse, they display price in unison which makes you have no choice but to go for the product anywhere you can find it.
economists term it oligopoly

OlujobaSamuel:

kudos, that's one area the deregulation advocates fail to see. these people are just too greedy, they are not happy with the no subsidy and reduced margin, they caused artificial scarcity, we have cartels in all business, unlike telecommunications that each company is fighting to have all possible customers is can get, these ones don't need to solicit for customers to come, so anytime they want an increase in their pay, they just create an issue, deregulation will make it worse, they display price in unison which makes you have no choice but to go for the product anywhere you can find it.
economists term it oligopoly

Exactly, we can't play into their hands with our eyes open.

Now this is the first meaningful explanation I am reading regarding this fuel scarcity imbroglio. I think the ministry of information is in total coma and has failed totally in keeping Nigerians informed.

obailala:
Now this is the first meaningful explanation I am reading regarding this fuel scarcity imbroglio. I think the ministry of information is in total coma and has failed totally in keeping Nigerians informed.

Lai Mohammed seems grossly ineffective, he is a weak link in the chain. Probably he doesn't understand it himself, we need someone sharp, astute, convincing, charismatic and eloquent for that critical position.

Most of Nigerians vexation seems rooted in the fact that no one seems to know what's going on.

Buhari- there will be no subsidy in 2016. Kachikwu- we will pay subsidy to independent marketers

Everyday more talk, petrol is 200 naira led litre in Delta State petrol stations.

fulanimafia:


Lai Mohammed seems grossly ineffective, he is a weak link in the chain. Probably he doesn't understand it himself, we need someone sharp, astute, convincing, charismatic and eloquent for that critical position.

Most of Nigerians vexation seems rooted in the fact that no one seems to know what's going on.

Absolutely, Nigerians have absolutely no clue about what is going on and this is 100% the government's fault. I'm sure if some explanations were made to enlighten the populace, some heat would be diverted away from the government.

Similarly in the forex scarcity issue, the government hasnt for once made any attempt to enlighten Nigerians on the reasons why the CBN as a matter of necessity, has to restrict the free distribution of forex, and the dire consequences of doing otherwise. If the CBN should assent to all forex demands, Nigeria's forex reserves would be wiped out in 3 months and the consequences of this are better imagined. I wonder why the FG/CBN hasnt come forward to enlighten Nigerians on this cos if they do, I doubt Nigerians would still be castigating the CBN for restricting the distribution of forex and killing businesses.

The information ministry obviously needs to sit up.

GenBuhari:
I think perhaps FG chose a fixed price to show transparency and minimise confusion.

I think it is the best policy, because if you allow the cartel to overcharge it is bad for the economy, and they would still create artificial scarcities just to force the price higher.

What is happening now is that a lot of fuel marketers are deliberately creating scarcity to force prices up, they are hoarding fuel or diverting them to be sold illegally to neighbouring countries at a higher price.

Perhaps what the FG could do is increase fuel prices just enough to make it unprofitable for it to be diverted abroad to neighbouring countries, perhaps to N100.

The additional revenue realised could be used by NNPC to build more fuel stations and downstream infrastructure.

Why are you always giving obfuscated analysis when you are total ignorant of business of the agency concerned?

How can the marketers create artificial scarcity when NNPC is having 75% import quota?

The law of demand and supply doesn't favour price increase when the market is flooded with a specific products hence your thesis makes no sense.

APC Government is practically learning governance by trial and error method

fulanimafia:


Right now those saboteurs diverting products for their selfish gain are terrorizing Nigerians, and no sane government negotiates with terrorists.

Giving into their blackmail by deregulating will only legalize their insane profiteering, and if you think it's horrible buying fuel at N150/litre, wait till deregulation is implemented and your petrol station boldly displays N300/litre without the DPR having any power to do anything about it, and you're forced to pay that price, not for the period of any scarcity, but for the next 4, 8 or 12 years.

Deregulation at this time when our pipelines are ineffective, the industry is inefficient, and our marketers/importers are so greedy and undisciplined is a no no in my opinion.

The inability for a regulator to exercise it's power shouldn't be an excuse to maintain a bad system. In an open market, markets forces can come into play and ensure we pay the right prices however I agree that regulation will play an important role and the DPR are not living up to their responsibility. Look at the telecom sector, when MTN and Econet were the dominant players. We were forced to pay per minute and told that per second billing couldn't be implemented. It didn't take any regulation to force prices down neither did government fix prices for calls even when we cried out. It took a new market entrant, Glo to enter the market with per second billing and immediately all the others had to do the same. At one point, it needs to be done. Price fixing is inefficient and we will continue to suffer this scarcity. As a private investor, I will not build a refinery or pipelines if I cannot recoup my costs in a market with fixed prices, government will not build refineries and pipelines because it can't. ..so what is the solution?

Stylz69:

The inability for a regulator to exercise it's power shouldn't be an excuse to maintain a bad system. In an open market, markets forces can come into play and ensure we pay the right prices however I agree that regulation will play an important role and the DPR are not living up to their responsibility. Look at the telecom sector, when MTN and Econet were the dominant players. We were forced to pay per minute and told that per second billing couldn't be implemented. It didn't take any regulation to force prices down neither did government fix prices for calls even when we cried out. It took a new market entrant, Glo to enter the market with per second billing and immediately all the others had to do the same. At one point, it needs to be done. Price fixing is inefficient and we will continue to suffer this scarcity. As a private investor, I will not build a refinery or pipelines if I cannot recoup my costs in a market with fixed prices, government will not build refineries and pipelines because it can't. ..so what is the solution?

The current inefficiency of the petroleum industry makes your comparison with telecoms a case of comparing apples with oranges. Pipelines for example, are not operational due to sabotage and tankers must be used for distribution which is highly inefficient and adds several variable costs to the final cost of petroleum products which makes it a much more difficult industry to regulate if eventually deregulated.

Furthermore, the industry is an oligopoly so market forces can't really go a long way in stabilizing prices, especially when there's collusion among the players like the 'cabals' that are reported. Deregulation essentially weakens the powers of the DPR so I'm not sure I fully get your point.

fulanimafia:


The current inefficiency of the petroleum industry makes your comparison with telecoms a case of comparing apples with oranges. Pipelines for example, are not operational due to sabotage and tankers must be used for distribution which is highly inefficient and adds several variable costs to the final cost of petroleum products which makes it a much more difficult industry to regulate if eventually deregulated. Deregulation essentially weakens the powers of the DPR so I'm not sure I fully get your point.

Deregulation doesn't weaken the power of the DPR (regulator). The telecoms sector is deregulated but has NCC as the regulatory body and they have immense power . Recall the hefty fine placed on MTN. Deregulation doesn't mean that market players can do as they wish, in fact the regulatory bodies exercise more power in a deregulated market. Deregulate and marketers will invest in more efficient ways to get their products to the stations. We may pay more initially but it will level out.