PRICE OF PETROL: OPTIONS BEFORE THE GOVERNMENT
The importation of petroleum products was initially a temporary measure to tackle inadequate supply of petroleum products from Nigeria’s four state-owned refineries. However, inefficiency and corruption have turned this temporary measure into a permanent thing. Thus, the ‘monster’ subsidy found its way into the system.
The prices of refined petroleum products in Nigeria are solely dependent on import factors. To mitigate the high prices of the products due to subsidy removal, there are two ways: a temporary one and a permanent one. The temporary way concerns looking at the over 10 components that make up the landing cost of petrol in Nigeria. Recent analysis showed that for every litre of petrol, Freight: Lome-Lagos is around N10.37K, Port Charges: N 7.37k, NMDPRA, 1% Levy, N 4.47K; Storage cost: N 2.58K, Marine insurance, N 0.47K; Fendering cost: N 0.36K, NMDPRA: COQ & NOA, Q&Q analysis: N 0.06K, Letter of Credit fees: N 10.78K, while total Interest stood at N 17.26K. Excluding the cost of a high exchange rate, loading depot expenses, and haulage expenses, these components make up nearly 10% of the price of imported petrol. Some of these components are under government control, while others are not. For example, the government can control the exchange rate, port charges, NMDPRA’s 1% levy, COQ and NOA, and Q&Q analysis.
As the de facto Minister of Petroleum, President Tinubu should set up a presidential team to look at these components and devise feasible ways to knock them off the landing cost template. For those under the government’s control, the government should eliminate them from the template since the importation of petroleum was supposed to be a temporary thing. For the components outside the control of the government, tax cuts and other incentives can be offered to the private firms in charge of these components in exchange for cutting down their charges. The biggest culprit in the high price of imported petroleum products is the high exchange rate. Some petroleum marketers find it difficult to source for dollars from the Central Bank of Nigeria I&E FX Window. President Tinubu should mandate the CBN to make a special reservation of dollars for petroleum marketers willing to import petroleum. The next thing that President Tinubu should do is critically look at the restoration of the Petroleum Bridging Equalization Fund. Since it is like a contributory fund, the source of the fund is principally the net surplus revenue recovered from oil marketing companies. The bridging claims paid to the petroleum marketers automatically equalize petroleum prices throughout Nigeria. There is an innovative electronic business solution, Aquila, which has completely eliminated any irregularities in the distribution and claims on bridged regulated petroleum products. The Aquila Project is an excellent electronic business solution designed to track the movement of regulated petroleum products throughout Nigeria.
The permanent solution lies in how Nigeria’s four local refineries are managed. The refineries are caught in the crossfire of corruption and persistent attacks on pipelines by oil thieves. As their rehabilitation is ongoing, when the refineries come online, Nigeria has three options.
The government can retain one of the refineries, grant it full autonomy to cater for itself, pay its bills, and remit dividends to the government. The government can also lease one of the refineries to any oil company or group of investors with an interest in petroleum product refining. And the government can fully privatize one of the refineries, with the FG, host communities, and the 36 states having some shares. This approach will take care of all the interests in how to manage the four refineries. However, we cannot talk about Nigeria’s refineries without mentioning the effective management of the country’s 5,120-kilometer oil pipeline network. The engagement of locals by the NNPC is yielding some results. The biggest problems facing the oil pipelines in Nigeria are incessant illegal tapping by oil thieves, sabotage, right-of-way incursions, slow detection of leaks, and in-line equipment failure due to inaccessible sites, including the old-fashioned method of managing the pipelines. There are advanced technologies like SCADA, Fiber Optic Cable (FOC), and Go-devils, scrampers, or smart pigs that can provide advanced warning in real-time, which helps pipeline companies take quick action to protect the long stretch of their pipeline network, even if it is located in inaccessible areas where visual inspection might be difficult.
Zayyad I. Muhammad, Abuja
