Fuel Scarcity Re-ignites Calls for Oil Sector Deregulation
The untold hardships brought to bear by the on-going fuel crisis has again triggered agitation for full deregulation of the downstream sector of the nation’s petroleum industry, writes Festus Akanbi
Irrespective of whatever explanations being given by the authorities for the biting fuel scarcity across the country, the truth is that the perennial crisis in the nation’s energy sector has continued to defy immediate solution. For a couple of weeks, the nation’s economy has been at the receiving end as a result of the near paralysis occasioned by endless queues at filling stations and the attendant waste of man hours on the road. A random survey of the Lagos area last Tuesday presented an ironic situation. Driving from Ojota end of the Lagos-Ibadan expressway, through Ikorodu road, showed a number of endless queues with the attendant riotous situation in most of the filling stations up to Fadeyi area of the city. While vehicle owners were sweating it out to get fuel, scores of street urchins popularly referred to as Area Boys were busy struggling for customers as they brazenly flaunted petrol in different sizes of kegs. The riotous situation was more pronounced in Apapa area which was practically locked down as tanker drivers and container-bearing vehicles blocked the Apapa-Oshodi expressway and Ijora-Apapa area of the town throughout last week. On Victoria Island and Lekki axis of the city, most of the roads were deserted by commercial buses but long queues were noticeable at every street corner.
It has been pointed out in different fora that the persistent confrontation between the federal government and the Oil Marketing and Trading (OM &T) companies over the delay in payment of subsidy claims was the main reason for the scarcity of petroleum products in the country, with its attendant hardships on Nigerians. Explanations had been made by government officials that the delay was caused by the need to be meticulous in the verification of the claims to avoid subsidy fraud, but government’s critics argued that the present situation is a ploy by the outgoing administration to buy time and ensure that the incoming administration inherits the debt.
Marketers to Meet Buhari’s Men
Meanwhile, petroleum marketers are getting set to meet the President-elect, Muhammadu Buhari, in a renewed bid to stabilise the downstream oil sector. The Executive Secretary of the Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), Olufemi Adewole, was quoted as saying that members were planning to meet with the Presidential Transition Committee with a view to finding a solution to the confusion surrounding the importation of petroleum products. “We have written to the president-elect to meet with him with a view to charting a middle ground that will guarantee the investments of the marketers. We feel we need to know the policy thrust of the new administration in the downstream sector,” Adewale said. “We must know whether to continue to import with the assurance that the incoming government will pay upon assumption of office. We also need to know how to brace up for deregulation just in case the new government decides to do away with subsidy. We also plan to meet with the Presidential Transition Committee on the same issue,” he explained.
The Payment
Recently, the ministry of finance paid marketers N156 billion arrears as part of measures to encourage them to keep importing, but the crisis has even escalated. The payment had two components: N100 billion IOU which the marketers were given in March and N56 billion in interest payments. The “interest payments” are meant to offset the cost of funds incurred by the delay in reimbursement of subsidy as well as the differentials in exchange rate. Despite oil marketers being paid over N500 billion between December 2014 and now, they are still being owed N98 billion. About N6.354 trillion is said to have been paid as subsidy for petroleum products since 2010, when President Goodluck Jonathan assumed leadership of the country.
In 2010, a total of N673 billion was paid as subsidy, rising significantly to N1.3 trillion in 2011, before being revised upward to N2.19 trillion by the Ministry of Finance, after arrears were paid in 2012 for products consumption in 2011.
In 2012, N888 billion was allocated to subsidise petroleum product imports in the budget, but in December a supplementary budget of N161.6 billion for payment of arrears of fuel subsidy was submitted by the president and later approved by the National Assembly. By the following year, the government earmarked N971 billion for petroleum subsidy. For 2014, the Federal Government again budgeted N971.1 billion for payments of subsidy, keeping it at the same level with that of 2013.
Though, despite insinuations and reports that there was no provision for fuel subsidy in the 2015 budget, the Senate Committee Chairman on Finance, Ahmed Makarfi, cleared the air, when he said a total of N100 billion was provided for as subsidy for Premium Motor Spirit (PMS), while N43 billion was approved for Dual Purpose Kerosene for the 2015 fiscal period.
Deregulation
But the huge amount of money set aside for the subsidy payment notwithstanding, labour leaders said the only answer to the crisis is outright deregulation of the petroleum sector. Speaking on the development, former President, Trade Union Congress, Peter Esele, said, “When things are allowed to go on in a manner that is not good, we wait for the next time. We are talking about this now because there is scarcity. The process leading to this scarcity that we had overlooked is the consequences of the action we are facing right now.
“It is a huge security risk and the productivity in the economy is being affected, with people wasting man-hours at service stations,” he stated. Esele, who spoke on a Channels TV programme monitored last week, also identified poor implementation of laws governing activities in the sector as another factor that had contributed to the fuel scarcity.
“Our institutions are weak. Institutions are weak because people are not respecting the laws that set them up. “They are more of individuals. And the other part is that so many things exchange hands. “You can’t call the marketers to order when all your products are imported. “They have monopoly. “Until we have refineries here, we do not have so much control over what the marketers do,” he explained. The former TUC President expressed optimism that the incoming government would be able to tackle the issues in the petroleum sector, bringing serenity to the sector he said had so much sharp practices going on.”
Sadly, the huge amount of money set aside for the subsidy arrangement has failed to translate into adequate supply of petroleum products as the recent probes of the subsidy regime showed a monumental fraud by some fuel marketing companies. Economic affairs watchers believe the present crisis has provided enough excuse for the incoming administration to stop the fuel subsidy regime.
The argument is that as long as the oil industry remains regulated, the federal government will continue to be vulnerable to the blackmail of fuel marketers, including those involved in subsidy scams. To this school of thought, subsidy payment is a waste of scarce resources, which should be channelled to developmental projects. They argued that apart from the government’s inability to pay, which has led to perennial crisis, there is huge financial risk on marketers as they pay all bank interest charges after being instructed to import product without payment being made. Following the various subsidy probes, which revealed sharp practices in the administration of the subsidy scheme, subsidy claims are being subjected to prolonged verification, which delays payment beyond the 45 days stipulated in the PSF guidelines. After the verification of imported cargoes, the Federal Ministry of Petroleum Resources, through the PPPRA, will forward the verified claims to the Federal Ministry of Finance for payment. The Federal Ministry of Finance will further subject the claims to further scrutiny before issuing the Sovereign Debt Notes (SDNs) to the marketers, after which the subsidy claims are deemed to have been paid. Even though the SDNs are supposed to be as good as cash, marketers still find it very difficult to get the real cash payment, each time they present the instruments to the CBN for payment, thus causing further delays of over three or four months. The long delays prompted the marketers to demand that the federal government should pay all the interest on subsidy claims that remained outstanding beyond the 45 days stipulated in the subsidy guidelines. With the marketers’ inability to repay bank loans due to the government’s failure to pay the subsidy claims on verified cargoes, the banks also withdraw their credit lines for importation.
Banks Develop Cold Feet
However, the crisis is also blamed on the reluctance of banks to fund fuel imports, a development blamed on the twin issue of budget provision and the uncertainty over the disposition of the incoming administration on the controversial subsidy regime. This scenario is said to have been worsened by the shortfall in fuel supply despite claims by the Nigerian National Petroleum Corporation (NNPC) that there is enough in stock. Amidst the financial strains being faced by the government, it was gathered that fuel marketers are said to have put further importation of fuel in abeyance, citing the uncertainty over the incoming administration approach to fuel marketing as a reason. Analysts said given the controversies that have trailed the subsidy arrangement and the resolve of the incoming administration to fight corruption, the days of the subsidy programme are numbered. The current stance of the Central Bank of Nigeria on non-performing loans in banks has also been cited as one of the reasons why banks are closing doors against fuel marketers.
Desperate to avert another round of bank crisis, the apex bank did not only direct banks to publish names of delinquent debtors in their books, but has also raised the stake as far as the capital adequacy is concerned. Given this scenario, financial experts said it would be foolhardy for any bank to commit its resources to fuel importation at a period of uncertainty.