Why FG Cannot Introduce Subsidy On Diesel – NNPC Boss
It is regrettable that Nigeria’s petroleum refineries are not working and the possibility of introducing subsidies on Automotive Gas Oil, also known as diesel, is unlikely, the Federal Government has said.
The Chief Executive Officer (CEO) of the Nigerian National Petroleum Company (NNPC) Limited, Mele Kyari, who made this known in Abuja on Tuesday stated that the government cannot afford the payment of subsidies on diesel.
He made the comments while appearing before the House of Representatives Committee on Downstream, alongside the CEO of Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), Farouk Ahmed, among others.
The lawmakers had summoned stakeholders in the oil and gas sector, including Kyari and Ahmed, to an investigative hearing over the scarcity and the rising cost of Premium Motor Spirit (also known as petrol), diesel, and Liquefied Petroleum Gas, LPG (also known as cooking gas) in the country.
In his presentation, the NMDPRA chief suggested three measures to be taken to address the challenges with the supply and distribution chain.
He said the “required amount of forex for importation of the petroleum products (should) be made available to the genuine importers at CBN official rate.”
Ahmed also asked the government to “encourage the establishment of more local refineries and LPG processing facilities to meet domestic demands,” adding that “an increase in the LPG supply from major domestic producers, including NLNG, BRT processing, CNL, LPG, FSO,” would resolve some of the issues.
The NMDPRA boss stated that in addition to the three suggested solutions, “an extensive consultation is required among key stakeholders towards lessening the present tension being generated by the global high oil prices.”
“Presently, Nigeria is a net importer of refined petroleum products, including AGO, as the country imports about 100 per cent of AGO consumed locally,” he said. “An average of 12 million litres is also being consumed daily based on average truck-out quantity.
“The upswing in international price, combined with the prevailing naira/US dollar exchange rate, contributes about 80 per cent of the product price at the pump. While the official naira/US dollar exchange rate has remained relatively stable at about N415/US dollar since the beginning of the (Russia-Ukraine) war to date, the parallel rate on the other hand has increased considerably.
“The challenge with this is that petroleum products importers are unable to access the required amount of forex at the official rate and, therefore, rely on the parallel market to complement their forex US dollar requirements. In addition, the monitored price of AGO currently ranges between N710/litre and N750/litre in the coastal areas, while the LPG price is about N800/kg.”
Only One Solution
When asked to be specific on the immediate solution, he stated that the respite to cushion the effect of high price was to make foreign exchange available for marketers to import AGO at the official exchange rate of N415 to a dollar.
“We have only one solution if I can say it; make forex available to importers to import at the official exchange rate. If we do not do that, I do not see any other solution. Even if our refineries are back on stream, they are buying crude at the official international price,” Ahmed proposed.
According to him, the transportation industry heavily relies on AGO to move goods and services and as such, diesel is a major factor in the distribution of PMS being presently regulated.
“One of the major reasons for the scarcity being witnessed in the our country is as a result of the rise in the price of AGO,” said the NMDPRA boss who hinted that President Muhammadu Buhari had approved the upward review in freight rates by N10 to alleviate the challenges, effective June 1.
This, he explained, was in the effort to alleviate the challenge resulting from the upswing in the global price of AGO and the implication on the cost of the distribution of PMS nationwide.
In their separate presentations, representatives of oil marketing bodies, the Independent Petroleum Marketers Association of Nigeria (IPMAN), the Depot and Petroleum Marketers Association of Nigeria (DPMAN), and the Major Oil Marketers Association of Nigeria (MOMAN), sought the government’s intervention regarding forex with hopes that functional refineries would resolve some of the issues.
But the NNPC chief, in his remarks, faulted some of the suggestions from the NMDPRA and the marketers.
“In our country today, we do not produce AGO and we regret that our refineries are not working,” he said. “Are we doing anything about it? Yes. I have heard the honourable members lamenting; yes, they (the refineries) are not working.
“This is the truth. I don’t want to bore you with why they are not working, but they are not working; I admit they are not working but we regret it. I will invite this committee at your convenience to join us to see how much work we have done to get them back to work, but they will not come back tomorrow.
“They will not! You cannot start it tomorrow. We regret this; we regret this situation, and we are doing everything possible. As a matter of fact, we have decided to do a quick fix for the Warri refinery. The reason is very simple: we don’t even want to go the long route of doing comprehensive turnaround maintenance because we are concerned.”
The NNPC boss disclosed that Saudi Arabia’s Aramco recently bought a large amount of AGO and stockpiled it. “We were very surprised that Saudi Arabia would do this.
“No one knows what will come tomorrow. No one can guarantee the security of supply. That is why people are resorting to self-help. People are preserving the excess volumes that they have,” he said.
Kyari, however, decried that Nigeria imports almost every commodity “perhaps, maybe with the exception of food.” He added that while the country does not export, it cannot have foreign exchange.
As a result, he believes the Central Bank of Nigeria (CBN) and the governor, Godwin Emefiele, might not be able to provide forex intervention.
“There is a limit to what he (Emefiele) can do because as long as we are not productive, the only way you can cover FX gap is for you to go and borrow FX, and no one is going to lend you money to put on a subsidy; it does not happen anywhere in the world. No bank will lend you FX to go and put it into consumption.
“When Nigerians living in the diaspora used to be a very great source of forex. They can no longer send back because many of them are out of employment. So, they can no longer send money even to their parents. So, you cannot have it in your banking system,” he stated.
No End In Sight
On the way forward, the NNPC boss stated that the first step was to restore crude oil production.
He stressed that the current crude production, including condensate, was 1.4 million barrels while the budget level was 1.8 million.
He added, “So, we can’t meet it today. It is not possible. Today, we have over 205 illegal refinery sites. There are over 295 insertions on our crude oil production line. No oil company will continue to work; they will have no necessity or obligation.”
Kyari further said in part, “We have a problem, no doubt. I don’t want to bore you with why AGO prices are very high. They are very high today. At the risk of being repetitive with what Farouk said about what is happening globally, I think it is good to emphasise that the world has never seen this level of uncertainty around supply and demand. Even in 2012 and 2013, when we had crude oil prices reaching $143 (per barrel), the uncertainties are not like what we are seeing today.
“Today, countries are stockpiling petroleum products. Today, refineries are shutting down across the globe for reasons probably not connected with the Ukrainian war; for the very simple reason that the world decided that we will have an energy transition to eliminate fossil fuel.
“From that decision, many oil and gas companies have stopped investing in their plants and facilities because it does not make any further sense to do so. Shortly before COVID-19 (pandemic) – it did not start today – the world was already facing three million barrels of undersupply of crude oil in the market.
“COVID came, yes; it brought down the consumption. But shortly after COVID, today we have an undersupply of up to four million barrels of oil in the market today. So, there is simply no end in sight to declining crude oil prices within the next one to two years. Even if you decide to invest in oil today, you cannot bring oil on the table as you wish.”