I hate that I’m a bearer of this sad news, but Dangote refinery is not the silver bullet we need to solve this endemic fuel shortage, and I’m not sure we will see again fuel below 900 to 1 litre in a very long time.
But before I continue, let me digress.
Yesterday, my driver spent 12 hours looking for fuel, and this is the first time I’m experiencing such since I became an adult.
Just like me, a lot of people would be wondering why we have this perennial fuel scarcity and what the way forward is.
Oya, join me as I share what the problem is and then the way forward.
Nigeria as a country, as we all know, is an oil-producing country.
We are the number 1 oil-producing country in Africa, and we currently produce between 1.5 million barrels and 1.7 million barrels daily.
However, all the 1.7 million barrels of crude oil do not come to Nigeria or NNPC.
It is divided between NNPC that gets between 400,000 and 800,000 barrels of crude oil from this 1.7 million barrels of crude oil extracted from the ground.
The rest of the crude oil goes to the IOCs like Shell and Cheveron that invested their money to drill the oil.
Smaller oil companies like Oando, Aradel, and Selplat also get a small fraction of the crude oil from the 1.7 million daily production.
What does NNPC do with its own share of the crude oil?
It is simple to understand.
They sell to oil traders. In lieu of dollar revenue on behalf of the people of Nigeria
10 years ago: NNPC used to remit at least $3 billion every month to CBN. This inflow from NNPC really helped to stabilise the naira those days when it was below 200 to $1.
As of today, NNPC doesn’t do that again because of this thing called subsidy.
And let me explain how it works.
Nigeria has 4 refineries that are moribund and no longer working.
These 4 refineries have the daily capacity to refine 445,000 metric tonnes of crude oil.
Since they are not working due to the design and commission of some business men are profiting from the dead refineries.
NNPC takes this 445,000 crude oil from their allocation and gives it to international oil traders like Vitol and the rest.
As of today, Wednesday, Nigeria is using all its daily allocation to pay for refined fuel. This is why NNPC does not remit any dollar revenue again to the coffer of the government.
Back to my story.
Then these traders give NNPC refined fuel, which they bring to Nigeria and sell to retailers and other oil marketers.
Thus arrangements were working very well, let’s say 5 years ago when we were doing 2.3 million barrels of daily oil production.
Life was good that time.
After COVID, our oil production took a dip, and our daily production took a big hit.
From 2.3 million barrels. We went down to 1.1 million, so what this means is that what NNPC is getting as its allocation went down
From 600,000 to something below 250,000 barrels of crude oil, which means that we can’t continue giving Vitol the pledged 445,000 barrels of crude oil, meant for our refineries.
At best, they can give them 100–150,000 barrels of crude oil, which was total allocation which is not enough for our daily consumption.
It is inevitable that NNPC would start owing these traders.
And then enter this incompetent government and their badly managed devaluation policy.
Last year, on May 29, our president announced with a fiat that the fuel subsidy is gone.
This announcement plunged households and individuals into unimaginable poverty, which we are yet to recover from.
As if this affliction was not enough, the same unserious government decided to float the currency without any fundamental backing it.
The floating/devaluation of the currency was the death knell that brought us to our knees and to where we are today.
Because of devaluation, the landing cost of petrol after NNPC has exchanged crude oil with the oil traders ballooned to 1,200 to one litre because NNPC was dealing with the price of crude oil at the international market when they are doing this trade by barter.
Without devaluation, the landing cost could have been between 650 and 750 to one liter.
The devaluation complicated many things, including the NNPC business model.
So while the landing cost of petrol in Nigeria is 1,200 to one litre, NNPC was selling the fuel to marketers at 545 to one litre,with this, NNPC was paying over 700 naira per litre as subsidy since last year which was not sustainable.
NNPC was broke and already in a hole.
Instead of coming clean, they choose to dig deeper by denying that we are not paying subsidies, and as a result, the debts they owe international oil traders keep ballooning.
Now, the chicken has come to roost. NNPC owes these traders over $6 billion, which they can’t afford to pay.
These oil traders have stopped giving us fuel on credit; they are now demanding cash and carry.
Unfortunately, NNPC is too broke to pay cash for refined fuel, they can only give crude oil for refined fuel but that is not enough again and the result has been disastrous and immediate.
This is why Nigerians are sleeping at the fuel station, and why the driver spent 12 productive hours yesterday looking for fuel.
As I mentioned earlier, Dangote refinery is not the silver bullet or the low hanging that will solve the problem, and this is why
Even though NNPC will now channel the 445,000 barrels of crude oil meant for our dead 4 refineries, which they exchange with oil traders for refined fuel, to Dangote refinery, it won’t still bring down the price of fuel anytime soon.
Yes, Dangote will purchase the crude oil in naira, but the two parties will calculate the transaction based on the current price of crude oil on the international market.
As of this morning, crude oil is selling for $69 to one barrel of crude oil, and then multiply it by 1,600 to $1.
So by the time they are done with their calculations, the least price NNPC will eventually get for the refined fuel from Dangote will be at 950-1,000 for one litre of refined fuel.
If Dangote is allowed to sell directly to oil marketers, the least he will sell is 1.200 to 1 litre of fuel.
So either way, we are cooked.
So in summary:
Subsidy removal and Naira devaluation simultaneously are the reasons why we are in this fix!
We are almost paying more for PMS subsidy because of devaluation, and the worst part of all is that there is no quick solution in sight!
We are in for a long run, and it is distressing to think about.
By
Chukwudi Iwuchukwu
