IMPROVING EFFICIENCY IN PETROLEUM PRODUCT SUPPLY IN NIGERIA

 

Nigeria ranks high among the comity of oil producers both at the world level and among the OPEC eleven. It is, therefore, paradoxical that the supply of all petroleum products is erratic and has declined sharply in the recent. Nigerians have experienced untold hardship due to acute shortage of petroleum product supply.  Motorists have spent hours queuing at the few filling stations that were opened; others resorted to obtaining fuel at exorbitant prices at the “black market”. Most offices were empty as key officers drove out in search of fuel. The administrative and economic life of the nation became disrupted. Transport fare sky rocketed and prices of food stuff rose as food sellers had to pay for transporting their commodities to the market. Pedestrians found it difficult to get transportation to their destination. All these came to be because of notable deficiencies in petroleum product supply in Nigeria.

Product supply is sourced through importation and transported by road and pipelines to inland depots to meet domestic demand. The first refinery was built in Port Harcourt by Shell-BP in 1965 with a capacity of 60,000 bpd. This was able to meet the domestic requirement of petroleum products, but by 1973 the nation started witnessing supply shortages. This and the call by OPEC to take control of the Industry, prompted government to intervene and the industry gradually became regulated with products being sold at uniform prices nationwide. Despite government intervention, there are notable measures that can improve product supply.

The following are what must be done to improve efficiency in petroleum product supply to Nigerians:

Making all the existing four local refineries functional

The four existing local refineries (445,000 bpd capacity) only contributed about 4% – 20% in the past five years to the national PMS consumption. If these refineries can be made to function at optimum capacity, it will make more product volume to be available for the ready market and reduce the challenges involved in the importation of refined petroleum products from abroad. As observed, there has been inadequate crude oil allocation to the refineries for domestic consumption. This situation also leads to under-utilization of the four refineries with the attendant shortage of refined products for domestic consumption. The unparalleled huge amount of money spent on Turn Around Maintenance (TAM) of the refineries, which often break down immediately after the maintenance call for a more effective and long lasting maintenance policy. According to Feyide (1994) over $35 million was budgeted for Turn Around Maintenance every four years with little or no improvement in the functioning and operation of the refineries.

Reduce the over dependence on road haulage for transportation of petroleum products

The over reliance of the Nation on road haulage for the transportation of petroleum products encourages wastages as a result of road accidents, and this also destroys the Nation’s road infrastructure. The rail system should be made more functional and more effective. This will encourage the transportation of large volume of petroleum products across the country.

Engagement of high-technology security gadgets to monitor the entire product pipeline across the country.

Constant vandalization of product pipelines contributed to the regular fuel shortages across the country. Using the local vigilantes and National Security forces to combat these vandals has not been so effective to curb the activities of these vandals.

Having a restful industrial labour relation

The threat of oil workers going on strike alone causes panic buying of petroleum products and hoarding of same by the oil marketers and residents. All the relevant Stakeholders must ensure that there is a harmonious labour unions relation in the oil industry. The man-hour lost per day of each of the nation-wide strikes and the total grounding of the nation’s economy for days have calamitous effects on the wheel of progress of the Nigerian economic development process. Sometimes, the nation- wide strikes may last seven or eight days when the economic and social activities in the country are totally grounded. In the nation – wide strike of January, 2012, it was estimated that the country lost over 120 billion naira.

Reduce the high rate of foreign exchange

The recent economic outlook of Nigeria, where importers are finding it very difficult to source for forex is having a negative impact on the supply of petroleum products. But with the ‘forex intervention project’ which makes forex available for importers of petrol at a controlled rate, has greatly imparted positively on the supply of petroleum products.

Maintain the special ‘police’/auditors who monitor the importation of petrol

Ever since the government engaged the auditors who monitor the importation of petrol from the forex intervention project from onshore to the trucking out of the same, has reduced significantly the diversification of petroleum product both on the part of marketers/importers and petrol tankers drivers. Now products get delivered to where they were meant to be delivered and as at when due. Perhaps, it should also be mentioned that the cross border smuggling of petroleum products which formed part of the root causes of the protracted and seemingly intractable severe level crises that usually bedeviled the country relentlessly has been reduced to the barest minimum.

Ensure maximum security for transport of petroleum products

The improvement currently being experienced in the national security can also impart positively on the supply of petroleum product supply. With the recent experiences with terrorists (Boko Haram and Niger Delta Avengers), the nation experienced turmoil in the supply of petroleum products.  The government should continue to keep all these security threats in abeyance. Improved security will ensure that petroleum products can be delivered to any part of the country without fear of being attacked. This will also improve product supply to Nigerians.

Full deregulation of the petroleum industry sector as the case in the communication industry in Nigeria

It is important to emphasize that what the Nigerian masses are afraid of is not the mere economic terminology called deregulation; the fear is abuse in terms of profiteering post-deregulation regime. Merging the commercial arm of DPR with PPPRA with a view of empowering PPPRA to enforce pricing policy and effectively manage the post-deregulation regime will guard against excessive price escalation.
 Deregulation may lead to the following:

  • Oil industry infrastructure and investments will be driven by private capital.
  • Refineries, pipelines, depots, jetties, and supplies will be released from Government ownership. NNPC will become either a regulator or competitor, but no longer both.
  • Prices will be driven strictly by plats, local taxes and operating efficiency.
  • Supply and Trading (S and T) risk will be transferred from NNPC to the market.
  • There will be no more guaranteed landing cost and margins for marketers by PPPRA.
  • There will be no more fixed distribution by Petroleum Equalization Fund
  • Additional working capital pressure will be on the players for inventory financing
  • Pricing margins will become free, and may be initially high but will eventually drop and stabilize in response to competition and new entrants.

 

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