Financial Energy Review
….N3.4trn Needed to Subsidize 66.7 million litres of PMS/day….
. Oyo, Ogun states consume more PMS
As Nigeria and indeed African countries struggle to keep up the pace with the global energy transition, the Nigerian National Petroleum Company (NNPC) Limited, has raised an alarm that foreign refineries are winding down on hydrocarbon products in preparation for hydrogen and other green fuels.
The Group Chief Executive Officer (GCEO), NNPC, Mele Kyari, disclosed this yesterday, in Abuja, at the continued hearing of the House of Representatives’ Ad Hoc Committee investigating the Petroleum Products Subsidy regime from 2013 to 2022, chaired by Ibrahim Mustapha.
Kyari said: “Most of the refineries that we procure from are actually shutting down their operations because of the clamour for green energy and COP26 compliance. Even gas that is transition fuel for us is being given eight years. Of course, we do not agree.”
Agree or not, the western world is pushing ahead with the energy transition plan, which cut-off date is still 2030, in line with the Paris Agreement, which was reinforced at COP 26, in which countries legally agreed to end gas emissions, and to adapt to the impacts of climate change. These are to be achieved by scaling up renewable energy, to sharply reduce energy-related carbon dioxide (CO2) emissions.
Most of the refineries that we procure from are actually shutting down their operations because of the clamour for green energy and COP26 compliance.
Consumption and subsidies
Kyari, represented by the Chief Financial Officer, NNPC, Umar Ajia, also informed the lawmakers that only about N3.4 trillion is needed subsidise an average of 66.7 million litres of Premium Motor Spirit (PMS), popularly called petrol, as against the N4 trillion approved in the 2022 Appropriation Act.
Amid the controversies surrounding fuel consumption, the NNPC helmsman, who admitted that “there is no study to validate the actual consumption,” said Nigeria consumes 66.7 million litres of PMS daily, which landing cost he put at N327.68 per litre.
He said: “When you look at PMS outlook, we want to be closing each and every month with a two billion closing stock. That is the only way you can sustain petroleum so that the marketers do not see some slack and take advantage by beginning to hoard products that can create artificial scarcity which can lead to queues.
“There is a huge arbitrage for anybody to move product to outside the country. We are not saying that the bulk of the product is smuggled. The reality is that there is no study to validate the actual consumption. What we are reporting daily is what the authority, which is the regulator, publishes. They are represented at every depot in Nigeria.
“The Exchange rate has been moving steadily from N195.5 per dollar to now N390.6 to a dollar, on average. The subsidy scheme is two ways, the FX subsidy and price. The shipping cost has doubled, therefore, the landing cost of PMS has moved from N87 per litre in 2015 to about N327.68 per litre today. When you compare it to what we sell, you have N209 on every litre.
“When you multiply the N209 per litre with an average of 66.7 million litres, you are talking about N3.4 trillion subsidies for the year.
“The reality today is that if one were to take statistics of the number of vehicles in Nigeria, how many Keke Napep do we have? How many pumping machines do we have? On a routine visit, I saw nothing less than a million Keke, take an average that, each one uses 4 litres every day, that is 4 million litres, in one city.”
There is a huge arbitrage for anybody to move product to outside the country. We are not saying that the bulk of the product is smuggled. The reality is that there is no study to validate the actual consumption.
The truck above was intercepted in July last year by the Kebbi State Area Command of Customs with 60,000 litres of PMS.
Porous borders
Kyari, however, said due to the porous borders, Ogun and Oyo states are allocated more petrol than Lagos State, Nigeria’s commercial nerve centre.
He continued: “States that consume the most are states like Oyo and Ogun, they even consume more than Lagos State, so you wonder, is it that they have more vehicles than Lagos? The explanation is that these are states with porous borders and that will explain why this bulk evacuation is going out of Oyo and Ogun states, probably to neighbouring countries.
“If you have N5 million, you can cross the borders with trucks laden with PMS and that is the bitter truth. We have porous borders; yes, we have Customs but I do not know.
“PMS crosses everywhere to Cameroon through the North East, Nigerian PMS gets to Mali. Our neighbouring countries hardly import PMS; in fact, some of them do not have the cover to back up imports.
“Cameroon’s refinery got burnt sometime last year or so, since that time, they have not imported PSM but they are still using PMS. If you go to Niger, you find that PMS is sold in bottles.
“To them, it is a cheaper source; why waste their foreign exchange. So we are subsidizing our neighbours, that is the simple truth.”
He also bemoaned the failure of the project Acquilla, which was introduced to check illegal transportation of fuel across the borders.
If you have N5 million, you can cross the borders with trucks laden with PMS and that is the bitter truth. We have porous borders; yes, we have Customs but I do not know.
Direct Sales Direct Purchase
The GCEO also informed that the Direct Sales Direct Purchase (DSDP), contract that allows for the sale of crude oil to refiners, who will in turn supply NNPC with an equivalent worth of petroleum products, which was scheduled to end in August, was extended by additional six months to avoid scarcity in December and during the 2023 general elections.
He said: “It is a very dangerous period to begin to pretend that because we are facing the winter, these are the difficult “embers months” that we normally avoid fuel scarcity.
“You know the scarcity in Nigeria is really associated with the Christmas period; so if you now tender, the tendering process will take one or two months. So what the Board approved that we do is to extend the contract for six month.”
