Mr. Azeez Adeleke is a finance analyst. An MBA, MSC holder in international finance; and Fellow, Chartered Institute of Bankers(FCIB), in this interview with GANIYU OBAARO, says there is need for proper understanding of critical issues bordering on the raging petroleum products’ subsidy, among other national issues. Excerpt
What is your assessment of the current scarcity of petrol in the country?
It has been a blame game between the Federal Government and marketers, whether independent or major marketers. But the truth of the matter is that there was a supply gap in the importation and distribution of petroleum products across the country.
When there is a shortfall in supply, like we had recently, there will be crisis thereby leading to hike in prices of the products with its attendant impacts on the economy. Since economics, according to an American economist, is a ‘science of commonsense,’ there would be some other hidden reasons to give more credence to what is happening- ‘invisible hands’ could be at play.
I mean saboteurs, who always want to take advantage of a crisis situation like the recent petroleum scarcity. Such people could resort to hoarding the products, as we experienced when an important union in the oil industry, Petroleum Natural Gas Senior Staff Association of Nigeria, PENGASSAN, threatened to go on strike before it was called off.
The threat by the union to go on strike escalated the crisis. Notwithstanding, however, the non- government importers of petroleum products- Major Marketers and Independent Marketers- stopped importation of petroleum products.
What accounted for this?
It is because of huge cost of importation generally. This is generally coined as Landing Cost.
Does it mean that petroleum products’ importation is no longer profitable for the operators?
Government has pegged official pump price of a litre of petrol at N145. Therefore, any landing cost above N145 by just one kobo for example, will lead to a loss.
Who do you think would bear the loss?
Importers of the product would bear the loss. Don’t forget that the importers are business people. The government’s involvement in importation is not to make profit. The issue of subsidy is an accounting issue, which is cost against profit. By importing fuel, government may be operating at a loss, which the private operator cannot afford to do.
If the government can bring the private sector into the business, it must make a pronouncement about subsidy issue.
Let me tell you that government is not to make profit per se; part of its roles is to meet the expectations and welfare of the people; and as such, that is why government agencies are importing fuel. NNPC can afford to import fuel at a loss, which the private importers cannot afford to do. Therefore, the loss being made by the government (NNPC) is what is being described as subsidy. It is NNPC’s right to import and this probably must have been its core mandate of ensuring availability of petroleum products at all times.
But the question is, should NNPC make loss? What is the importance of supplying fuel to the economy by the government? Again, is it desirable? If yes, then, NNPC cannot be blamed. This situation can be likened to an adage which says, ‘You cannot eat your cake and still have it’.
In fact, what would have been the situation by now in the country if NNPC has not been importing petroleum products? I can tell you that the country, given its volatility, would have been in total paralysis by now. Grounded !
What has led to the current scenario of petroleum products’ importation crisis is because of the global rise in the international crude oil price, which has notched up to $68 per barrel per day. And the refiners who also supply you finished products also increased their own price. It is what you give to them that they also give back to you too.
Nigeria has recently been benefiting from international crude price increases, making a lot of foreign exchange in the process. You will recall that before now, crude price went as low as $30 per barrel, which affected our foreign revenue earnings.
Now, with the crude price increase, the country’s External Reserves have continually gone up, to the extent that, currently, we have about $40.4 billion in external reserves.
I made this prediction in my earlier interview with you that Nigeria could witness increase in external reserve, and that if it is so, the country’s N8. 612 2018 Budget could easily be financed rather than the government resorting to borrowing to finance it.
So, you can talk of subsidy when the government brings in private players in the sector. It is not official subsidy. It is letting your cost against benefit; although the product is being ‘subsidised’, but that is not the same thing as witnessed in the past when subsidy was more noticeable, even though it was riddled with sharp practices, fraud and corruption.
Why did the government allow a logjam leading to hardships for Nigerians, whereas, it should have averted it?
All the government agencies in the petroleum sector, Petroleum Price Regulatory Agency (PPRA), Department of Petroleum Resources (DPR) have individually and collectively explained that they were prepared for the crisis, but I think, their preparation was not adequate. Again, the template for their operations needs to be reviewed.
What then is your take on how to enhance sustainable operations in the oil and gas sector?
The panacea to the current problem in the oil industry is aggressive construction of more refineries. This means more refineries should be built to support the existing ones in Port Harcourt, Kaduna, etc. Again, the old refineries should be constantly maintained through what you call Turn Around Maintenance (TAM), as many of them are old and need to be rejuvenated to enhance their capacity.
Government must involve the private sector in the industry, because there are lots of ideas they can offer.
Vice President Yemi Osinbajo recently announced the coming on stream of modular refineries. What role can modular refineries play in reducing the challenge in the oil industry?
Nigeria is a large country. Having modular refineries is a welcome development. It would help the sector to grow.