Petrol price: No relief in sight as domestic refining drags, market forces unfavourable

IT appears there would be no let yet in the surging pump price of petrol in Nigeria as uncertainty clouds the commencement of domestic production of the vital product.

It is widely believed that local production and supply of petrol would positively impact on price as the negative implications of cost, insurance and freight (cif) on shipping it in would have been eliminated.

Moreover, market forces, on which the incumbent President Bola Ahmed Tinubu has uncompromisingly hinged the fuel pricing template, are not in any way looking up Nigeria’s way.

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With the unification of exchange rates and floating of the naira, the value of the naira against the major currencies cannot be favourable to imports, especially the importation of premium motor spirit (PMS), widely known as petrol.

The inflation rate, well tied to the exchange rate in the macroeconomic influence, has also been spiralling. The Nigerian National Bureau of Statistics (NBS) put the inflation figure for June 2023 at an unprecedented 22.79 per cent.

With the Tinubu administration further increasing the price of petrol in July and the cost of goods and services consequently biting harder, the NBS inflation rate is not unexpected to set a new record in the July NBS basket.

Nigeria’s national refineries in Port-Harcourt, Warri and Kaduna have remained comatose despite tens of billions of naira expended on them over decades on turn-around maintenance contracts, as well as on the huge salaries NNPCL workers are paid monthly in their unproductive facilities.

A report by the Nigerian Guardian newspaper of August 25, 2022, stated that “about 660 staff at the Kaduna Refining and Petrochemical Company (KRPC), 506 staff at the Port Harcourt Refining Company (PHRC), and 437 staff at the Warri Refining and Petrochemical Company (WRPC) earn N136 billion in salaries without refining a drop of crude oil.”

The NNPCL had shut down the 445,000 barrels per day total capacity of its refineries for over two years, yet has kept the large workforce at the facilities, as it rehabilitates the Port Harcourt refinery for $1.5 billion and those of Warri and Kaduna for $1.4 billion.

In August 2020, the total losses incurred by the refineries were N7,088 billion, N7,043 billion in September of the same year, and N5,489 billion in October. In November 2020, it went up to N5,995 billion and went further up to N8,279 billion in December that year.

In January 2021, the operational deficit was N5,371 billion. February recorded a N6,879 billion loss, N3,866 billion in March, N3,544 billion in April, N5,243 billion in May, N4,014 billion in June, N3,752 billion in July and N3,819 billion in August.

On average, the oil company spends approximately N68 billion in paying salaries and other expenses at the moribund refineries yearly. In the last two years, the losses have amounted to an average of N136 billion.

The NNPCL spokesperson, Garba Deen Muhammad, did not respond to calls made to him to confirm the extent of rehabilitation work at the refineries. But an inside source at the Port Harcourt refinery said repair work was, indeed, in progress.

Petrol consumers are also waiting eagerly for the Dangote refinery at Lekki Free Zone, Lagos, to start producing and supplying petrol in the hope that would influence a drop in pump price.

The then president, Mumammadu Buhari commissioned the 650,000 barrels per day capacity refinery on May 22, 2023. A statement from the president of the Dangote Group, Aliko Dangote, after the commissioning gave the end of July or early August this year as date refined crude would flow out of the refinery.

But with consumers apprehensive of more rounds of hike in petrol price virtually every week, the Dangote August promise would seem too far away.

Worse is the speculation that work on the Dangote Refinery has not been completed to the extent it would not be ready to commence production and supply in August.

“Construction of the facility is not going as earlier planned. It’s been delayed by financing and purchases. So give or take, 2025 is viable,” Value Chain energy magazine quoted Sahara Report in its latest report.

But the Group Head, Corporate Communications at Dangote Group, Anthony Chiejine, called, on Friday, July 28, the general public to “discountenance such mischievous and twisted reports” and rather focus on what the impact of the project would be on the Nigerian economy.

The company reiterated that the refinery would start producing in August or September, and if for any reason it could not at that time, it would inform the public.

    The fear of continuation of fuel imports beyond 2023, with all its harsh multiplier effects, has, however, persisted in some quarters.

    “We are totally dependent on imports, so we remain vulnerable to exchange rate fluctuations and international prices of refined products,” a former chairman of the Major Oil Marketers Association of Nigeria (MOMAN), Adetunji Oyebanji, told The ICIR.

    Another economist, Kelvin Emmanuel, said local refining would impact on the pricing once Dangote refinery comes on stream.

    “Hopefully, Dangote can undercut the marketers and force them to stop importing when he starts production and supply . This would affect the price. But for now, exchange rate volatility will still affect price of importation,” Emmanuel told The ICIR.

    Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.

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