December 08, 2020 / 10:19 AM / by Dr. Reuben Abati / Header Image
The Nigerian government deregulated the downstream petroleum sector with effect from March 19, 2020. The key argument was that the fuel subsidy regime which gulps billions of Naira annually, had become unrealistic and unsustainable. One or two months later, with the impact of COVID-19 biting hard, disruptions in the global demand and supply chain turning everything askew and the corresponding effect of these factors on government revenue which had dipped terribly, government pointed to additional justifications for its action. It was further argued that the subsidy regime benefits the rich at the expense of the poor. The effect, as explained is that the pump price of fuel will now be determined by market forces. In other words, since petroleum products are refined from crude oil, the price of the crude for refining will determine eventual cost at the fuel station. Prices thus responding to market forces could and would go up and down. Government spokespersons further assured the public that the Federal Government through the Petroleum Products Pricing Regulatory Agency (PPPRA) would under the new arrangement continue to interface with the markets to prevent arbitrary price fixing, and protect the interest of consumers.
This was the second time in eight years that Nigeria would focus on the deregulation of the downstream sector. The same arguments, at different times, under different administrations, and with different reactions and outcomes. In 2012, under the Jonathan administration, the deregulation of the downstream petroleum sector was stoutly resisted by the opposition, organized Labour and civil society groups. The administration was compelled to review the pump price of fuel downwards, but the protests marked the beginning of a long-term, gradual erosion of emotional connection with the people, which was capitalized upon and exploited by the then emerging coalition of opposition groups. The Jonathan administration introduced the SURE-P Programme. It also provided palliatives in form of mass transit buses which were publicly handed over to Road Transport Workers. In 2020, the Buhari administration returned to the same objective. There were no widespread protests, perhaps because of the advantage of timing.
The entire nation inexorably slipped into a lockdown due to COVID-19. Even if anyone wanted to protest, it was not the right time to do so. The world was in the grips of debilitating fear. COVID-19 was an entirely new global, public health proposition, the type that no one had seen since the Spanish Flu of 1918-1920. The country's budget had to be reviewed about twice as the spot price of crude oil to which the nation's budget is benchmarked, jumped up and down like a yo-yo. The people were skeptical, but they were more or less helpless. The Nigeria Labour Congress (NLC) filled the gap on behalf of workers, not ordinary Nigerians, as one of its spokespersons boldly asserted. The NLC nonetheless raised the same vexed questions about the need to get Nigeria's four refineries working, to eliminate the embarrassing cost of fuel importation. We would learn in due course that these same four refineries operate at a loss. Labour also told the Federal Government that it was insensitive to impose a lockdown on the people, increase electricity tariffs and at the same time, submit the pump price of fuel to neo-liberal market forces which tend to promote capital, not the human interest. The Nigeria Labour Congress was not saying anything new, or original. It was Joe Ajaero, its Deputy President's public declaration, at the time, that the Congress does not fight for every Tom, Dick and Harry but its own members and their families, that I found instructive as a new introduction to the selfish dynamics of Labour politics in Nigeria.
It is part of the responsibility of government to listen to the people, to collate and process feedback, and respond to public opinion as a key factor in the governance process. The Buhari administration may have used the COVID-19 situation to play the victim: the country was busy looking for loans, COVID support, to provide much needed support for small and medium scale enterprises, the poor, vulnerable and disadvantaged (food palliatives, job schemes in 774 local governments), and set up in the short to medium term, concrete monetary measures (re: the Central Bank of Nigeria's N100 billion package) and an economic sustainability plan (worth N2.3 trillion) that can sustain the country. But the government also made promises with regard to the impact of deregulation and the requests made by Organized Labour.
"Fuel subsidy is gone forever in Nigeria", so said Mallam Mele Kyari, the insider, union-leader, turned Group Managing Director of the NPPC. How much subsidy that was? Nobody has ever told us the truth! The Minister of State for Petroleum, Timipre Sylva, would later add that "We are not just deregulating, we are also giving you an alternative to make it easier for the average Nigerian". What alternative did they both promise? The big issue was the high cost of petrol. Minister of State Timipre Sylva told Nigerians that Nigeria was working on the provision of an alternative in the form of Liquefied Natural Gas (LNG), Liquefied Petroleum Gas (LPG) and Compressed Natural Gas (CNG), deployed as Auto-Gas. In addition, Nigerians were told that 32, 000 micro distribution centres will be set up for LPG. Refineries will also be rehabilitated, and modular refineries will be provided. The resort to Auto gas is part of the NNPC's Gas Development Policy. Nigeria, with over 260 trillion cubic feet of gas, is generally regarded as a gas country, more than a crude oil country. Timipre Sylva boasted that the deployment of AutoLNG, AutoCNG and Auto LPG would be cheaper as an alternative to fossil fuel. Nigerians would not pay more than N97 per litre to fuel their vehicles. The NLC which continued to negotiate with government was promised 133 AutoCNG buses in demonstration of government's sincerity that AutoGas, the new buzzword, holds the key to the future. Both the NNPC GMD, Mele Kyari and the Minister of State for Petroleum, Timipre Sylva were convinced that the introduction of AutoLPG, AutoCNG and AutoLNG, would be "a game-changer" for Nigeria and put to rest all fears about deregulation as proposed.
This background is useful to enable us place what has now happened in context. In the month of November, the Federal Government disclosed that it had signed an agreement to build a rail line to Maradi in the neighbouring Republic of Niger, to enable Nigeria evacuate petrol from a refinery in that country that has a production capacity of 20, 000 barrels per day. Nigeria has four refineries, with a combined refining capacity of about 445, 000 barrels per day. Why should Nigeria be more interested in a refinery in Niger when it should be seen to be fixing its own? The additional talk about a rail line to Niger, stopping just at the border, only had the effect of raising more suspicions. Nigeria's four refineries operate at a loss, maintained as they are at public expense. Without a doubt, resolving the energy crisis in Nigeria remains a perennial headache for successive Nigerian governments.
Nonetheless, the Buhari government may have managed to crawl out of the woods in the past few weeks. But a lot will depend on how it manages the pathways ahead. This is what I mean: In November, the President commissioned a modular refinery in Ibigwe, Imo State, the Waltersmith modular refinery, with a capacity of 5, 000 barrels per day, expandable to 50, 000 bpd. Other modular refineries are reportedly in the pipeline. This is in addition to the much-touted 650,000 bpd, Dangote Refinery, expected to be delivered by 2021. This is in line with the presumption that improved local refining capacity will help reduce the pump price of fuel. It may also assuage the feeling of hurt associated with the thinking that rather than look towards Niger, considered by many a satellite state of Nigeria, it is better for Nigeria to look inwards and develop its own resources. Perhaps, the more notable effort in this direction is the launch by President Muhammadu Buhari on December 1, of the National Gas Expansion Programme (NGEP) at the Lugbe Dispensing Station in Abuja.
Officially, the year 2020, is designated as "the Year of Gas", the year when Nigeria declared its intention to move faster to claim its bona fide as a gas country. I believe that it was in this context that Timipre Sylva, Minister of State for Petroleum and the GMD NNPC, Kyari, offered Auto-gas as an alternative to petrol after deregulation. On December 1, President Buhari signalled the country's determination to move along on that lane. The plan is as follows: (1) the Department of Petroleum Resources has instructed about 9, 000 filling stations across the country to start the installation of facilities for gas products as an alternative to petrol; (2) the government is committed to the conversion of one million vehicles from petrol to Auto-gas by the end of 2021; (3) government vehicles are already being converted from petrol to gas; (4) the projection is that the average Nigerian motorist will have access to fuel at a much cheaper rate. Auto-gas will be no more than N97 per litre. Petrol is currently N168 per litre; (5) at the official launch in Lugbe, Abuja, the NLC received five buses converted to run on Auto-gas. The total that was agreed upon at a September meeting was 133 CNG buses. Femi Adesina, Presidential spokesman has written an op-ed to argue that these developments provide an opportunity to think of the situation in the country as half-full, rather than half-empty. He sees a fulfilment of legacy ahead. What do I think?
I think that the Auto-gas plan is a very good policy. Mele Kyari, NNPC GMD and Timipre Sylva, Minister of State for Petroleum, with their boss, Buhari providing necessary leadership, should be commended for moving the needle in this direction. In the most recent past, poor co-ordination and lack of synergy in the oil and gas sector, frustrated every meaningful effort, as birds of passage fought over territory and influence. There have been experimental attempts in Nigeria to promote a gas policy. Even the idea of auto-gas as alternative fuel is not new (in Edo State, a few years ago, there were experimental efforts), but perhaps in terms of articulation, this is the loudest effort made so far. The resort to Auto-Gas will provide cheaper fuel. It will curb carbon emission in line with global environmental expectations and Nigeria's commitment to the Paris Climate Change Agreement (2015) and the insistence of the Inter-Governmental Panel on Climate Change (IPCC) on a limit of no more than 1.5-degree centigrade greenhouse emission. The move towards alternative automotive fuel also signals concrete policy action on the part of the Nigerian government, a commitment that Nigerian Presidents have expressed at every UN Plenary session in the last decade. Nigeria has 263 trillion cubic feet of gas in proven reserves. The country is among the top ten gas countries in the world but per capita consumption of gas in Nigeria is one of the lowest, even within the West African sub-region. The Nigeria Gas Programme is meant to boost the domestic utilization of gas in the country. Gas is clean, cheap, flexible, affordable and practical. It has a faster combustion rate than petrol. The Federal Government tells us that it will create about two million jobs, save cost of transportation, reduce engine noise, protect our environment, expand the country's energy mix, and reduce our dependence on foreign exports once there is a stable energy market at home in Nigeria. This is possible, with the right political will.
There are more than 70 countries in the world where Auto-gas is either preferred or is part of the energy mix, with Turkey, South Korea, Poland, Italy and Australia as the most dominant. This is so despite the fact that vehicle manufacturers seem to be more focused on the development of electronic vehicles (EVs). Yesterday, the United Kingdom opened its first major all-electric auto service station as demand increases for environmentally friendly vehicles to reach about 30 million on the road by 2040. Nigeria, beginning with Auto-gas-propelled vehicles is definitely on the right track. It can only be hoped that vehicle manufacturers will devote as much attention to Auto Gas vehicles as they do to EVs.
The residual issue for now in Nigeria is the cost of conversion from petrol to gas. Many vehicles manufactured in the last decade can be easily converted from petrol to gas or re-designed to operate in a dual-fuel mode. Nigerians are already grumbling about the cost of petrol. When they were initially told last week, that conversion from petrol to gas will cost as much as N250, 000 per vehicle, that caused a lot of panic. The Technical Adviser who made that announcement has since retracted the statement. What government plans to do, we have been told subsequently, is to convert one million vehicles free of charge between now and 2021 December. Sounds nice, but what will be the criteria for choosing the beneficiaries? The size of the car? The beauty of the owner's face? Ethnicity? Religion? Political party affiliation? If the Federal Government of Nigeria plans to convert one million vehicles to Auto-gas in one year, it would have to come up with a sharing formula that is in accord with the country's Federal Character formula! That is one problem to worry about. The Federal Government has also promised a financing scheme of N250 billion in the form of stimulus and intervention facility to promote gas penetration. Excellent idea, but how will the money be shared? And by the way, how much exactly is a conversion kit, for the benefit of Nigerians who may not be covered by the government's one million charity scheme? Electricity DISCOs are complaining that they don't get gas to power turbines. What is the guarantee that there will be regular gas supply to power the Auto-gas development scheme? Gas supply in Nigeria is a big problem and that is another topic entirely.
My final take: Good policy, poor communication so far, and that requires a little more work. I also think government needs to work harder on the inter-related Petroleum Industry Bill (PIB).
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