Is there an end in sight to Nigeria’s fuel supply crisis?

Nigeria is currently grappling with an acute petrol scarcity, marked by long queues at filling stations and a steep rise in fuel prices. The Nigerian National Petroleum Company Limited (NNPCL), the country’s primary importer of Premium Motor Spirit (PMS), has admitted to being in significant debt, currently estimated at $6 billion. This financial strain is directly linked to the current scarcity, as suppliers are hesitant to provide fuel without receiving timely payments. Despite earlier denials, the NNPC’s acknowledgment of the debt reflects the systemic financial challenges facing the oil industry in Nigeria, which are being compounded by global economic conditions, domestic mismanagement, and regulatory uncertainties.

One of the primary causes of the current fuel crisis is the NNPC’s inability to pay its suppliers on time. Under normal circumstances, NNPC is required to settle fuel purchases within 90 days. However, delayed payments dating back to early 2023 have piled up, forcing many suppliers to stop supplying PMS to the national oil company. As of July 2024, five suppliers had ceased operations, which further tightened fuel supply and contributed to the queues across the country.

Despite being a major oil producer, Nigeria remains heavily dependent on fuel imports due to its weak refining capacity. NNPC, as the sole importer of PMS, bears the brunt of maintaining domestic supply. Any disruption in the company’s ability to import fuel, such as financial insolvency or global supply chain challenges, directly impacts domestic availability. In the face of NNPC’s debt, the reluctance of suppliers to extend further credit lines has led to reduced tenders for PMS in recent months.

The fluctuations in global oil prices have exacerbated the crisis. The landing cost of PMS, which reflects the price of importing fuel into Nigeria, has increased significantly. Coupled with the devaluation of the naira, this has pushed the retail price of petrol above the purchasing power of most Nigerians. While the NNPC continues to cap the pump price below the landing cost, it does so at great financial strain, further compounding its debt crisis.

In May 2023, President Bola Tinubu announced the removal of the long-standing fuel subsidy, signaling a shift toward deregulation. However, this move came at a time when the naira was being floated, making fuel imports significantly more expensive. Despite the removal of the formal subsidy, the government has continued to cover the shortfall between the landing cost and the pump price, which many interpret as an implicit subsidy. The failure to completely phase out these subsidies, and the government’s inability to sustain the current pricing model, has left Nigeria in a state of partial deregulation, which is economically unsustainable in the long term.

Independent Petroleum Marketers Association of Nigeria (IPMAN) has criticized the partial deregulation policy, arguing that it creates a competitive imbalance. While NNPC’s retail stations are able to sell PMS at a lower price due to government intervention, independent marketers have to sell at significantly higher prices to cover their costs. This disparity has led to public resentment towards independent marketers, who are often blamed for the higher prices despite being at the mercy of NNPC’s import monopoly and the broader market conditions.

Consequences of Petrol Scarcity

The scarcity has resulted in an alarming increase in fuel prices, especially at stations run by independent marketers. This price hike has had a ripple effect on the cost of living, particularly in transportation, where fares have increased by up to 40%, placing further strain on Nigerians already grappling with high inflation and unemployment.

The growing disparity in fuel prices between NNPC-run stations and independent marketers has distorted market conditions. This has eroded trust in market stability and discouraged private sector investment in fuel imports, exacerbating the monopoly held by NNPC. Moreover, the constant changes in fuel prices have disrupted businesses dependent on energy, particularly transportation, logistics, and small-scale manufacturing, further slowing economic growth.

Reports of middlemen inflating prices and manipulating access to fuel supplies have added to the crisis. These intermediaries exploit the desperation of marketers by demanding higher prices at depots. Depot owners, unable to secure enough supply from NNPC, are forced to increase their prices, leading to an upward spiral in costs. This black-market-like behavior further complicates efforts to stabilize fuel prices and supply.

Future Outlook: Potential Scenarios

One potential outcome is full deregulation of the petroleum sector, as recommended by IPMAN and international organizations like the International Monetary Fund (IMF). While this might encourage more competition and private sector involvement, it could also trigger social unrest given the already high cost of living and inflationary pressures. Full deregulation would require strong social safety nets to mitigate the economic shock, but these measures have been slow to materialize, as noted by the IMF.

Some factions, particularly independent marketers, have called for a return of the fuel subsidy. This, however, would contradict Nigeria’s efforts to reform its economy and reduce public spending on subsidies, which are widely considered inefficient and regressive. Reintroducing subsidies may temporarily ease the fuel crisis, but it risks reigniting the cycle of fiscal irresponsibility and diverting funds from critical infrastructure and social services.

In the long term, Nigeria must address its weak refining capacity. Investment in domestic refineries would reduce dependence on imports, stabilize local fuel supplies, and protect the economy from global price shocks. The Dangote Refinery, once fully operational, could play a critical role in this transition, reducing the pressure on NNPC and allowing for a more competitive market structure.

Conclusion

Nigeria’s ongoing petrol scarcity is a multi-faceted crisis rooted in systemic financial, infrastructural, and regulatory issues. The $6 billion debt owed by NNPC to its suppliers has crippled fuel imports, while partial deregulation has created distortions in the market, resulting in significant price disparities. As Nigerians continue to feel the pinch of rising fuel prices, the government faces tough choices regarding whether to fully deregulate the sector or continue providing implicit subsidies, each with its own economic and social risks. Comprehensive reforms, including bolstering local refining capacity and addressing governance issues within NNPC, will be essential to achieving long-term energy security and economic stability.