In general terms the provision of energy Is a stimulus to increased economy and social activities of any country.
Unfortunately, Nigerian energy industry is probably one of the most inefficient in meeting the needs of its people and the gloomy energy service provision has adversely affected living standards of the population and made worse income and energy poverty in an economy where the majority of the people live on less than N200 a day.
Although, Nigeria is rich in energy resources and the sixth largest exporter of crude oil in the world, persistent energy crisis has weakened the Industrialisation process, and significantly undermined the effort to achieve and sustained economic growth, increased competitiveness of domestic industries, regional and global markets, and employment generation.
Perhaps, this is the main reason why the chief executive officer, CEO, of the Center For The Promotion Of Public Enterprise (CPPE), Dr. Muda Yusuf, is seeking the understanding of the federal government to expedite action in the implementation of the Petroleum Industry Act( PIA), to provide a clear growth path for the oil and gas industry.
Reviewing the Q3, 2022 Gross Domestic Product, GDP report, which dipped to 2.25 per cent in the third quarter of 2022, from 3.54 per cent in the second quarter, Yusuf observed that the oil and gas sector, oil refining were among sectors that posted two consecutive quarters of negative GDP growth.
He said they are segments of the economy that are experiencing much deeper crisis of recovery and still experiencing recession.
He also mentioned textiles and railways as experiencing growth difficulties.
Yusuf, former director – general of the Lagos Chamber of Commerce and Industry, LCCI, said these sectors are plagued by challenges of insecurity, wrong policy choices, structural impediments, plunge in productivity and corruption.
He said government should urgently accelerate efforts to ensure domestic refining of petroleum products and specifically carry out reforms which prioritise infrastructural development and transparency in the budgetary process.
According to the GDP report, there are sectors that suffered contractions which are sectors that posted negative GDP growth. These are also sectors that are victims of the diverse headwinds in the economy and they include: crude oil and gas which contracted by 22.67 per cent, oil refining contracted 44.7 per cent, coal mining – 43.5 per cent, manufacturing sector – 1.91 per cent.
Food and beverage sector which is one of the most shocking contracted by 4.05 per cent, while the Textiles industry contracted by 3.98 per cent.
According to him. It is also worthy of note that the manufacturing sector as a whole contracted by 1.91 per cent , electricity and gas – 3.56 per cent while plastics and rubber products – 3.92 per cent
He noted that a striking feature of the GDP Q3 report was the contraction of the manufacturing sector which shrunk by 1.91 per cent.
This is the first quarterly contraction of the manufacturing sector since 2020, when the economy slipped into recession, he said, adding, “Of greater concern was the slump in the food and beverage sector which contracted by 4.05 per cent.This is the first contraction of the sector since the recession of the second quarter of 2020.”
The food and beverage sector is the flagship of the Nigerian manufacturing sector. for several decades, it was the toast of investors in the stock market.
The sector contributed N2.2 trillion to GDP in the third quarter of 2022.
“This development is a reflection of a major setback for the Nigerian manufacturing sector which calls for an emergency response by the government. The plunge in the manufacturing sector performance has profound implications for food inflation, food security and employment. The food processing sector has the biggest impact on jobs because of the strong backward integration content and high multiplier effect in the agriculture value chain,” Yusuf added.
On its part, the Nigerian manufacturers are worried that high diesel cost could lead to job losses and higher product prices.
Recently, the price of diesel in Nigeria had gone from $0.75 (N312) per litre in January to $1.92 (N800) in March this year. For a country like Nigeria where most factories are powered with diesel-fired generators, this has a huge cost implication.
The Manufacturers Association of Nigeria (MAN), said, “Having a major cost element increasing by more than 100 per cent is a cause of trouble.”
The association said its members might soon be forced to cut down jobs, reduce their operation and increase product prices, amid skyrocketing energy costs in the West African country.
The MAN’s director-general Segun Ajayi-Kadir, declared that “having a major cost element increasing by more than 100 per cent is a cause of trouble”.
The MAN DG also warned that the development could lead to some workers losing their jobs, even as prices of products are bound to go up.
Nigeria according to available data spend as much as 40 per cent of their operating costs on diesel due to epileptic power supply which is presently prompting companies to generate their own electricity to power their factories. Besides that, diesel also play an integral role in the shipment of goods and services, because the lorries and trucks that transport products to their points of sale rely on them.
It’s important to note that prior to this time, Nigeria used to have one of the cheapest diesel prices in Africa. However, following the events since the beginning of the year the country now possibly has one of the highest diesel prices on the continent, according to a Bloomberg observation.
However, diesel price is not the only energy cost that is going up in Nigeria.
The MAN has highlighted how petrol price has also gone up, driven by week-long scarcity of the commodity. Earlier in the year President Muhammadu Buhari had to apologise to Nigerians for the economic hardship caused by the energy crisis in the country, promising that his administration was working hard to proffer solution to the problem.
Again, declining global petroleum products refining is placing Nigeria at a greater precarious position.
Nigeria is the only member country of the Organization of Petroleum Exporting Countries (OPEC) that imports 90 to 95 per cent of refined petroleum products to meet its domestic consumption, available data showed.
According to Rystad Energy, global diesel and petrol markets are witnessing blowout crack spreads in the $50-60 per barrel (bbl) range, reflecting a clear lag in the refining system to respond effectively and decide between supplying diesel or petrol.
Rystad Energy is a research and business intelligence company providing data, tools, analytics and consultancy to clients.
Nigeria spent a total of N4.56 trillion on the importation of moto spirit (petrol) in 2021 about 128 per cent higher than the N2 trillion spent on fuel importation in 2020.
This is according to foreign trade data recently published by the National Bureau of Statistics (NBS).
Nigeria also spent N6.3 trillion on Fuels and Lubricants imports in 2021 as against the N2.83 trillion, N2.5 trillion, and N3.8 trillion incurred in 2020, 2019, and 2018 respectively.
The country is currently experiencing one of the worst fuel crises in recent years and fuel queues remain sticky due to protracted clear out of adulterated fuel recently and the challenges with the importation of fuel.
Automotive Gas Oil, AGO, also called diesel prices recently rose to over N700 per litre and is also imported. and according to the data, importation of petroleum products other than the fuel cost N1.7 trillion which includes AGO.
The Nigerian National Petroleum Company Limited (NNPC) reported in 2020 that it earned a revenue of N151.8 billion in from premium motor spirit import and another N39.9 billion in AGO.
Rystad noted that the dwindling refining capacity is coming as recent news indicated that Dangote Refinery is unable to secure a commissioning team, Rystad noted.
The energy crises appear to be taking new dimension as commuters and motorists are having difficult times in Lagos as long queues overstretched capacity of petroleum dispensing outlets mostly operated by major oil marketers.
NATIONAL ECONOMY reports that independent marketers are gradually winding down operations following inability to access products given outrageous ex-depot prices.
President of Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN), Dr Prince Billy Harry, has said that his members now access products at the cost of N190 and N113 per liter of petrol from private depot operators.
“Information reaching me in Abuja indicates that my members are buying petrol between N190 and N113 per liter. So the environment is no longer favourable and the competition favours the major marketers because they have the capital so what is happening is that our members would shut down until the major marketers exhaust their delivery to enable them sell.
“We cannot sell at the same price they sell because the structure in terms of delivery time tilts towards their favour. So the situation in Lagos is likely to continue and probably get bad except government intervenes” Harry told NATIONAL ECONOMY on phone.
He said the situation can get better if government considers credit sales to independent marketers and direct sales to members.
President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Chinedu Okoronkwo, told our correspondent on phone that marketers can no longer carry the burden as he called on the Nigerian National Petroleum Company Limited (NNPCL), to restructure allocation and distribution pattern or the situation would escalate.
“We are calling on the NNPCL to separate the independent marketers from the major marketers and depot operators. We have five zones in the country. The NNPC should give us direct allocation at each zone.
“What I am advocating is direct allocation to independent marketers. We are not fairly treated and we cannot go to coastal areas to buy petrol at higher price and sell at the same price with the majors.
“Except this is addressed this situation being experienced will escalate. The NNPCL brings the product so why deliver to depots who indiscriminately hike price. We control 80 per cent of the downstream market so if we are not given products the effect will be felt as it is happening today,” Okoronkwo said.
Further, Gillis-Harry stated that product unavailability and logistic challenges are some of the reasons for recurring fuel scarcity, especially in Abuja, Lagos, and other parts of the country.
The PETROAN president, however, attributed Lagos fuel scarcity to unavailability of the product at depots and also price disparity. “As far as Lagos is concerned, if there is a scarcity or price issue in Lagos it is simply based on the fact that there are no products in the depots, that’s the reality,” he said.
On the hike in prices of petroleum products, he said, “Let me explain this to all of us, petroleum product pricing is supposed to be dynamic in the sense that if we bought from (Pipelines and Products Marketing Company Limited) PPMC depots at PPMC price, everybody is expected to sell in their retail outlets at N165.
“But if we had to buy from other depots who had bought from the PPMC and had to ship it and go through the necessary protocols of delivering it to the depots from where we have to take it, the price will be higher because the cost is dollarised, everything about petroleum products is dollarised that is just what is happening.”
His position reflects the concerns raised Oil Marketers Association of Nigeria which blamed charges in foreign exchange by the Nigerian Maritime Administration and Safety Agency (NIMASA) and the Nigerian Ports Authority (NPA) as creating disruption in market operations.
The marketers have asked the agencies to obey federal government’s directive on naira transactions for ports charges.
Mahmood Tukur, Vice Chairman II, Depots and Petroleum Products Marketers Association of Nigeria (DAPPMAN), stated this recently.
The federal gvernment through its downstream regulator, and based on agreement reached with stakeholders, directed ports charges to be collected in Naira.
The directives was contained in a communique issued in November 2021, and signed by heads of the Nigeria Midstream and Downstream Petroleum Regulation Authority, Nigeria National Petroleum Company Limited (NNPC Ltd), Major Oil Marketers Assocoation of Nigeria and DAPPMAN.
Tukur alleged that the agencies were yet to comply with directives and continue to collect charges in dollars.
“Government gave directives that these agencies should henceforth charge marketers in Naira, but that had not been implemented. That’s a major challenge.
“The dollar price is practically driven by demand, if there is no supply, obviously the price will rise. So, every time a vessel needs to berth, we have to pay ports charges in dollars.
“But we are saying that can be paid in naira. That’s one way of actually taking demand (for dollars) out of the market and it will cool the FOREX effects.
“If these products are consume locally and destine for local ports, why is the NPA and NIMASA charging in dollars?
“They should simply implement a directive given by the government, and we can assure that this will also bring down the price of petroleum products,” Tukur said.
The statement also quoted the Chairman of the DAPPMAN, Winifred Akpani as saying that FOREX conundrum was affecting petroleum marketers.
She noted that to charter a vessel that could convey 20,000 metric tonnes of PMS within Nigeria for 10 days, freight charges are being denominated in dollars.
“That comes to about N220 million at official FOREX rate of N440, and a whooping N440 million for petroleum marketers who have to source FOREX in the parallel market at N880.
“This implies an additional cost of N11 per litre for this transaction due to the FOREX official/parallel market differential.
“For this same transaction, Jetty fees, again charged in dollars, comes to N15.4 million at official FOREX rate and N30.8 million for petroleum marketers who source from the parallel market.
“In the same vein, Jetty Berth is charged in dollars and comes to N2.2 million at official FOREX rate and N4.4 million at parallel market.
“Then there are port dues (NPA and NIMASA) charged in dollars, which come to N71.51 million at official FOREX rate and N142.796 million for marketers who source FOREX from the parallel market,” she said.
Akpani described the trend as “quite burdensome” which made operational expenses and procurement increasingly difficult for its members.
She stated that amid this inclement situation, petroleum marketers compete unfavourably with the NNPC which has upper advantage.
She said the NNPC, historically, the supplier of last resort currently served as the major oil downstream company in the country with the acquisition of OVH.
“Without a level-playing field, especially one that guarantees access to dollars for all marketers at official rate, marketers’ ability to import products is continually and severely hampered.
“As a significant portion of their operations and critical operational and capital expenses are denominated in dollars.
“Full availability of products, particularly PMS will experience a marked boost when access is granted to FOREX at official rate for all operators and subsidies removed completely.”
On the part of MAN, Nigeria’s path to economic growth, industrialization and sustainable development has been compromised by inadequate attention to the numerous pressing challenges of the manufacturers who are meant to be the propellers of its long-term economic agenda.
Achieving a stable rapidly-growing economy would require taking head-on the daily bottlenecks confronted by business owners within the manufacturing sector, considering its active inter-linkages with other key sectoral drivers of the economy. Amidst the numerous challenges, forex scarcity, multiple taxation, exorbitant interest rate, high-cost business operating environment, smuggling, insecurity, energy crisis and epileptic power supply are leading the pack.
In order to restore the sector to an enviable position in the global business environment and in turn propel an inclusive growth of Nigerian economy, MAN hopes that the government will committedly ensure implementation of the Executive Order 003 and imposing cost-reflective electricity tariff and energy prices.
Jettison the failing hard peg policy and establish a clear and transparent market framework to guide the interventions of the CBN in the forex market and systematically align monetary and fiscal policies while also curbing fiscal deficits by the gradual removal of fuel subsidy.
Electricity supply from the national grid to the sector degenerated in the Q3 of 2022. Although, average daily supply to the sector increased to 12 hours in the first half 2022 from 11 hours of the second half of 2021, the average number of outage per day increased 6 times from 3 times recorded in the preceding half, which more than off-set the increase in supply in the period. The poor power supply from the grid fueled self-energy generation among manufacturers as expenditure on alternative energy source soared to N67.77 billion in the first quarter of 2022 (year-on-year) up from N32.18 billion recorded in the first half of 2021 and N45.04 billion of the second half respectively.
