Q: How can the world's sixth largest producer of crude oil have an oil shortage?A: The key word in the question is crude--Nigeria 's refining capacity is woefully inadequate to meet local, let alone international, demand.
Initially, it may seem odd that a country so richly endowed with energy supplies is incapable of producing enough refined oil for local consumption. In IPE-ish works, there have been two ways of looking at this: First is the Theotonio dos Santos / Raul Prebisch / Immanuel Wallerstein / Andre Gunder Frank concept of dependencia or underdevelopment theory. In this view, Western industrialized counties possessed of know-how and advanced technology are poised to reap benefits at the expense of developing countries mostly devoid of such. By locking developing countries into relationships where the former apply expertise to create high "value-added" products while the latter can only export raw materials, LDCs suffer from ever-decreasing terms of trade as technological capacities widen. That is, they become dependent. This argument can certainly be applied to Nigeria: in all these years, it is still Western multinational firms operating within and without the country that provide the necessary refining capacity to turn crude into usable refined products.
OTOH, you can also view this sad episode as yet another instalment of the "resource curse" in which richly endowed states tend to be handicapped instead of bolstered by the presence of abundant natural resources. With most oil revenues going to the state, distribution of its benefits has often been diverted to favoured interests instead of for the common good, broadly defined. Clientelism, "big man" politics, and other pathologies hamper other worthwhile activities like, say, building petroleum refining capacity to service local demand. Adding insult to injury, Nigerian crude is regarded as easy to refine compared to that emanating from other major suppliers such as Canada and Venezuela.
Let us begin our story with Missus Clinton berating Nigerians for this sorry state of affairs during her visit in August of year. While her lecturing may not sit well, the talking points demand attention:
[A] few days to her arrival in Nigeria, U.S. Secretary of State Hillary Clinton at the weekend said the continuous importation of refined petroleum products by Nigeria was a sign of bad leadership in the country. "Nigeria is the 6th largest producer of crude oil but the country still imports fuel," Clinton said at the weekend during her seven-nation tour of Africa, adding that this was a sign that the nation has poor leadership...It begs the question of whether the Nigerian government can and should require Shell and other MNCs to help create refining capacity in the country. On the one hand, doing so helps these firms get around thorny accusations of mere resource exploitation. OTOH, the security situation in Nigeria--especially in the oil rich Niger Delta--has never been conducive to commerce. That mentioned, we can turn to the current crisis bedevilling Nigeria of dwindling supplies of refined petroleum products:
Earlier last week in Nairobi, Clinton addressed the eighth annual forum on the African Growth and Opportunity Act (AGOA), a US law giving preferential access to the world's biggest market to African states with open markets and democratic governments, where she urged African governments to "reject corruption, enforce the rule of law, and deliver results for their people... This is not just about good governance--it's also about good business." She said, "Investors will not be attracted to states with failed or weak leadership, crime and civil unrest or corruption that taints every transaction and decision..."
Nigeria produces around 1.3 million barrels of oil per day, just about half the quota allocated to it by oil cartel, Organisation of Petroleum Exporting Countries (OPEC). The production cuts are largely because of unrest in the Niger Delta. But the country imports most of the petroleum products needed for domestic consumption because the four refineries are not working at full capacity.
Experts say even if the refineries are to work at full capacity, they cannot meet the local demand of 30 million litres of petrol per day. At present, the Kaduna, Port Harcourt and Warri refineries have a combined daily refining capacity of 445,000 barrels of petroleum, but run a production of a total of 336,000 barrels or less daily. About 600,000 barrels of crude oil need to be refined to get the 30 million liters of petrol.
At a recent event, Petroleum Minister Rilwanu Lukman said one of the problems bedevilling the nation's downstream sector is the problem of refineries. Like Lukman, other experts have suggested that multinationals be made to refine crude oil in Nigeria.
A mega fuel scarcity, which could make the current and past ones look like a child's play, is looming following disclosure at the weekend that the Nigerian National Petroleum Corporation (NNPC), the lone importer of the product, is running short of it. Investigation showed that the national fuel stock will be depleted in seven days' time.So there you have it: in addition to inadequate refining capacity for an easy-to-refine grade of crude, the government adds difficulties in the form of financial misallocation and bureaucratic entanglements. Why must a government-owned corporation import so much fuel, you ask? It turns out that commercial importers have declined to market refined fuel due to government-imposed price controls that have made doing so unprofitable. From an earlier article:
NNPC Spokesperson, Levi Ajuonuma, did not pick calls to his mobile telephone at the weekend. A text message sent to the line was also not answered, but a source at the NNPC said an order has been placed, which would take not less than two weeks to arrive. "Yes, they just gave out an order for February deliveries for 24 cargoes, which would start arriving from February 8. Current stock level/sufficiency is two weeks," the source said.
For the first time since the scarcity started over six weeks ago, the government has admitted that there is a wide gap in supply which the NNPC cannot fill. Minister of State for Finance, Remi Babalola, disclosed at the weekend that the NNPC, which owes the government N450 billion, has cash flow hiccup. He explained that the Federal Account Allocation Committee (FAAC) does not have a problem with the NNPC...
Minister of State for Petroleum, Odein Ajumogobia, said in Lagos that since marketers stopped importation, the NNPC has tried hard to fill the gap without success.
Even as fuel queues that appeared at the petrol filling stations following the reduction in petrol price by the Federal Government began to abate, a fresh crisis erupted yesterday when the Major Oil Marketers Association of Nigeria (MOMAN) threatened to stop importation of Premium Motor Spirit [PMS] unless the government addresses "some controversial issues" in the new pricing template.Meanwhile, it is argued that the government-subsidized fuel care of the NNPC benefits few--a limited number in major cities and smugglers:
Members of MOMAN include African Petroleum Plc, Chevron Nigeria, Conoil, Mobil, Oando and Total Nigeria, which together said they are responsible for 50 percent of total petrol importation into the country. The association said based on the real calculation that considered all factors in fuel importation and the actual costs incurred, the pump price of PMS should be a minimum of N68.78k /litre.
A MOMAN statement signed by its Executive Secretary Thomas Olawore said its members are presently unable to import petrol and sell it at N65per litre without requiring a subsidy of at least N4.46 per litre. The marketers claimed that there is a substantial gap between the Petroleum Products Pricing Regulatory Agency's (PPPRA) "theoretical evaluation of the PMS landing cost" and the importers' reality based on the omission of some cost centers.
The Federal Government has so far spent over [naira] N2 trillion [about USD 13.24B] in the payment of subsidy to maintain the regulated price regime on petrol in the last four years, a report has said. And while the bill is borne by the three tiers of government - federal, states and all the councils of the federation - only a few areas enjoy the subsidised price of N65 per litre as most Nigerians buy from the black market despite paying part of the cost of subsidy...It's a thorny situation that's been building up for a long time. Certainly, there appear to be no easy solutions.
According to statistics obtained from marketers who made contributions to the findings, the N2 trillion spent on subsidy by the government, if deployed in infrastructural development, could construct 45,000 kilometres of roads, 615,000 blocks of classrooms, two brand new refineries with refining capacity of 300,000 barrels per day and provide 15,000 megawatts of electricity...
The irony of the subsidy is further highlighted in the Murhtar report which states that apart from Lagos, Abuja and Port Harcourt, the pump price of N65 per litre is not available in many parts of the country especially the hinterland despite the subsidy deductions at source from the Federation Account.
"Majority of consumers in Mukurdi, Sokoto, Borno, Plateau, Enugu, Owerri and Bayelsa pay between N90 and N120 per litre for a petroleum product that is already subsidised to be sold at N65 but never gets to them at that price. By this alone, huge revenue is lost by the Federal Government in the name of subsidy," the report said...
Subsidy, according to the report, provides an incentive for smuggling petroleum products to neighbouring countries where prices are higher in view of the huge disparity in the prices of refined petroleum products between Nigeria and neighbouring nations. This means government resources, the report said, are being used to subsidise smuggling rather than the consumers, "unfortunately while making it lucrative for smugglers at the same time resulting in product scarcity in the country".
NOTE: Not to toot my school's horn yet again, but I was inspired to post something on Africa because of a recent LSE report on the paucity of news coverage of events there from our journalism department. (That is, aside from the Bono-ite "throw jillions at us because we're helpless" variety, which in any event benefits from Western celebrity presence.) Even if I am by no means an Africa expert, I think I should at least make an effort at covering often intriguing current events there with IPE implications like this one. My bad.
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