WRACKED by rising costs, defective products and scarcity, Nigeria is undeniably in the throes of a debilitating energy crisis. From refined petroleum to gas products, crippling shortages are sending massive shockwaves through the economy. In the past two months, the prices of petrol, diesel, aviation fuel, kerosene, and cooking and industrial gas have skyrocketed. Acute power blackouts amid higher tariffs worsen the situation. Businesses and social activities have been destabilised and the country’s economic prospects have become dimmer.
The shortages add to the country’s many woes. Things went awry after the importation of dirty petrol in January. Shortly after the Nigerian National Petroleum Company admitted its grave error, scarcity and long queues heightened. From the subsidised N162-N165 per litre, petrol price jumped to as high as N400 per litre in some places. The queues have yet to abate completely two months on.
Amidst this setback, the price of aviation fuel jumped exorbitantly. From N190 per litre, it is selling for N670, an increase of more than 350 per cent. Aviation fuel is also scarce. Airlines, already faced with multiple levies, threatened to shut down operations or charge a minimum of N120,000 for a one-hour flight. Uncoordinated interventions by the Federal Government and the National Assembly only jangled the nerves. Similarly, gas shortages, technical hitches and debts have led to a sharp drop in available electricity power and serial collapse of the sole national power grid.
Currently, the operations of schools, households, hospitals, SMEs, transporters, and businesses have been constrained by the steep rise in the cost of diesel. From N260 per litre in December 2021, a litre now sells at between N720 and N800. The government clings to the argument that prices of diesel, aviation fuel, kerosene and gas have been deregulated. But as long as the naira continues to decline and Nigeria imports these products, prices will not come down. Clearly, not even the threatened removal of subsidies on petrol can solve Nigeria’s self-inflicted energy crisis.
The Manufacturers Association of Nigeria, whose members spend N100 billion monthly on alternative energy sources that add 40 per cent to costs, said, “The direct implication of this trend is that Nigerians will feel the heat, as it is reflective through the high cost of goods in the market owing to the high cost of production.” After a temporary relief, the price of cooking gas is rising again, with 12.5 kilograms going for about N9,200, from N8,000 in January.
Nigerians have trod this thorny path before. As usual, the ongoing chaos has different sides to it. On the international front, the prices of oil and gas commodities have risen sharply after Russia invaded Ukraine on February 24. Selling under $80 per barrel in December, a barrel climbed to $130pb before decreasing to $104pb on Friday. For other oil producing countries, it is another season of boon. Not for Nigeria, though.
On the domestic front, a debacle is unfolding. Although the 2022 Budget benchmark for oil is $62pb, Nigeria is a major loser because of its statist policies. By refusing to liberalise and privatise its four moribund refineries with installed capacity to process 445,000 barrels per day, tragically, a major oil and gas producing country has become a net importer of refined petroleum products. With the national currency losing value daily, it uses up huge resources to fund its profligate imports.
In its 2021 report, OPEC laid bare the country’s damaging economic practices. Nigeria exported petroleum products worth $27.73 billion in 2020, but imported refined imports worth $71.28 billion, leaving a huge deficit of $43.56 billion. The government pays N150 billion monthly on petrol subsidies, says the Ministry of Finance. Other estimates put the figure at $7 billion annually.
As such, it is difficult for the economy to derive much benefit from oil. Businesses are reeling under the weight of the high prices of imported petroleum products. Herein lies Nigeria’s dilemma. In the 2022 Budget, debt servicing will drain 21 percent of total expenditure and 34 percent of total revenues. Deficit is N6.39 trillion, 37.29 percent of total expenditure. Government says part of the $2.2 billion Eurobond it just acquired will be spent on petrol subsidies.
There can be no economic progress from these missteps. Road transportation rates have spiked. Nigerians are wary of using the roads because insecurity is rampant on the highways. This imperils tourism and commerce. Inflation is trending up again after a brief respite; the National Bureau of Statistics put the February headline inflation at 15.7 per cent, up from 15.6 per cent in January. It is likely to bite harder in the months ahead.
State governments struggle to pay salaries; the Federal Government borrows to cover up. All this will aggravate factory closures, and deepen job losses; the jobless rate is currently 33.3 per cent. Poverty will likely expand. In 2018, Nigeria overtook India as the poverty capital of the world with 87 million extremely poor people.
Like its predecessors, the Major General Muhammadu Buhari (retd.) regime is ill-prepared to confront the headwinds. Granted, it has no control over the international elements like COVID-19, the Russia-Ukraine war, and oil prices; it has however abjectly failed to undertake the necessary reforms that would have mitigated the energy crisis.
Buhari, who, in the middle of all this, took off to the United Kingdom for medical tourism, should stop sleeping on duty.
He should swiftly privatise the four loss-making refineries. Instead of taking huge loans to resuscitate them, the tested practice elsewhere else is to leave refining to private investors. Singapore, which produces only 20,170 bpd, refines 1.5 million bpd, according to America’s International Trade Administration. This is the essence of a market-led economy. Nigerians suffer because their leaders refuse to imbibe this reality. Without it, the future of the Nigerian economy is bleak. Government should be just the regulator; not a player and a regulator.
Thereafter, government should incentivise domestic refining to promote competition so that the Dangote Refinery does not eventually become a private monopoly.
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