Federal Government, through the Nigerian National Petroleum Corporation (NNPC), has made it clear that subsidy on petroleum products is gone forever in the country, especially, with the recent reduction of the pump price of petrol from N145 to N123.50.
The Group Managing Director of the NNPC, Mele Kyari, who spoke in Abuja on a live television programme on AIT said: “What I mean is going forward, there will be no resort to either subsidy or over recovery of any nature. NNPC will play in the market place; it will just be another marketer in the space.”
Kyari admitted that as it stands, the country cannot accurately ascertain the quantity of the product it consumes everyday because while the agencies of government saddled with the job know how many trucks leave the depots every day, it is impossible to track where they are taken to.
This position of the NNPC is coming at the backdrop of announcement early this year by the Minister of Finance, Zainab Ahmed, of the federal government’s provision of N450 billion for ‘under-recovery’ of cost. The Petroleum Products Pricing Regulatory Agency (PPPRA) however, put it at N750.81 billion, about N300.81 billion higher than the amount announced during the public presentation of the 2020 budget details.
The NNPC boss dispelled insinuations that the country’s crude oil currently has no international buyer, saying that given the quality of the resource Nigeria produces and the relatively short distance to its international buyers compared to its competitors, Nigeria has an advantage.
He said that the current fall in the international prices of crude had given the country an opportunity to ‘liberalise’ the downstream oil industry, which implies that the price Nigerians get all white products from crude oil will now be determined by market forces.
He added that with full liberalisation, many things, including determining how much of the product Nigerians consume daily will come to bear, predicting that the pump price of fuel will fall further in the next few weeks.
“As at today, there’s no subsidy, no under-recovery. It’s zero forever. What I mean is that going forward, there will be no resort to subsidy or under-recovery of any nature. NNPC will play in the market place. We will just be another marketer in the space. But we will be there to ensure security of supply,” he said.
The NNPC boss, who also fought off allegations that the organisation remains one with no commitment to transparency, noted that NNPC was not an opaque organisation, disclosing that every month, the corporation publishes its financial transactions or standing for public consumption.
According to him, “With price liberalisation, this (actual consumption) will be sorted out and we will know our real consumption. So, now what we call consumption is how much of these products get into the fuel stations and is actually bought by cars and generators. But the market will take care of that.
“As soon as this situation (Covid-19 pandemic) abates and we are able to go into real market conditions, it will be a consideration of commerce and we will have no challenge.
“But I know we are transitioning to a full market situation and the forces of demand and supply will regulate the prices, while avoiding the possibility of abuses that can come out. Ultimately, the market forces will take shape in a way that everybody will benefit from it.
“In terms of expecting lower prices associated with crude oil price decline, the product price tallies behind the crude oil prices. If crude oil prices collapse today, the reality of those prices will come in two or three weeks. From production to delivery takes three to four weeks and therefore, it is only at that time that you see the impact of changes in price.
“But as we go forward, the impact will come because the product we see today were produced three to four weeks today. In that three weeks you will see further commensurate decline in prices of products. Not what we expect today.”
The GMD noted that Nigeria has continued to push for an ambitious production of three million barrels per day of crude oil, adding that as of last Sunday, the country succeeded in producing about 2.3 million barrels which had not happened in years.
“As at yesterday (Sunday) for the first time in very many years, our production was 2.3 million barrels . This will grow and as we approach the 3 million these companies (local) will grow capacity. The local companies are quicker and more responsive because many of the international partners require sign off from their head offices before they can take action.
“The 2.3 includes condensates. There is no challenge with buyers because the buyers now have more choice of quality and distance of delivery and this will determine which oil is bought. As you are aware, our major source of trade is Europe and Asia.
“At times like these when crude oil prices go down, what buyers do is to buy the cheap crude and take them into storage. So, the way to get this is that when they don’t return cargoes, because he has a legitimate right to come back after six days to say he doesn’t want the cargo.
“But none of our partners has come back for that though it is well past the six days, which means that they have found a home for our crude, which could mean taking them to storage because the vessels can be used as storage.
“Three days ago, we were at about $20, but today, we are at $33, and we think that this will level out to $30 at the end of the year on the average.
“When we say our crude is stranded it doesn’t mean they didn’t buy it, but the issue was whether they will have a place to take our crude to. It means they are treated as stranded. Because they will not come back for more in May or June because they can’t find a home for the ones they have bought.
“The changes in circumstances which have pushed the price to $30.2 as at this morning, even when people are still home, means that things will change,” he said.
He added that as a result of divestment by the international companies, local oil companies were becoming more active in the industry, but said that the NNPC was not looking at a situation where there will be zero partnership with foreign companies.
Kyari noted that when there are low prices, the NNPC will focus on assets that bear less cost, indicating that as of today, the corporation knows the assets to shut in if the need arises.
“The market is like voodoo market, I don’t see the price going lower. The key issue is demand. Covid-19 will subside and countries are already returning to life. I don’t see it going down. The realities will return and it will rebalance the market and leave it outside $30,” he said.
He advised the federal government to continue to borrow and cut costs, explaining that the only way out of a possible economic recession was to ‘spend our way out’.
“Recession is avoidable, we can spend or borrow our way out of it. That’s what every country does, spending on infrastructure, cutting cost and borrowing more,” he argued.
He reiterated that there’s enough supply of petrol totalling 2.5 billion litres in the country, which will tentatively keep the country afloat for 60 days, but said the country needs far less for now because of the restriction of movement.
“Our commitment for supply is continuing. No danger of supply disruption. Supply is guaranteed. If any filling station is not open, it’s because there’s no customer, not because they don’t have supply.
“We know the number of trucks that leave the depot, but no record of final destination of these trucks. As you are aware, cross border racketeering still happens.
“But with what is going on, there is no incentive for cross border profiteering. We can now create retails stations in neighbouring countries. The numbers that get out of our station do not reflect our consumption. What we know is what comes out of the fuel depots,” the GMD said.