Nigeria’s $100 Oil Curse, NNPC’s N201bn Janitorial Cost, and ASUU’s 2009 Perennial Cough
In the early hours of Wednesday, shortly after Russia launched an attack on Ukraine, crude oil benchmark price (Brent) rose to $105 per barrel (bpd). The price rose by three per cent from closing at around $101 bpd on Wednesday, the first time prices shot this high since 2014 when it hovered around $107.95.
For a nation like Nigeria that relies heavily on crude for a huge chunk of its foreign exchange earnings, this was supposed to be good news. For one, the 2022 budget anticipates a crude benchmark price of $57 per barrel, an exchange rate of N410.15 per dollar, a GDP growth rate of 4.2 per cent, and a 13 per cent inflation rate. With a daily oil production estimate of 1.88 million barrels (inclusive of condensates of 300,000 to 400,000 barrels per day), the proposed total expenditure for the year was put at N16.39 trillion.
So with crude oil selling at between $100 and $102 per barrel, the nation is by default expected to have in its reserves a minimum of $40 on each barrel sold, as excess crude savings.
But as events of the last few years have shown, an increase in crude price hasn’t only been worrisome for the nation, it has remained a curse. And the question remains: Why so?
Well, look no further than the nation’s controversial fuel “subsidy” regime.
Opaque Subsidies, Obsolete Refineries
In 2022 alone, fuel “subsidy” is expected to gulp a whopping N3 trillion from the nation’s coffers. Over the past 16 years, Nigeria is estimated to have spent over $30 billion on fuel subsidies, at the expense of investment in key areas like health, education, and basic infrastructure.
Last month, amid speculations that the nation was on the verge of suspending its controversial, corruption-laden subsidy regime, what appeared as the triumph of politics over policy prompted President Muhammadu Buhari to approve the suspension of the removal of fuel subsidy until further notice, ostensibly after the 2023 general elections.
Earlier in the week, a paranoid minister of oil, Timipre Sylva, lamented the rise in crude prices. He said that he was hopeful the prices “will move around, maybe $80, maybe $70” because that’s the range that is “sustainable for us” to the end of the year.
So with the subsidy regime still effectively in place, even if oil price bizarrely soars as high as $200/per barrel amid the uncertainty over Russia’s invasion of Ukraine, the opaque subsidy behemoth has ensured that the natural endowment remains an impediment for the nation.
Aside from the opaque “subsidy” arrangement, the nation also faces the challenge of having to buy petroleum products for use in-country, because there are no functional refineries. In its August 2021 Monthly Operational Report released recently, the NNPC said that all of Nigeria’s refineries recorded zero productivity within the month under review because they were being “rehabilitated”.
When you combine concerns around the “subsidy” regime with obsolete refineries and Nigeria’s inability to ramp up production to meet the quota allocated by the Organisation of Petroleum Exporting Countries (OPEC), then the $100/per barrel oil euphoria remains a curse for the nation—sadly and ironically so.
So dear Nigerian, whenever you see oil prices rise in the international crude market, jump up not in ecstasy… for thy nation’s doom looms.
NNPC as curious Janitor
In the wake of the devastating impact of the off-spec petrol imported into the country last month, the Nigerian National Petroleum Company Ltd. said that all the off-spec material (products) will be re-blended to very good quality, and it will be certified and re-certified before it goes into the market. To achieve this, it said the component that was in excess was methanol, and for every 200 litres of the affected volume, it will need about 800 litres to blend.
In effect, the NNPC needs an estimated N201 billion worth of clean Premium Motor Spirit (petrol), to bring 170.25 million litres of adulterated products imported into the country up to standard. Woah!
The curious cost of NNPC’s janitorial intervention has been quite concerning for many Nigerians. While that was not even debated in the face of crippling scarcity, the NNPC hasn’t shown any sign that whatever it promised to do had had any impact thus far.
More than three weeks after the scarcity began, the nation’s supply chain hasn’t stabilized and filling stations nationwide are still littered with cars and jerry cans.
On Wednesday, the Nigerian National Petroleum Company (NNPC) Limited released details of how it distributed a total of 387.59 million litres of petrol in the last one week to bridge the gap caused by the withdrawal of methanol-blended products in circulation.
Although the queues have eased slightly in the Federal Capital Territory, things have remained nearly the same in parts of Lagos. Across other parts of the South West, things have worsened.
What the crisis has shown, in some ways, is that the nation has a faulty recall system. For, if a one-week supply of adulterated fuel caused by regulatory failure couldn’t be tracked and the effects addressed over a month after discovery, how would a one-month supply have been addressed?
Worse still, in the absence of accountability mechanisms, what’s the impact of NNPC’s N201 billion janitorial cost if the scarcity still persists till this point?
ASUU’s 2009 perennial cough
In the midst of the oily melee, ASUU yet again is threatening a showdown with the Nigerian government over, among other concerns—wait for this—a 2009 agreement with the Federal Government.
Earlier in the month, the union hinted at the possibility of an impending industrial action after it directed its members nationwide to declare lecture-free day in preparation for a possible showdown with the Nigerian government.
President Buhari, who had promised to intervene and meet their demands, pleaded with the union to exercise patience and consider “current economic realities”.
The union had last December said that, as part of their demands, the government released the sum of N30 billion as revitalization fund, instead of N200 billion. It argued further that the government didn’t make any commitment on how the remaining N170 billion would be released.
Since 2009 when it struck a major deal with FG, the ASUU showdown has become a perennial cough that has defied all medications and treatment. The union coughs almost every year as different governments make promises without fulfilment.
Interestingly, while ASUU strike keeps students away from the classroom and the government looks away, Nigeria fritters away trillions of naira on opaque “subsidy” at the expense of funding education and health, a move many policy experts have bemoaned for aeons.
According to details of the 2021 budget, the government allocated N742.52 billion for education, N435.32 billion for works and housing, and N179.56 billion for agriculture, all amounting to a total of N1.36 trillion.
On the other hand, the amount spent on PMS subsidy in 2021 alone was N1.43 trillion, according to the NNPC.
In any case, as the NNPC spends trillions on “subsidy” and over N200 billion on janitorial intervention, and the universities are scrambling for N170 billion revitalization fund, it won’t be a surprise seeing professors in Nigerian universities apply for janitorial jobs in the coming months.
As tweeps say on Twitter, ‘Sapa’ is nobody’s mate, you know.