Nigeria looks for solution for petrol crisis

Nigeria looks for solution for petrol crisis

While the International Monetary Fund and the World Bank pressure the new president of Nigeria to remove fuel subsidies and deregulate the petrol market in the country, the Nigerian National Petroleum Corporation has announced an ambitious plan to increase its refining capacity to 10 million liters per day by the end of January 2016 to help end the country’s critical fuel crisis.

Afrikonomics Podcasts 1: Nigeria’s shift from oil to gas
Innovative Startups in Cameroon : DroneAfrica
Who is Ripping the Benefits of Simandou in Guinea?

While the International Monetary Fund and the World Bank pressure the new president of Nigeria to remove fuel subsidies and deregulate the petrol market in the country, the Nigerian National Petroleum Corporation has announced an ambitious plan to increase its refining capacity to 10 million liters per day by the end of January 2016 to help end the country’s critical fuel crisis.

Nigeria has been crippled by fuel shortages that hit the country for the first time nearly a year ago, before the elections in March 2015. Although Nigeria is the largest oil producer in Africa, the country’s refining capacity is not enough to produce sufficient amounts of fuel, and it has to reply on imports.

Fuel importing is a complicated process in Nigeria: importers become state subsidies from the state-owned Nigerian National Petroleum Corporation. The government adopted the subsidizing scheme to decrease fuel price pressure on the Nigerian population. However, the system is often criticized to the lack of transparency, corruption and mismanagement.

The new president of Nigeria, Mohammad Buhari, arrived to the office in May 2015 with promises to put an end to a corruption. The new president stuck to the law in the procedure of subsidy payments, and did not allow the government proceed without parliamentary approval.

That turned out to be a problem for fuel importers, because payments were delayed. Importers reacted with strikes and delayed fuel deliveries. As a result, the Africa’s largest economy was almost brought to standstill. Fuel prices on black market skyrocketed. Transport, industrial production and even banking and mobile services were put on hold, because they were not able to power their businesses.

In January 2016, Managing Director of International Monetary Fund (IMF) Christine Lagarde visited Nigeria. Lagarde insisted that the subsidy system was harmful for the economy of Nigeria and that benefits of subsidies for the poor are not as big as it was believed to be by previous governments. She called for complete deregulation of petrol prices and removal of fuel import subsidies.

”Let the market decide“ – the same advice given to Buhari by the World Bank’s lead economist, John Litwack, at the recent launch of the Nigeria Economic Report in December 2015. Litwack added that now is the best moment to cancel the subsidies as the oil price is at a low, and thus it would not negatively impact Nigerian population as much as it would if prices were higher.

In the meantime, the Nigerian National Petroleum Corporation announced that a combined daily production at three largest refineries reached 6.76 million liters per day. By the end of January 2016, the state corporation plans to increase their refining capacity to over 10 million liters per day.

Private investors are also working to increase Nigeria’s refining capacity. For example, Dangote Oil Refinery Company Limited is building a refinery near Lagos that should be launched by December 2017.

Domestic refining is seen by many as a possible way out from the country’s dependency on fuel importers, and as a best solution to the current fuel crisis. Removal of fuel subsidies is also on the agenda of the new government. The minister of transportation said in his recent interview, that the subsidy is not included in the 2016 budget. However, the government is careful in making any official statements, as a previous attempt to remove the subsidies in January 2012 led to the country-wide protest movement #OccupyNigeria.

Image source: EPA

COMMENTS

WORDPRESS: 0
DISQUS: 0