Page 6 - DMEA Week 07 2022

DMEA COMMENTARY DMEA

Gasoline shortages and

unexpected consequences

Nigeria’s attempt to avoid labour unrest and consumer discontent
by keeping the gasoline subsidy in place indefinitely backfires.

AFRICA NIGERIA’S presidential administration recently unacceptably high levels of methanol. Subse-
managed to avert a confrontation with labour quently, NNPC’s Pipelines Product Marketing
unions by abandoning its plans to eliminate sub- Co. (PPMC) subsidiary began working to recall
WHAT: sidies for domestic gasoline prices. the gasoline, keep it out of the domestic market
Nigeria has been These subsidies do represent a huge finan- and return it to the original supplier.
experiencing widespread cial burden, as they have reportedly been cost- Nevertheless, some of the contaminated fuel
gasoline shortages ing Abuja about NGN243bn ($584mn) each made its way onto the local market. The Nige-
following the arrival of month, or nearly NGN3 trillion ($7.21bn) per rian Midstream and Downstream Petroleum
contaminated import year. However, they are politically popular, as Regulatory Authority (NMDPRA) did attempt
cargoes. they keep gasoline prices far below world mar- to isolate these volumes and remove them from
ket levels. distribution networks, but its efforts had an
WHY: As such, the federal government has been impact on efforts to keep Nigerian filling stations
The supply disruptions reluctant to commit to scrapping them, as rec- supplied.
are occurring in the wake ommended by international financial institu- As a result, many retail fuel sellers began run-
of disputes over the fate tions (IFIs) such as the World Bank. ning short last week, and the supply problems
of domestic gasoline That reluctance led President Muhammadu persisted through the weekend and into this
price subsidies. Buhari and his supporters in the Senate to decide week.
in late January that subsidies would remain in
WHAT NEXT: place indefinitely rather than being eliminated LITASCO’s role
Abuja is now facing in mid-2022 as previously announced. This Meanwhile, NNPC issued a statement on Feb-
problems similar to those move allowed the country to defuse the threat ruary 10 naming four of the companies that had
it was trying to avoid by of a nationwide strike by an umbrella organisa- supplied the contaminated gasoline.
keeping the subsidies in tions representing many of the country’s labour In the statement, it identified the firms as
place – namely, labour unions. MRS, Oando, the Emadeb/Hyde/AY Maikifi/
unrest and unstable fuel As such, the Buhari administration should Brittania-U Consortium and Duke Oil. (The
prices. have been able to breathe a sigh of relief, secure fourth is a subsidiary of state-owned NNPC, it
in its knowledge that it was not about to see cit- noted.) It also reported that all four of the com-
izens take to the streets to complain about the panies had loaded their tankers with gasoline
cost of gasoline. But it has not managed to do at the LITASCO terminal in the Belgian port of
that. Instead, it has had to address a different Antwerp.
problem in the downstream sector – a supply NNPC’s suspicions of LITASCO appear to
crunch. run even deeper. Reuters reported at the week-
end that the state-run company had prevented
Unfortunate timing two tankers that had loaded up with gasoline
As previously reported, the problem became evi- in Antwerp from landing and discharging their
dent earlier this month. Nigerian press sources cargo in Lagos, owing to concerns about the pos-
began experiencing supply disruptions follow- sibility that they might be carrying contaminated
ing the federal government’s decision to retain fuel.
subsidies for domestic gasoline prices, especially Citing ship tracking data from Refinitiv Eikon
in and around the cities of Lagos and Abuja. and other sources, the news agency named the
The shortages did not arise because of the two tankers that were turned away as the STI
subsidy. Instead, they appear to be the result of Symphony and Velos Diamantis. It said the for-
an unfortunately timed arrival of about 100mn mer vessel had been chartered by LITASCO on
litres of contaminated gasoline in Nigerian ports. January 15 to deliver 90,000 tonnes of gasoline to
The fuel was imported by state-owned Nigerian West Africa. The STI Symphony loaded up with
National Petroleum Corp. (NNPC) on behalf of gasoline at Antwerp on January 22 and then left
local fuel firms working under the Direct-Sale- port, listing Lagos as its destination. However,
Direct-Purchase (DSDP) programme. it changed course off the coast of Guinea after
After its arrival in Nigeria, NNPC inspec- receiving new instructions from NNPC, which
tors determined that the gasoline contained has a monopoly on fuel imports in Nigeria, and

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