When the Government and the people are ready to take responsibilities for their actions and when they are ready to commit to total transparency in their dealings with each other, it is then and only then will their effort at improving the state of the economy and all social economic factors yield abiding fruits.
Photograph by Deji Yake, EPA
Published April 11, 2014
In the sweltering heat and notorious afternoon rush hour traffic of Lagos, a fight broke out in front of a filling station.
Pedestrians with hand-held gasoline kegs had been jostling for hours alongside the miles-long queue of cars at the Conoil filling station on the Lagos-Ibadan Expressway, when attendants abruptly cut off sales to customers holding containers so they could attend to vehicles.
One customer on foot insisted that he be served. When denied, he slapped the female attendant and began punching her. Several coworkers separated them, and the shaken attendant carried on attending to vehicles. Her attacker marched off, keg in hand, destined for another queue.
It was just another fight over fuel scarcity in Africa’s largest oil-producing country. (See related, “The War for Nigeria.”)
In a nation built on petroleum, where virtually all government revenue is derived from sale of the nation’s massive stores of oil and natural gas, citizens have spent the past eight weeks in a rolling energy crisis. The scene, witnessed in late March, has been repeated again and again at filling stations across Lagos and increasingly, the rest of the country, since early February. As news of the scarcity spreads, long lines begin to form at filling stations as people seek to stock up on fuel both for cars and for home and business generators that are the only reliable source of power. (See related, “Nigeria’s Solar Projects Yield Both Failure and Success.”)
The government blames fuel middlemen for hoarding. Citizens blame the government for mismanagement and corruption that have engendered mistrust. Whatever the reasons, the fuel woes underscore the difficulty Nigeria has faced in turning its vast natural resources into a source of prosperity. (See related, “Five Surprising Facts About Energy Poverty.”)
Crude Rich, Fuel Poor
Since oil was first discovered in Nigeria in 1956, more than 600 fields have been tapped in the swamps of the Niger Delta and offshore. The state-owned oil company, Nigerian National Petroleum Company (NNPC), operates as majority shareholder in joint ventures with international oil companies like Shell,* Chevron, and Total. Crude production is about 2.5 million barrels per day, making Nigeria Africa’s leading oil state and among the top 10 producers in the world.
But oil production has only recently recovered from the militant group strife that caused a dramatic drop-off after 2005. And the nation has been shaken by accusations from Nigeria’s central bank that NNPC has misappropriated some $20 billion in funds from sales of crude oil in 2012 and 2013.
Add to the corruption charges problems with aging infrastructure and poor maintenance that have resulted in numerous oil spills. And “bunkering,” or oil theft, is rampant, resulting in pipeline damage, more spills, and losses of likely 500,000 barrels per day of crude.
But the primary reason that oil-rich Nigeria is fuel-short is because the few domestic refineries here are antiquated. Most of the crude oil that Nigeria produces is exported, while refined products like motor fuel and diesel have to be imported. Nigeria’s history, in fact, has been marked by fuel shortages, especially in the 1980s and 1990s during military rule, but most recently in 2003, 2005, 2008, 2012, and 2013.
The genesis of the recent woes appears to be the government’s decision to reduce the generous subsidy for imported fuel in 2012. (See related, “Nigeria’s Rocky Effort to Wean Itself From Subsidized Fuel.”) The subsidy kept fuel prices low for Nigerian consumers, but was costly for the government. And, as in many oil-producing countries with high fossil fuel subsidies, it encouraged wasteful fuel consumption. (See related Quiz: What You Don’t Know About Energy Subsidies and “Pictures: Eleven Nations With Large Fossil Fuel Subsidies.”)
As part of its program to reduce subsidies, Nigeria’s government limited licenses given to importers and independent marketers, and the marketers say that the government’s distribution of permits early this year was delayed, creating a supply bottleneck. But NNPC, to the contrary, says the blame lies with the marketers for keeping supplies short in hope of reaping profit from higher prices. (See Interactive World Map of fossil fuel subsidies.)
“The tightness in the petroleum products supply chain is a result of hoarding and diversion of the products by marketers,” in anticipation of a hike in the official price of petrol, Diezani Alison-Madueke, minister of petroleum resources and chairman of the board of NNPC, said at a recent budget meeting in Abuja.
In the past, fuel scarcities have been precipitated by tanker driver strikes, panic buying in fear of shortages, rationing by petrol depots and dealers ahead of an official price hike, striking oil workers, in-country refinery failures, fears of the Iraq War, and even government manipulation. So, after years of regular fuel shortages and broken promises, Nigerians fully blame the government.
“I don’t care what they say, it’s the government’s fault, it’s always their fault,” Jumoke Akinrodoye, managing director of the Conoil Megastation in Alausa.
Akinrodoye was speaking not only as a fuel seller, but as an aggrieved consumer in a country where people spend $9 million each year on fuel for personal generators because of a deeply unreliable national power supply system.
“If I had to go home without this fuel I would be miserable,” said Akinrodoye, loading petrol-laden kegs into the trunk of her car. “That means I would have to use flashlights or candles at home, we wouldn’t be able to pump water, or iron clothes. There would be no microwave to defrost the food we’re forced to store in the freezer because of electricity that’s on and off,” she said. “That’s a miserable life.” (See related story: "The Solvable Problem of Energy Poverty.")
Here in Lagos, lines start forming in the early evening after stations close at unusually early hours—between 3 and 5 p.m. Motorists leave their cars in queues that go on for miles down major highways, further snarling already terrible traffic and creating gridlock that lasts hours into the night. Drivers return to their vehicles between 5 and 6 a.m. and wait for stations to disseminate their limited supply. Patience wears thin over the hours.
“Ever since the scarcity in January 2012 I learned my lesson,” said Lawrence Oguntoyinbo of the Ojudu/Berga area of Lagos, as he waited in line.
“I was on my last quarter of a tank then and had to wait six hours to pump, and when it was my turn there was no more fuel,” he said. “Since then, my policy is if there’s a half-tank, I’m stopping and filling up.”
In local press reports, people complain that gasoline is being sold for as high as 160 naira per liter, the equivalent of $3.68 per gallon. Although that is nearly 65 percent higher than the nation’s “official price” for fuel, it is about equivalent to what consumers in the United States have been paying for gasoline. But energy costs are a hardship where half the population lives on less than $1 per day. Nigeria ranks third behind China and India in number of people living in poverty, with 23.9 million people jobless.
Back Payments Due
As a short-term fix for the problem, NNPC says it released 956.5 million liters (252.7 million gallons) from its reserves.
In addition, the Independent Petroleum Marketers Association of Nigeria (IPMAN) vowed to penalize anyone hoarding fuel. And the federal government insisted there would be no official hike in petrol prices—presumably removing any incentive for marketers to hoard in anticipation of higher future prices.
But the problems are complex. According to IPMAN President Abdullah Aminu, the federal government budgeted 888 billion naira ($5.55 billion) for fuel subsidies this year, but it has already spent 451 billion naira ($2.8 billion) on back payments, more than double what it had expected to pay.
As a result of nonpayment from the government, it has become increasingly difficult for importers, especially independent ones, to purchase new supply. Creditworthiness became an issue for them in 2012, and now many can’t finance new orders.
A new 4.7 trillion naira ($29.2 billion) national budget passed this week by the Nigeria National Assembly includes 971 billion naira ($6 billion) for subsidy payments. The budget does not provide for fully paying the back payments due to importers, but it likely could ease the shortages within the next couple of weeks, analysts say.
“Clearly the relationship with independent marketers needs to be properly managed,” said Dolapo Oni, energy analyst for Ecobank, a pan-African financial services provider, in a phone interview. “Subsidies [account] for almost half of their income and the government reduced that. But, the government relies on them to move supply through the country; it’s poor supply chain management.”
Nigeria tops African development indices, and has been lauded recently for addressing challenges that were slowing its growth, namely in agriculture. Just this week, Nigeria overtook South Africa as the largest economy on the continent with a rebase of its GDP, putting its economy size near Thailand and Austria’s. But as the economy grows, the question remains: Will the government finally address its energy woes?
Analysts say it’s unlikely, at least for now. Oni believes that deregulation of the system would help, with competition bringing prices down. But officials are distracted by multiple issues, including allegations of NNPC misappropriation of oil wealth.
“If you look at what’s going on right now, the petrol ministry still has a lot of issues to deal with, like privatization of refineries and subsidies, so I’m not sure they’re giving this as much attention as it should be given,” Oni said. “They’re distracted, so there’s not much that can really be done about this right now in terms of finding a long-term solution.” (See interactive map, “Four Ways to Look at Carbon Footprints.”)
Editor's note: An earlier version of this story had incorrect budget figures. The budget figures for subsidy payments have been corrected.
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