Why There Are No Easy Answers to Nigeria’s Ongoing Fuel Scarcity Crisis

During periods of fuel scarcity, black market operators like Yemi offer a more expensive alternative to people who don’t want to spend long hours and even days queuing outside petrol stations that might stop selling at any time or never even open in the first place. Only selling in 10-liter batches, Yemi’s prices average ₦950 ($0.60) per liter, which is about ₦100 ($0.062) more than the pump price in the (closed) petrol stations nearby.

Earlier this week, Nigerians woke up to find out that the NNPCL had increased the pump price of petrol by about 40 percent, just over a year after President Bola Tinubu scrapped fuel subsidies and raised petrol prices by nearly three times its former price. Tinubu’s increase played an integral role in skyrocketing inflation and a cost of living crisis that could be worsened by the new hike, even now that Nigerians can’t readily access the commodity.

“We have how we hustle our own fuel,” Yemi tells OkayAfrica, refusing to elaborate more on the source of his fuel supply during this current wave of scarcity. “No be new thing,” he adds in Pidgin English, referring to the recent regular periods of fuel scarcity in Nigeria that dates back to late 2022. “We can’t sell for normal price because we will make profit and we use the current price to gauge our own price.”

On Thursday, an NNPCL executive said that petrol prices are “now determined by market forces rather than by the government or NNPCL.” Those market forces are highly reliant on the exchange rate, as Nigeria, an oil-rich country, doesn’t refine its own crude oil and imports its petroleum products. Although the president nominally removed the fuel subsidy, it was widely reported that NNPCL and the government were still paying subsidies at the increased price.

It seems the government and the corporation now want to pass on the full price of imported petrol to Nigerians. According to Global Petrol Prices, the average price of fuel is $1.31 per liter, which is about ₦2,000 — not including import duties and other logistics costs. It means that, even at the current price of ₦855, Nigerians still aren’t paying up to half the global average price, which could mean that subsidy is still in play somewhere.

This lack of transparency adds an element of inconsistency to the uncertainty of petrol availability in Nigeria. For example, after initially debunking reports about owing oil traders nearly $7 billion, NNPCL finally acknowledged earlier this week that it is “facing financial strain” as it struggles to pay petrol suppliers, which is the cause of the bouts of fuel scarcity in these past months. This is also following an announcement from mid-August that the corporation recorded ₦3.3 trillion (over $2 billion) in net profit in 2023.

As well as being the federal regulator, NNPCL is the sole importer of petroleum products, which means it is overwhelmingly responsible for Nigeria’s longstanding fuel crisis. As part of its duties, the corporation is responsible for the oil infrastructure in the country, which includes pipelines that are regularly stolen from and vandalized, as well as four refineries that are non-functional for reasons that aren’t clear to Nigerians.

In an ideal world, Nigeria would be refining its own crude oil, enabling it to localize production that would lead to far more affordable prices for fuel and other petroleum products. Earlier this year, the government said one of the two refineries in Port Harcourt would be up and running by June this year. That never happened and there has been no timeline update since.

Launched in a ceremony attended by former President Muhammadu Buhari back in May 2023, Dangote Refinery, owned by the popular businessman Aliko Dangote, indicated its readiness to start delivering petrol domestically at the beginning of the week. A local refinery finally able to deliver petrol will definitely increase availability but there have been complicating factors.

Not too long ago, Dangote came out in a series of interviews to vent his frustrations with the government and NNPCL. A major part of that was due to his refinery not being readily supplied crude oil locally, as Dangote alleged that NNPCL and several high-powered individuals were not in favor of his looming disruption of the current system of importing petrol. He also said that NNPCL failed to pay the rest of its proposed 20 percent stake in the refinery, and now only has a 7.2 percent stake.

The public comments prompted the government’s response that it would sell crude oil in naira to Dangote, while the refinery owner said the price of its fuel would be determined by the federal government, in what would probably have been a subsidy arrangement. However, Bloombergreports that the government is looking to allow Dangote to set the prices of its own petrol.

Ideally, this should be good news for Nigerians, but again the lack of clarity as to how much Dangote is buying crude from the Nigerian government doesn’t offer a good projection. Without a big stake in the refinery, and with Nigeria being a member of the Organization of Petroleum Exporting Countries (OPEC), there’s little incentive for NNPCL to sell crude oil to Dangote Refinery at a lower price than stipulated by OPEC.

This means that the locally refined petrol by Dangote Refinery may still need to be subsidized for Nigerians to purchase at a price that matches their economic capacity.

There’s also the matter of Dangote as a business entity. Alleged to be in an unholy alliance with whichever Nigerian government is in charge, it’s been said that Dangote favors monopoly, which he optimizes to make the greatest profits possible. For example, his flagship product, cement, earned him a fortune by operating an incredibly high profit margin, despite not being one of the top leading cement manufacturers in the world. No one can call him an altruistic entity.

Having invested $19.4 billion in the refinery, the businessman would definitely want to ensure his biggest project yet starts delivering returns soon. This could mean, without an arrangement with the federal government, Dangote setting his own prices after buying crude oil at the standard price will likely result in a higher price for his product than the recently raised pump price.

“The only solution for Dangote is to get the refinery’s products out of Nigeria as fast as he can and sell them to people who can actually afford to pay for them,” author and economic analyst Feyi Fawehinmiwrote in an op-ed during Dangote’s outbursts, citing that Nigerians are used to buying petrol at below market prices due to purchasing ability and reliance on government subsidies.

Fawehinmi added: “The sooner the Nigerian government and Dangote sit down together…and map an export strategy for the refinery’s products, the better for everyone involved.”