The week ahead – Sticky business

14th July 2023

Nigeria’s daily petrol usage dropped by 28% after President Tinubu eliminated fuel subsidies in May. Data from the industry regulator showed that average daily consumption decreased from the previous average of 66.9 million litres to 48.43 million litres in June. Responding to the subsidy removal, state chapters of the Nigeria Labour Congress have initiated negotiations with their respective state governments to mitigate the impact, with the national level pledging to ensure that states comply with agreements made. President Tinubu said that the fuel subsidy era has ended, adding that the 2023 budget does not allocate funds for it.

President Tinubu’s abrupt announcement of the removal of the subsidy on petrol importation and consumption dealt a big blow to the domestic demand for it, leading to reduced consumption amongst Nigerians. Petrol prices have risen by up to 250%, forcing many Nigerians to adjust their product usage by reducing unnecessary trips and taxi rides and opting for public transport or carpooling. The subsidy removal also devastated the smuggling racket, which had thrived for five decades due to the incentives provided by selling cheap petrol from Nigeria in neighbouring countries. Noteworthily, petrol prices in Nigeria’s neighbours have been rising alongside Nigeria’s, indicating that the supply lines still depend on Nigerian petrol, indicating that these countries are yet to find alternatives to the Nigerian supply. With the surge in pump prices, petrol smugglers no longer find moving products from Nigeria to these neighbouring countries lucrative. After introducing subsidies to cushion the effect of a quadruple rise in oil prices, the federal government added another layer of price compression to make the cost of supplying petrol uniform and bring the products to the hinterland. Some of the 33,000-litre trucks making these runs spent more than the allotted 10 days on the road that made them qualify for the bridging fund payment, even after they were installed with rediffusion tracking devices. Instead of transferring subsidy payments directly to the pumps from the ports, the government maintained a scheme that favoured the connected elites rather than the poor, resulting in Nigerians subsidising cheap petrol for Nigeriens, Cameroonians and Beninois. The Nigerian government should disregard protests against this policy as seen in Cameroon and the Benin Republic. We expect that the Nigerian National Petroleum Corporation (NNPC) will resume its contribution to the Federation Account Allocation Committee (FAAC) accounts now that it no longer bears the burden of subsidies. Consequently, some FAAC revenues should be allocated to fund higher worker wages. In addition, the Nigerian government must actively seek refineries that can meet local petrol demands to counter the potential negative impacts of floating the naira on businesses and the poor. During the famous 2012 debate that the then-Central Bank Governor Lamido Sanusi attended, he lamented that the country was giving out more forex to oil marketers than it was getting from selling the product in its unrefined form. Between the upstream and the downstream petroleum sectors, as well as the “invisibles” class of forex demand, Nigerian businesses may not find enough dollars in the foreign exchange market, and that will keep the naira devalued. The Tinubu government must prioritise saving dollars by refining all consumed oil. This could strengthen the naira, reduce pressure on the forex market and potentially slow down price increases for businesses, although prices may not go lower than pre-2022 levels.

The Nigerian National Petroleum Corporation (NNPC) said it intercepted a vessel carrying 800,000 litres of stolen crude oil on its way to Cameroon, and it will be destroyed as a deterrent to oil theft. The vessel, MT Tura II, is owned by Holab Marine Services, NNPC said, adding that the vessel has been operating in stealth mode for the last 12 years. In a related development, the Acting Comptroller-General of the Nigeria Customs Service, Adewale Adeniyi, who said petrol smuggling persisted despite subsidy removal, has vowed a heavy clampdown on oil thieves.

It is becoming an annual tradition for Nigeria’s security agencies to discover large vessels operating in the country’s waters to steal crude. During the buildup to the last elections, the rampant theft of crude oil in the Niger Delta became prominent, causing the security agencies and the NNPC to discover illegal pipelines, refineries and badges suddenly. In August, Equatorial Guinea detained an oil tanker capable of carrying two million barrels after it attempted to load in Nigeria without proper paperwork. The Nigerian Navy said the Heroic Idun, a Very Large Crude Carrier (VLCC), was attempting to load oil at the Akpo Single Buoy Mooring (SBM) on 8 August without due clearance from state oil company NNPC, and it “resisted arrest” when ordered to stop. The difference between that incident and the one reported this week is that the latest tanker was destroyed. Based on the going rate for Bonny Light on 11 July 2023, the Nigerian government burnt ₦50.62 billion ($62.88 million). That is 8.26% of the country’s wage bill, including the pay of the unthinking officers who considered burning the vessel. The navy and the joint tax force in the Delta, supposed to be on a mission to combat oil theft, have helped to pollute the environment by burning drums that could have been confiscated, purified and sold in the mainstream market. On a closer look, both tankers have local registration and were headed to neighbouring coastal countries, spotlighting that the existing oil-theft syndicates get their legitimacy domestically. Furthermore, the number of years they operated “stealthily” in Nigeria’s waters before being outed can hardly be possible without state complicity. According to a literature of media reports, statements and research, they participate in and benefit from the bunkering they should be curbing. Based on that deduction, it may not be unsurprising that Nigeria’s security forces have a vendetta against the air, ground and waters of the Delta. They probably burn these refined products to cover their tracks in case anyone ever summons the courage to investigate properly. However, while destroying seized tankers without the due process of the law might look to many as destroying evidence, for some others, it probably is because there is no way an oil-thieving vessel of that size could be operating for that long in stealth mode. The rate at which oil theft grew in recent years shows it is an organised crime with backing from the state. Against all odds, we sincerely hope that the Tinubu Administration will follow through with its campaign promise to clamp down on oil theft, as the revenues from crude oil directly correlate with the economic well-being of Nigeria.

The Nigerian National Petroleum Company (NNPC) plans to launch an Initial Public Offering (IPO) backed by President Tinubu. The company aims to sell shares to the public after announcing its plan in mid-2023. Meanwhile, Nigeria’s crude oil production increased to 1.473 million barrels per day in June, a 3.14% rise from May and a 4.93% rise from the previous year, the upstream regulatory body’s data shows. The average crude oil production for the month was 1.24 million barrels per day, with blended and unblended condensates at 55,088 and 176,030 barrels per day, respectively.

The NNPC is not ready to launch an IPO. The ₦200 billion ($248 million) capitalisation the Ministry of Finance and Petroleum Resources put together to privatise the firm was for show. The company does not know the value of its total assets and the number of subsidiaries it owns. In June, the House of Representatives asked for a full audit of the NNPC’s assets to ascertain its true inventory, liability and market valuation following the naira’s devaluation. That report revealed startling information. From its findings, it deduced that the company’s total assets are worth ₦28 trillion. However, the assets transferred to the newly minted company were worth ₦26 trillion. NNPC’s 2021 audit said its total assets were valued at ₦16+ trillion. That of the National Petroleum Investment Management Services (NAPIMS) for the same period, though, was ₦21+ trillion. In 1988, the NNPC created Duke Oil to grow to trade Nigeria’s oil and gas and reduce the need for middlemen. Over the years, a couple of more firms emerged. They were registered as portfolio companies that do not allegedly remit anything to the federal government. Duke, until today, receives oil from the NNPC and resells it to other middlemen, defeating the purpose of its establishment. During the investigation, the NNPC transmitted records of 21 subsidiaries, while the House estimates that the firm has more than 25 children entities. The basis on which the firm will be valued for an IPO is suspect if these discrepancies exist. Based on 2022 market incentives, PricewaterhouseCoopers (PwC)’s tax head Taiwo Oyedele said the firm should have been valued at $250 billion. With that valuation, the firm should have raised $50 billion from selling 20% of its stake, paid $9.5 billion in taxes and $7.5 billion in dividends. The NNPC has long been accused of being an opaque and corrupt behemoth. Becoming a public company will be a drastic change for the company, and it is difficult to see how this can happen in one year. First, the Petroleum Industry Act must be fully implemented, and the NNPC must cease being an industry regulator. Second, many corporate governance changes will have to be made on the board. Third, the finances of the company should be intensely scrutinised going forward. A key requirement will be transparency around the company’s financial statements, something most industry watchers are looking forward to. Should such an IPO be successful, then it will be very positive for Nigeria as the NNPC will, at last, have a chance of fulfilling its potential. Stakeholders have been expecting this move for a long time, so it is welcome.

Gunmen invaded Zaki Akpuuna and Diom communities of Mbaterem district in the Ukum Local Government Area of Benue State, killing 24 residents. Ukum is one of the three hotspots in the Sankera axis, where bandits suspected to be gang members of the slain Terwase Akwaza, aka Gana, hold sway. Other hotspots are Logo and Katsina-Ala. Similarly, the Miyetti Allah Cattle Breeders Association of Nigeria (MACBAN) reported 15 deaths, the burning of 78 houses and the disappearance of over 2,000 cattle after an alleged invasion of their communities in the Mangu Local Government Area of Plateau State.

In the history of Nigeria’s counterinsurgency operations, one dominant theme stands out: the Nigerian government considers operations against armed groups as successful when the leadership or leaders of those groups are taken out or killed. The government’s smite-the-shepherd approach, despite not completely eliminating threats, has continued to dominate government strategy, with a long list stretching from the Maitatsine Riots of the 1980s to the IPOB saga in the present day. When operatives of the Nigerian military extrajudicially eliminated Terwase “Gana” Akwaza in September 2020, it failed to sustain the momentum by mopping up his lieutenants. Gana’s group responded to his killing in March 2021 by neutralising Terkula Suswam, the younger brother of the former Benue Governor, Gabriel Suswam. This is reminiscent of the evolution of Boko Haram following the murder of its leader, Mohammed Yusuf, by the police in 2009. Furthermore, a 2020 military operation to clear out Islamist group Darul-Salam from Toto local government area in Nasarawa was poorly done, so much so that remnants of the group resurfaced in Kaduna and were implicated in the attack on the Abuja-Kaduna train in March 2022. The 2020 operation in Nasarawa came eleven years after the group was ousted from their home base in Niger State. Gana’s group, which used to pillage the Wukari axis of the Benue-Taraba boundary, simply shifted base and moved to Katsina-Ala where they have been operating freely. They have also been implicated in the ethnic clashes between Tivs in Benue and Jukuns in Taraba. While there has not been a recent reprisal attack against the bandits in Benue, the story has been different in Plateau. The government’s failure to rein in attacks by armed Fulanis has increased calls and sentiments for collective and personal armed self-defence, translating into action. Miyetti Allah’s alarm is unlikely to elicit any public sympathy for the plight of its members who have been accused of being masterminds of the killings in Mangu LGA. This is wrong on all sides, but ultimately, the failure lies with the state. All security failure is state failure, and with successive federal and state governments failing to find a sustainable solution to that particular crisis, all attempts to curb the flow of illegal small arms in conflict areas will be rendered worthless, and more groups will decide that the best way to go about things is self-help. It will not end well.