A decade ago, plodding in the early December heat, we navigated the winding road towards Eko Bridge, not far from the busy Lagos Lagoon near Apapa port. It became clear that this area was the economic centre of it all, with all of the vibrancy of Nigeria and its many triumphs and tragedies.
In bumper-to-bumper traffic it became clear to all of us how important oil was here. In the air-conditioned Japanese sedan a colleague and I marvelled at how busy it all was, with all manner of people eking out a living — making room for themselves where no room had been intended for them.
Some fuel retailers would close in the evenings, yet this place functioned all night: many air-conditioned cars, okadas (motorcycle taxis), tanker trucks; the generators that hummed and street food stoves that burnt up the refined stuff.
I was reminded of this experience as the challenges around the removal of fuel subsidies in the continent’s most populous nation gathered steam, coinciding with a landmark change in the more than six-decade relationship Nigeria has had with oil: the introduction of Aliko Dangote’s 650,000 barrel-a-day refinery.
Subsidies on the refined product sold to the public are nearly double the annual federal health budget. The country generates more than three-quarters of its foreign exchange from crude exports, while paradoxically it imports all its refined fuel requirements. A third of Nigeria’s total import bill is refined fuel.
It is the price and budgetary volatility (and unpredictable foreign exchange demand) associated with this arrangement that makes every unit of dollar and other foreign exchange a matter of deep public scrutiny and control.
Last week the authorities allowed the facility built by Dangote for $20bn to sell at “market” prices. As one might imagine, the road to getting the facility to produce required considerable importation of plant, equipment and other services in non-naira currency. Forex demand on this scale may be why the anti-corruption probe around the misuse of foreign exchange cropped up, with some alleging he was “burning through” the West African nation’s foreign exchange reserves at a rate that caused alarm for some interests embedded in Nigeria’s import reliance for consumer goods.
Dangote is initially positioned to export two-fifths of the production from the refinery, which may offset some of these concerns. The project has also had to contend with allegations of inferior quality, which the company and its founder have sought to clarify publicly.
Inevitably, any change of this sort will be accompanied by resistance from entrenched economic interests, including from downstream importers, mark-up deriving intermediaries and the consuming public. Recent reports have suggested a more than 40% increase in pump prices arising from the end of Abuja’s $10bn a year subsidies. Public frustration coalesced and reignited cost-of-living protests last month, similar to those seen earlier in the year.
A Nigerian publication reported on Saturday that the state oil company, Nigerian National Petroleum Company (NNPC), had to face long snaking queues at its depots across the country after its default on supply agreements with fuel traders — queues mirrored by those seen at fuel retailers. The Trade Union Congress lamented the real wage losses associated with the rising fuel costs after it alleged that the deal it had struck with the government was premised on a freeze on petrol prices and the reversal of electricity price hikes.
As the NNPC tries to come to terms with its creditors over a $6bn bill, it hopes to collect its first refined products from Dangote on September 15and to be settled in the same naira with which Dangote’s refinery buys the crude raw material from the NNPC. Until then the many oil tankers waiting to load at NNPC’s depots in Apapa and Port Harcourt will continue to wait.
What is set to come seems increasingly ominous. One can only hope the difficult peace will last until Sunday.
• Cawe is chief commissioner at the International Trade Administration Commission. He writes in his personal capacity.
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