A second economy: How the grounding fuel scarcity in Nigeria has been averted


The month of July was expected to be a nightmare for Nigerians as the scare of long queues at fuel stations, longer hours in traffic, and spending double on daily expenses gathered momentum. It brought back the awful memories of the recent month-long fuel scarcity in May, one that doubled (in some cities quadrupled) the price of the then-scarce petrol, forced corporate offices to temporarily close shop and crippled smaller businesses.

The renewed fear was fuelled by Austin Avuru, the CEO of Seplat, who in June told Nigerians to brace up for acute fuel scarcity this month, as the tussle between the government and oil marketers looked likely to linger. He confirmed then that the government did not have enough money to pay for fuel subsidy, which at the time had hit N2 billion per day. “In three weeks, we will be back to scarcity because we simply don’t have the money to pay for the subsidy.”

Those fears have now been dashed as the government has agreed to pay the outstanding subsidy claims. A report by Reuters confirmed that the Nigerian government agreed on Wednesday to pay outstanding subsidy related debt to oil product importers, which had accumulated to $800 million. “They agreed to pay the remaining balance last week,” said Yakubu Suleiman, spokesman for the Independent Petroleum Marketers Association of Nigeria. “Nothing has come yet but maybe this or next week.”

Calls for the new government to end the subsidy regime, which has become too expensive for an economy that has seen its annual revenue trimmed by the current global oil crisis, have left many marketers unwilling to sink funds into fresh importation as the Nigerian downstream market remains heavily regulated.

As of early July, queues at petrol stations—which disappeared last month—have been reappearing across major Nigerian cities such as Abuja and Lagos, as locals scramble to fill up their cars and jerry-cans (for their power generator tanks) in preparation for a “difficult period.”  The current panic, which was gradually intensifying over the last week, is expected to subside with this announcement.

However, with the country’s treasuries rapidly shrinking and its revenue shrunken by the 40 percent drop in global crude prices, sustaining subsidy payments for a bulk of the 40 million litres of fuel consumed daily may prove a tall order for the cash-strapped government of Africa’s largest economy.

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