The lack of functional refineries has meant continuous importation of refined petroleum for Nigeria. For instance, Nigeria spent 37.9 billion dollars to import refined petrol between 2015 and 2019.
Already, refined petroleum takes the largest chunk of Nigeria’s import bill. Between 2015 and 2019, Nigeria’s total import value stood at $220.2 billion. In the same period, refined petroleum imports contributed $37.85 billion.
This is almost 17 percent (16.91%) of the total import value.
An analysis of the data on product importation by Nigeria revealed that almost 17 out of every 100 dollars spent by Nigeria companies on product imports is spent on refined petroleum.
The Heavy Burden of Petrol Imports
Trade data from the National Bureau of Statistics reveals that without importing refined petroleum, Nigeria’s product imports will reduce significantly. In 2019 for instance, the country’s negative balance of trade reduced by 44.4% when refined petroleum imports were not considered. The sizable reduction could help the country in its quest to achieve a positive balance of trade.
Functional local refineries would mean Nigeria would not have to import petroleum to meet its local daily consumption put at 65.7 million litres per day.
For instance, if the NNPC’s four refineries worked to their full capacity, they would be able to refine 66.36 million litres based on their potential 395,000 barrels refining capacity.
All things being equal, each refined barrel will produce between 168 and 170 litres of petrol. Therefore, with the 66.36 million litres refining capacity, the four refineries can produce enough to cater to the 65.7 million litres daily consumption of the country.
That’s zero dollars spent on petrol importation in an ideal scenario.
The high landing costs of petrol and unfavourable foreign exchange also impacts on the countries’ subsidy regime. Increase in the subsidy bill has not only been due to rise in crude oil prices but largely due to import of refined petroleum.
In 2022, the payment of subsidy is expected to gulp the sum of N3 trillion. There are concerns already that there may be a need to spend more. In the last 10 years, at least N6.075 trillion have been spent on subsidies.
Impact on FOREX, Naira Stability
The burden of refined crude oil importation has implications for the rising and falling of naira with respect to its exchange to the dollar.
The weakened naira means increasing landing costs of petroleum products in the country.
PetroleumImports have been blamed for putting pressure on the naira due to the high demand for foreign exchange. Last year, the governor of the Central Bank of Nigeria, Emefiele Godwin was quoted as lamenting the spending of 40% of the country’s FOREX on petrol import.
Dollar is the defacto global currency and as of today it exchanges at 415.90 to a naira.
Working refineries could reduce the demand for foreign exchange and potentially help in stabilising the local currency although there are other critical factors required to stabilise the naira.
What is Nigeria’s Refinery Resurgence Plan?
Already, the country has registered its petroleum sector regulator (NNPC) as a company, signalling its intent to commercialise its operations.
Nigeria is also banking on the Dangote refinery with a capacity of 650,000 barrels per day to boost local production of refined petroleum.
The NNPC announced in 2021, that it spent N100 billion to rehabilitate refineries although the refineries have yet to bridge the gap on refined petroleum products despite the investments.Just recently, the country imported ‘dirty fuel’, a development that has led to fuel scarcity which is still ongoing in some parts of the country.