Why Kerosene Is So Expensive

One gets the feeling that beyond the unresolved issues of the exact sum spent on kerosene subsidy and the legality or otherwise of the policy, a critical part of the discourse threading through it all is the issue of why kerosene continues to sell above the pump price of N50 per litre.

There is a sense in which this fact should matter to all well-meaning contributors to this discourse. Not just to members of the National Assembly who as accredited representatives of the people are paid to oversee the welfare and comfort of their constituents, especially as elections approach, but to anyone concerned with how public policy impact on the lives of citizens.

It is essential that we get to the bottom of the matter...

A good look at the processes it takes for kerosene gets to the end-user will no doubt help everybody understand why prices remain consistently high despite years of subsidy. In the end, it is clear that however the number of litres supplied and whatever the stipulated pump prize, there will always be people willing to circumvent the system. And these people do not necessarily work for the NNPC or PPMC.>>>>

The first thing to note is the fact that demand for the product is unusually high, far outstripping supply in some instances, even though supply is quite high. And until we can move more people from poverty to the middle-class or other forms of affordable fuel sources, the need for kerosene - as the population continues to grow so fast - will remain uncontrollable giving room for manipulation outside the control of structures put in place to protect the populace.

According to the head of the Pipelines and Products Marketing Company, Mr. Haruna Momoh, the figures for kerosene supply in the respective years show that government has made great efforts to make the product readily available as indicated herein: 2010 (2.5 trillion metric tones); 2011 (1.9 trillion metric tonnes); 2012 (2.6 trillion metric tonnes); and 2013 (2.6 trillion metric tonnes).

But as the man took pains to explain, the job of the agency ended with the bulk supply of the product, and it should not be held responsible for how it reached the end-users. That part of the distribution chain is normally handled by regulatory agencies, which together with the law enforcement agencies should “ensure seamless distribution of kerosene.”

One reason to account for the high price and scarcity of the product despite the metric tonnes supplied annually might be because a good proportion of the product gets diverted to neighbouring countries where the product is not subsidised, to be sold at higher prices. Our porous borders must be better policed if we are to stem the tide of smuggling that seem to grow progressively out of control. No matter how hard the NNPC worked to provide kerosene, as long as the police and custom officials who man our borders continue to remain powerless to these smugglers, we shall continue to have less kerosene to sell to our people and as every student of basic Economics know, the higher the demand, the higher the price.

Moreover, although kerosene is essentially used for cooking by most households, a good deal of it is also used for road construction as well as aviation fuel. Then there is the ever-present scourge of vandals who damage pipelines with their bunkering. Their constant interruption of the supply chain has had less than salubrious effect on the whole process of kerosene supply.

During the question and answer session at the sitting of the House committee recently, members showed data from the National Bureau of statistics, which implied that there is no evidence that the quantity of products quoted was consumed in the country. As usual, this data is not complete because they fail to take some other factors into consideration, including as we have pointed out, the quantity diverted, those stolen from pipelines, those used for road construction and those smuggled out.

A subsidy policy that attempts to make a popular commodity like kerosene, used by most households, affordable for the masses cannot be wrong. What is wrong is for the loopholes in the logistical chain to dampen the lofty efforts by the government alleviate the suffering of the low-income masses. The debate should not be about why there is or isn’t a subsidy but what can we do as a body responsible for the well-being of the masses to plug the holes – provide better fiscal and regulatory structures to ensure the system of monitoring pump price is ramped-up; smuggling is dealt with and a good push to move the populace onto other forms of cheaper fuel sources, are put in place.

I heard Mr. Haruna Momoh say this a few times at the hearing but the clutter and noise of political wrangling seemed to drown him out and block ears. I say lets dwell on fixing our structures, our supply chains and lets see if the whole country will not benefit from the well-meaning actions by our government. Until we can find the means to make this investment for the future, any monies further spent, recovered or remitted for that matter may well go down the drain.

By Ayo Benjamin

Culled from Olufamous