Nigeria is expected to award fresh gasoline import allocations in March, trade sources said, although a parliamentary investigation into abuse of the fuel subsidy regime is ongoing.
Nigeria currently relies on exchanges of crude oil for gasoline and other products as no new tenders have been allocated since the government’s attempt to remove the fuel subsidy in January. Now traders’ hopes are rising that a fresh allocation is imminent.
“We hear that the PPPRA (Petroleum Products Pricing Regulatory Agency) will award some import allocations in March with the new funds made available in the budget, but it will be restricting the number of companies, and there will be closer monitoring of how the volumes are allotted and filled,” a West African-focused gasoline trader said.
“Maybe we will see some second-quarter allocations but the whole subsidy wrangle won’t be resolved quickly. Certainly nothing is expected to be resolved before April,” said a gasoline broker.
The gasoline market has been awaiting clarity from Nigeria on how the new regime will work since it attempted to remove petrol import subsidies on January 1.
There was more than a week of mass protests against the ensuing sharp rise in fuel costs and the government then partially reinstated subsidies.
As a result of the reinstatement, Nigeria had to revise upwards its outlook for the budget deficit this year, with the subsidy expected to soak up 888 billion naira of the 2012 budget.
The federal government will be giving up 309 billion naira for the subsidies, while the rest will be taken out of spending for state and local government.
“Some funds were found to cover the shortfall, which gives suppliers some security,” a trader said.
The Nigerian parliament is currently investigating abuse of the subsidy system, after uncovering a $4 billion discrepancy between the subsidy paid to importers and the amount of gasoline brought into the country.
Traders said that companies participating in the PPPRA system had been asked to supply documents to prove that they had delivered the product against the amount of subsidy paid.
Nigeria is the largest market for gasoline in West Africa, with consumption estimated at some 20-25 million litres a day.
A major restructuring of the whole process is anticipated but it is not clear whether the market will be fully deregulated by April as initially envisaged.
Instead, an allocation will be made through the PPPRA to meet the country’s gasoline requirements.
“The keystone companies will be awarded larger volumes and the smaller ones will get a bit less,” a trader suggested. “I expect the smaller, ‘briefcase’ companies to fall away.”
European traders said that fixing gasoline cargoes to Nigeria has been difficult over the last few weeks as financing is tricky to obtain.
“The banks are worried they won’t get paid, so traders have to pay up to get the financing,” said a gasoline broker.
Although there have been no official gasoline allocations since the government tried to remove the subsidy, some buying has been seen over the past week.
“We have definitely seen more demand in the past week, so it looks like they are starting to take in oil again,” the broker said.
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