THE BLOG
08/06/2015 12:36 BST | Updated 05/06/2016 06:59 BST

Pipe Dreams? Buhari and Nigeria's Fuel Crisis

In the weeks before incoming President Muhammadu Buhari's inauguration, one of Nigeria's biggest political challenges became highly visible on the streets of Abuja and Lagos. Snaking queues for fuel at Total and Mobil petrol stations. Touts selling ubiquitous yellow jerry cans at inflated prices. People sleeping in cars to be on time for occasional tanker deliveries. These images came to emblemize the early stages of Nigeria's fuel crisis. But less discussed is the longer-term prospects for fuel and energy in West Africa's most economically influential state. Can Buhari pour oil on troubled waters?

The shortage of petrol itself has been caused by the government's recent announcement of plans to end subsidy payments for fuel, prompting local import marketers to close depots. According to the wholesalers, they are still owed around $1 billion in defaulted payments by the government. Under the historic subsidy regimes, these payments represented the difference between Nigeria's capped price for petrol and kerosene and the amount for which it is bought on international markets.

Following emergency talks with the Finance Minister days before the inauguration, the depots have reopened and the taps turned back on. But serious issues still haunt Nigeria's fuel sector, beginning with the position of the wholesalers. Questions have already been raised by the outgoing Jonathan administration about amount claimed to be owed to the oil importers, which may have been inflated with fraudulent bills. By the time this is resolved, it is possible that supplies may be cut off again as an industry bargaining chip. Finally, it may take some time for wholesalers to adjust more generally to the slash in subsidy payments. If the import and sale of oil from international markets becomes significantly less profitable, Nigerians may face fresh shortages as well as price fluctuations in their efforts to keep on the road.

Recent shortages have been framed, along with military progress against Boko Haram, as the litmus test of President Buhari's early period in office. In his inaugural address delivered last week (29 May), Nigeria's new premier acknowledged the extent of these challenges for his office, describing fuel and power shortages as "hitherto unending and seemingly impossible" before assuring Nigerians of his ability to fix the problems.

To say that Buhari has been left with a bad fuel legacy is an understatement. Goodluck Jonathan's track record in restructuring the sector will be a major impediment in the attempt to plug the holes and grease the wheels of reform. In 2012, for example, he proved unable to reverse the hugely costly subsidies when Nigerians took to the streets and social media under the #OccupyNigeria protest banner. Little has been achieved in recent years on developing Nigeria's miniscule refinery sector, meaning that sub-Saharan Africa's biggest crude oil producer remains dependent on imports for the vast majority of its developed oil products. Even less progress has been made on the now notorious Petroleum Industry Bill, left to gather dust for five years while the sector has struggled with questionable regulatory standards, endemic corruption and oil theft.

Many of the problems also extend beyond the new president's control. There are fears that the cuts to oil subsidy payments, while they would alleviate some of the strain on Nigeria's economy, have been mistimed. Predicting oil prices changes is an inexact science at the best of times. But a serious hike will have a seismic impact on Nigeria's economy and politics, especially if consumers no longer enjoy the cushioning effect of capped prices for petrol. Progress on the PIB, if it gets underway, is also likely to face opposition from investors over its provisions on taxation and the discretionary powers granted to the Minister of Petroleum Resources.

The medium-term outlook is rocky. The urban gridlock, jerry cans and sleep-deprived Nigerians milling outside petrol stations is the best indication of the precariousness of Nigeria's fuel sector today. Buhari and the his APC party can expect to burn the midnight oil to make it work.