The Lubricant Producers Association of Nigeria asked the countrys government to raise the tariff on imported finished lubricants to 50 percent to protect local blenders. Opponents contended the increase would hurt lubricants importers, noting that the current 30 percent tariff forced many companies out of the market when first implemented.
We write to request the increase in tariff on imported finished lubricants from its current 30 percent to 50 percent; we also request the effectual implementation and enhancement of the enforcement procedure of the proposed increment, Lupan stated in a Jan. 19 letter to the director of the Industrial Development Department, which is part of Nigerias federal Ministry for Industry, Trade and Development.
Lupan Executive Secretary Emeka Obidike told Lube Report in a telephone interview that the association demands the tariff hike to protect domestic blenders.
We cannot stop asking government to create for us an enabling environment. We cannot stop asking government to do the right thing as far as we have the capacity to sustain the local market and even export to the sub-region. It is normal for us to ask the government to protect businesses where it has local strength, Obidike said.
Obidike explained that other countries within the Economic Community of West African States sub-region protect their lubricant markets against imports. ECOWAS is an economic union of 15 countries.
There are some tiny countries in West Africa, Obidike said. In spite of the so-called ECOWAS protocol arrangement, when our members export to these countries, their local governments go beyond rhetoric to protect local businesses, especially areas where they have local capacity. So it is the duty of the Nigerian government to protect any area where they have an advantage. In lubricants, we have the capacity to sustain the local market and even exports, so it is normal and natural that the government should do anything necessary to protect local businesses in this area.
He added, Dont forget that lubricant blenders employ basically Nigerians and help to reduce the rate of unemployment in the country. You may not know the number of people employed under this lubricant sub-sector, but if you apply only one major road in the country and you look at the number of people [selling] lubricants, you will find out that the sector employs thousands of people directly and indirectly.
Demola Wahab, CEO of First Response Ltd., which has been involved in the importation of Cepsa lubricants from Spain, told Lube Report that if the federal government accedes to Lupans demand for an increasd tariff, it will not be good for my business.
Wahab explained that when the tariff on finished lubes was increased to 30 percent, it resulted in loss of revenues for importers and compelled many to leave the business. However, he added that later some developments in the local market caused prices to spike, making lubricant importing attractive again.
When the tariff was increased to 30 percent, sales [of imported lubricants] dropped. A lot of people could not buy it again. It dropped the sales by something around 50 percent, but later it seems like the price of the local lubes went up, and it was almost at par with that of imported finished lubes. The price difference was insignificant, and sales of imported finished lubes increased, Wahab said.
Emmanuel Ekpenyong, operations manager for Puma Energy Nigeria, said that Lupans demand for an increased tariff on imported lubes is a welcome development because so much of Nigerias lubricant blending capacity remains idle due to lack of local demand. It is hoped that this will deter importers of finished lubes from importing blended lubes from the [United Arab Emirates], Turkey and other countries into Nigeria, Ekpenyong said, emphasizing that it will help boost capacity utilization of the lubricant blenders who are battling to save their investments and jobs.
However, Ekpenyong added a proviso that the tariff hike should not apply to specialty lubes such as transformer oils and synthetic lubes that cannot be manufactured in the country due to the absence of [blending plant] technology; otherwise, it would make specialized lubes too expensive.
While Taiye Williams, managing director of Lubcon International Ltd., acknowledged that specialty lubes could be excused from the tariff hike, he added that there is no excuse for importing passenger car motor oil into the country because Nigeria has excess local blending plant production capacity for that segment of the lubricant market.
On the other hand, Harry Christopher, operations manager for Goje Oil and Lubricant Ltd., which imports petrochemical products, noted that the hike may not be a good development for importers of finished lubes because of the difficulty involved in sourcing foreign exchange in the country.