What another fuel price hike will mean for Nigerians
• Current Pricing Model Not Sustainable, Says LCCI
• Government Has No Reason To Control Price – Fawibe
• Petrol Price Hike Will Have Ripple Effect On The Economy-PHCCIMA
Any change in the pump price of the Petroleum Motor Spirit (PMS) better known as petrol will alter the returning economic indices and relative price stability, renewing a slide in purchasing power of the citizens, experts have warned.
Last Wednesday, the National Bureau of Statistics (NBS) said the inflation rate measured by the Consumer Price Index (CPI) dropped to 15.13 per cent in January, from the 15.37 per cent recorded in December 2017.
The NBS made the disclosure in its CPI Report for January 2018. The CPI, which measures inflation, started the year 2018 increasing by 15.13 per cent (year-on-year) in January 2018.
The following day, the National Economic Council (NEC), made up of state governors and chaired by Vice President Yemi Osinbajo, demanded for “correct” pricing of petrol in the country.
A litre of petrol in the country sells for N145 officiallyeven though the Ministry of Petroleum Resources recently revealed that its landing cost is N177. The product sells for $1.07 (about N385) in neighbouring Chad and Cameroon, and goes for $1.00 (N360) in Benin Republic, the ministry alleged.
The NEC mandated its committee on the forensic audit of revenue accruing into the Federation Account, Excess Crude Account and Consolidated Revenue Fund to interface with the Nigerian National Petroleum Corporation (NNPC) to determine appropriate price for petrol.
But according to experts, as an oil dependent economy that is still at the basic stage in its diversification process, domestic activities are still subject to the influence of crude oil prices, its production level and mostly, the resulting price of petrol.
While the country’s economic indices have been adjudged favourable, with positive outlook in the short term, they further warned that this could only be realised if government keeps the pump price of petrol stable.
In the latest inflation report by the NBS, prices of staple foods, consumed by most Nigerians, and associated with local transportation, remained volatile.
The Managing Director of Afrinvest Securities Limited, Ayodeji Ebo, in the Weekly Market Report, noted that the highest increases recorded in bread and cereal, vegetables, meat, potatoes, yams and other tubers, as well as, fish, milk, egg, among others, are concerns for inflation outcome, and the cost of transportation is associated with their pricing.
“Our near-term inflation outlook remains benign despite the end of a favourable food harvest season – with anticipated negative feedback on food prices going forward, as well as, supply-side constraint in fuel distribution,” he said.
Indeed, the Food Sub Index of the inflation report, moved from 0.58 per cent to 0.87 month-on-month, an indication that beside post-harvest challenges, increase in price of petrol, leading to increase in transportation costs will feed into the items’ pricing model.
The development will also alter the inflation expectations, which at the current level, has held high the interest rate benchmark, causing increased costs of funds across all economic sectors.
“With a negative reordered inflation outcome, all projections of lower interest rate from the first quarter of 2018 will become a mere dream. And the major driver to this mere dream at the moment would be the mismanagement of petroleum pump price,” he said.
“Yes, there is no clear decision on the price now, but stakeholders are not settled, supply is not fully restored and that is also creating confidence crisis. This is subtly feeding into prices now, eroding purchasing power, but will cause a major blow when finally altered,” an economist who pleaded anonymity, said.
The Head of Research at FSDH Merchant Bank, Ayodele Akinwunmi, who
also included the stable price of petrol as one of the conditions that would see a sustained decline in the level of inflation, said it is partly a condition to reduce interest rate.
Expressing optimism in the resurging fundamentals, he pointed out that the combination of the stable petroleum product price and foreign exchange market, drop in inflation rate and monetary policy easing would continue to put a downward pressure on yields on the fixed incomes securities.
“FSDH Research expects the inflation rate to drop to a single digit in June 2018, if there is no adjustment to the price of Premium Motor Spirit and electricity tariff…We expect the inflation rate to average 10.62 per cent in 2018 from an average of 16.55 per cent in 2017,” he said.
The development, he added, “will lead to growth in credits to the private sector, rebound in the activities in the corporate bond market, increase in the issuance of commercial papers and a growth in the equity market.”
However, the pressure from industry players and stakeholders in the face of unending product scarcity seems to suggest that the continuous sale of petrol at the current pump price may no longer be realistic.
Already regulatory agencies are having a field day enforcing the current price as petrol dealers in many parts of the country sell up to N200 and above per litre, even as queues in parts of the country, including Abuja have refused to go away.
Bauchi State Governor, Mohammed Abubakar, while briefing newsmen not long ago said talks were ongoing with the NNPC “with a view to determining the correct price for PMS.”
However, the Chairman and Chief Executive Officer International Energy Services (IES) Ltd, Dr. Diran Fawibe, said that the Federal Government is ignoring the fundamental causes of the current challenges witnessed in the supply of petrol, stressing that, “there is a flaw in the supply system. Let us remove the flaw in the supply system … If we have the available supply of fuel, we should be prepared to pay. We are ready to pay.”
Fawibe, who said that controlled price system would continue to create bitter experiences for consumers, considered it unreasonable for the NNPC alone to be importing fuel when it is incapable of meeting the national demand.
President of the Nigerian Association for Energy Economics (NAEE), Omowumi Iledare, is also of the view that government does not need to create unbearable experiences when situations are avoidable.
He said, “Let’s go and allow private importers to import and sell at the amount that is profitable,” adding that the NNPC may continue to sell at N145 since it has access to dollar and could swap crude for refined product.
For President, South South Chamber of Commerce, Industry, Mines and Agriculture (FOSSCCIMA), Billy Harry, the current administration has demonstrated a total lack of understanding of the workings of the sector, having made series of promises to crash the price of the product.
Harry, who is also an energy analyst said: “If we want to control price then we must have functioning refineries. One gallon of petrol is today selling for $2.19. We import products and if you look at the dynamics of naira to dollar, at N145 per litre, we are far away from the pricing. $2 is about N720, so four litres will be N580. So you can see the disparity.”
He equally expressed worries that increase in the pump price of petrol would affect economic indices considering that most commodities and services are dependent on petrol due to lack of infrastructure. “Remember when you review the pricing higher all the economic indices will go higher. Transportation and food prices will go higher, but salary will remain the same. It is a very difficult situation,” Harry said.
The Lagos Chamber of Commerce and Industry (LCCI), is reiterating the compelling need to review the current policy framework for the petroleum downstream industry, considering the recurring fuel scarcity and possible price adjustment
According to its Director General, Muda Yusuf, government should stop fixing prices and allow private sector operators with capacity to import the commodity and sell.
“The sector should be liberalised. Any private sector operator with capacity should be allowed to do business. If the government wants to create a social window, there is no problem, but liberalisation is the only way out because the current model is not sustainable,” he added.
LCCI President, Babatunde Ruwase, reiterated the director general’s stand saying, “We have concerns over the reluctance of government to liberalise the sector and open it up to private sector participation. The concentration of petroleum products supply in the Nigeria National Petroleum Corporation remains a major cause for concern. The arrangement is an inherent entrenchment of state monopoly in the NNPC to the detriment of private investors.
The Manufacturers Association of Nigeria (MAN) expressed concerns about high energy costs, especially high expenditure on diesel, cost and availability of gas, stating that these costs continue to impact negatively on investors, especially those in the real sector.
“SMEs and some processing companies reported that they spend as much as 20-25per cent of their total operating cost on the provision of alternative power supply and payment to DISCOs,” MAN added.
The Port Harcourt Chamber of Commerce, Industry, Mines and Agriculture (PHCCIMA) is warning that the economy would be adversely affected if government tinkers with the price of petrol.
The President of the chamber, Emi Membere-Otaji, stressed that in the event of any price increase, “the economy will be the worse for it either way. Whether it is Premium Motor Spirit (PMS) alone, or all the gamut of products, the economy will be worse off as prices will go up and all the negative effects would be there.”
He said since crude oil price crashed globally, in civilised countries, the price of refined petroleum products actually came down, but in Nigeria, the story is quite difficult to understand.
Membere-Otaji, therefore urged the government to come up with a more realistic pricing regime instead of subjecting Nigerians to unnecessary hardship particularly Small and Medium Enterprises such as barbers, hairdressers and others, who have to spend several hours in queues to get small fuel to power their small electricity generating plants.
The planned increase in pump price of fuel is totally rejected in Cross River state as people view it as deliberate government policy to kill the masses finally.
Etim Bassey, a Calabar-based businessman is furious saying “since this government came into office, things have been so difficult for us. Nothing is working in the country and even at the state level, we are just turning round in circles. This government made lots of promises, including not increasing the price of petrol and not allowing any scarcity, but today the reverse is the case.
The former chairman of MAN, Cross River and Akwa Ibom Chapter, Obong Iniobong Jackson, said if the cost of fuel is increased, definitely “there is going to be increase in the prices of food as prices of commodities are generally high. Any increase now will go against what the present government promised. Up till now we have been told that price of fuel would be reduced even though people have been buying from the black market. Something needs to be done as we cannot afford fuel price increase right now considering the state of the economy.”
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