Friday, 29th September 2023

Petrol pump price dilemma lingers as FG retains subsidy

By Femi Adekoya (Lagos) and Kingsley Jeremiah (Abuja)
22 February 2021   |   4:15 am
Nigeria’s higher production costs and return of subsidy due to backlash from the public and labour unions are currently undermining the country’s ability to improve its revenue from the rising global oil prices...

petrol pump PHOTO:shutterstock

• Nigerians to know fate on pump price tomorrow
• Production costs, subsidy undermine gains from rising oil prices
• Marketers adjust prices, threaten shutdown

Nigeria’s higher production costs and return of subsidy due to backlash from the public and labour unions are currently undermining the country’s ability to improve its revenue from the rising global oil prices, even as Nigerians know fate on fuel price tomorrow.

Indeed, the Federal Government and the organised labour will reconvene tomorrow for the consideration of the reports of the bipartite technical committees on fuel price and electricity tariff.

The committee had developed a transparent methodology and a template that will serve as guide on realistic PMS pump price and benchmark all pricing elements of the template with neighbouring countries.

Over 80 per cent of the Federal Government’s revenue comes from oil. Higher prices help government to address growing budget deficits, but creates problems for a population that depends heavily on imported fuel. With oil prices crossing the $60 mark due to production output cuts by OPEC+ members and Texas freeze, cartels may reconsider a review in cuts, leading to lower prices.

The uncertainty has put the Federal Government in a dilemma on fuel subsidy removal amid public outcry due to rising inflation.

Despite claiming otherwise, Federal Government’s position on subsidy removal and stronghold on price control in the downstream sector create more problems for marketers who deal with investment uncertainty and for government in managing social welfare and expectations.

By maintaining monopoly for petroleum product importation, the Federal Government through the Nigerian National Petroleum Corporation (NNPC), determines how much it sells the products to other marketers, creating concerns about how the price margins are managed.

For marketers, an increase in the global price of crude should naturally reflect in the retail price of the petroleum products while government’s control and monopoly of imports should be liberalised for other players. However, there are concerns as the few instances when oil prices dwindle, there is hesitation among marketers to adjust pump prices.

With the uncertainties, The Guardian learnt that government, for fear of backlash from labour unions, might bear the burden of N11.20 billion subsidy weekly, despite high cost of oil production.

Already, marketers across states have started upward adjustment of pump prices, even though the NNPC had insisted that pump price would not change in February.

This is coming at a time Nigeria has lined up national assets for sale amid, plan for huge borrowing to finance the 2021 budget.

SOME petrol marketers in Abuja, Lagos, Benin, Asaba and other cities in the country were already selling the product for as high as N175 per litre, although the last official price was pegged at N162.

Motorists in Benin City said they had been buying the products at N170 per litre across most fuel stations. There are also price differences in Lagos and its environs, where fuel stations sell between N162 and N170 per litre.

In Asaba and other cities in Delta State, motorists pay N170 to N175 per litre. A commercial motorist, who identified himself as John Obaje, disclosed that he might resort to increasing transport charges since pump price increase was already weighing down on his daily earnings.

The Department of Petroleum Resources (DPR) had earlier issued warning to depot owners, disclosing that some of the operators might be frustrating the situation by hoarding products in some parts of the country.

Similarly, there are indications that some marketers might, in the coming days close down their stations. Some have already done so in parts of Lagos.

President of the Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN), Dr Billy Gillis-Harry told The Guardian that, unless urgent measures were taken, the marketers would resort to such self-help.

WITH the increase in price of crude oil at the international market, the landing cost of petrol when importing with the interbank exchange of N379.5, is projected at N180 per litre.

Additional margin allowed by the Petroleum Products Pricing Regulatory Agency (PPPRA) stands at about N19 had been projected to exponentially increase the price. Wholesalers (depot owners) are allowed to charge a margin of N4, retailers charge about N6 and the Petroleum Equalisation Fund, about N9 on every litre.

While other countries produce a barrel of crude at about $9, Nigeria’s cost of production stands at $30. Efforts by the current administration to bring the cost down have remained a mirage, although reduction is feasible if stakeholders in the sector are committed to the recently unveiled Nigerian Upstream Cost Optimisation Programme (NUCOP).

Battling to finance the over N13 trillion 2021 budget, Nigeria had last year, opted for deregulation of the downstream sector but has not been able to allow market forces dictate pump prices. The market has remained a monopoly with only the state oil company NNPC — which has access to foreign exchange and swaps the country’s crude with refineries abroad — taking hold of the market.

Although the pump price of petrol was reduced immediately government deregulated the market following dwindling crude prices at the international market, the price had risen from N121.50 to N123.50 per litre in June; N140.80 to N143.80 in July and N148 to N150 in August. In September, pump prices rose further to N158 and N162 per litre.

When attempt was made to increase it in December last year, labour unions demanded the head of Sylva. They were furious over repeated hike in petrol price. The Nigerian Labour Congress (NLC) and Trade Union Congress (TUC) dragged the Federal Government to a dialogue, where NNPC agreed to slash the original N167.44 per litre by N5.

Sylva, however, said with no provision of subsidy in the 2021 budget and the inability of NNPC to continue to bear the cost of under-recovery, “NNPC needs to also think about optimisation of product cost because as we all know, crude oil prices are where they are today ($60).”

Vice President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Abubakar Shettima, had told The Guardian that the ex-depot price, which was officially N143/litre, had moved to about N158/litre, making it impossible for petrol to sell at current pump price of N162 per litre.

Dr Diran Fawibe, a petroleum economist and Chief Executive Officer of International Energy Services Limited, noted that increase in crude oil price would benefit OPEC countries, including Nigeria, but noted that the gain was being eroded due to prevailing situation in Nigeria, especially the absence of local refineries and the prevailing high cost of production.

“As the price is now nearly double of the budget benchmark, there will be more and it’s a welcome development. With that, we can meet up with the 2021 budget.”

According to him the development could also stop government from selling national assets to finance the budget.

An energy expert with FOSTER, Michael Faniran, noted that, as crude export-dependent economy, rise in crude prices would be good news for the country, especially if the current price is sustained.

Noting that, while the development should be very healthy to reduce the estimated deficit, in revenue projections for the 2021 budget, Nigeria is left in mixed feelings, because the increase would imply an increase in price of imported petrol.

“This will then translate to increase in pump prices of petroleum products or a return to the subsidy regime. Paying subsidy will, therefore, wipe out whatever gain we would have made on the revenue side of the budget,” he stated.
PricewaterhouseCoopers’ Associate Director, Energy, Utilities, and Resources, Habeeb Jaiyeola noted that with availability of COVID-19 vaccines, there should be optimism within various economies, forcing an increase in demand for crude oil.