Nigeria’s downstream sub-sector and sustainability of petrol price

It is now obvious that unless the Federal Government continue, to sustain the flow of foreign exchange (forex) at parallel market rate, the country may not be able to maintain the price of Premium Motor Spirit (PMS), also known as petrol, at N145 per litre.

Although, many filling stations in Lagos, Ogun, Abuja and Akwa Ibom, are now selling below the pump price of N145 per litre, petroleum marketers insist that this was only made possible by the provision of forex to marketer, by the Federal Government and low patronage.

Executive Secretary, Major Oil Marketers Association of Nigeria (MOMAN), Olufemi Olawore, also attributed the fall in price to low patronage.

“There has been low patronage since the pump price of petrol was increased to N145 per litre. Many people are no longer buying petrol as they used to. In fact, some now resort to public transportation just to cut cost. The present economic situation has even made matters worse. As, many of the marketers have adopted survival strategies just to remain in business,” he said.

He, therefore, urged the Federal Government to continue its assistance to marketers in sourcing forex at inter-bank rates to enable them maintain the current price of fuel. “The moment government withdraws its support and we are no longer able to get forex at a cheap rate, the price of petrol will definitely increase,” he noted.

An Independent petroleum marketer and Chairman, World Global Petroleum Limited, Aliu Folorunso, complained of low patronage of the product by the public motorists, motorcyclists and those purchasing in jerry cans for their electricity generating sets.

He believed that low patronage isresponsible for selling the product below N145 per litre in some filling stations.Folorunso also noted that the differential in sales in petrol pump prices in stations is the outcome of the recent deregulation, where competition could force down prices.

According to him, some members, who used to sell between 120,000 litres and 150,000 litres (equivalent of four trucks) daily are now finding it difficult to sell off 33,000 litres daily.

The need for sustainability of forex was also confirmed by the Group General Manager, Crude Oil Marketing of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, who insisted that no marketer would import the product and make a profit if he sells at N145. He argued that marketers who currently sell below the N145 pump price do not import the product.

“You can see some marketers saying that fuel is N138. It is because they did not import it. But someone has taken the heat; indeed, NNPC has taken the heat, and you buy from us, so you can afford to go to the market and then put a ridiculous price. It is possible, because they did not import it’.

As far as Kyari is concerned, the current price of petrol is not possible without cheap forex for marketers.This however, stirred up controversy with fear that the Federal Government was planning another hike in the price of petrol.

As a remedial measure, the Group General Manager, Group Public Affairs Division of the NNPC, Muhammad Garba-Deen, said there was absolutely no plan by the Federal Government to increase pump price of petrol above N145 maximum level.

He added that at present, there was no subsidy on petrol, and that the long-term contracts entered into by the NNPC with buyers and suppliers had addressed the issue of foreign exchange volatility.

“As per this moment, there is absolutely no plan to do that and no need to do that, because we have more than enough supply; we have very robust stock of product in our custody.

“ In addition to that, we also have long term procurement contract with our suppliers.“The usual reason that would necessitate a review of price at the moment had been taken care of. We have long-term procurement contract with our suppliers.
“We have more than enough supply to last us throughout the ember months and beyond,” he said.

The Federal Government has announced plans to reduce its level of fuel imports by 60 percent by the 2018.Determined to bring lasting solution to the issue of petrol import, the Minister of State for Petroleum Resources, Ibe Kachikwu, said one of the key priority areas in the road map for the oil industry is increased local refineries’ production capacity. This will be achieved through the implementation of modular refineries and co-location, which targets to ensure that petroleum products importation is reduced by at least 60 per cent by 2018, and thereafter position Nigeria for net export by 2019.

The Minister said the current state of the country’s supply and distribution systems is marked by poor storage facilities, inadequate supply, pipeline vandalism, poor products management and accountability.

To correct the imbalance, he said the country needs to build refineries and run them as profit centres that will purchase crude at international prices and deliver their products at export parity prices adding that this is the only viable basis for financing new infrastructure.