The recent fluctuations in the pump price of refined petroleum products, especially the Premium Motor Spirit (PMS), have been significant for Nigerians. When the price goes down, it has a soothing effect, raising the hopes of many that the President Bola Ahmed Tinubu administration’s reforms may have some measure of promise for the resuscitation of the Nigerian economy and people’s living standards. This may be so, but only if the relevant factors are handled correctly and carefully, as recent developments suggest.
The recent announcement by the Dangote Petroleum Refinery of a temporary suspension of petroleum product sales in naira tends to change the entire scenario. The company cited the need to align its sales proceeds with its crude oil purchase obligations, which are denominated in dollars. This is also, presumably, a strategy to prepare for possible difficulties in securing crude from Nigeria following production decline and renewed attacks on oil facilities. All these indicate that the ghost of the oil subsidy removal is yet to be fully rested.
The Dangote Refinery, being a private sector enterprise, as would be expected, needs to continue to develop survival strategies to ensure it stays afloat in the turbulent downstream sector of the oil industry. What are the issues to be considered here, as they relate to the development of the Nigerian economy and the enhancement of the living standards of the ordinary Nigerian?
First, the role of the oil sector, especially that of the downstream segment of the sector, must be properly streamlined. The key player here, the Nigerian National Petroleum Company Limited (NNPCL), needs to put its acts together to enhance the sector’s stability. While the NNPCL is supposedly working on the activation of its refineries in Port Harcourt and Warri, which it claims are coming on stream, it must take a holistic view of the industry, with its primary concern being the delivery of goods and services to the end user.
While it is also preoccupied with its crude-for-loans obligations, it should not lose sight of its obligations to the Dangote Refinery, which has helped to massively enhance the supply of products to the economy and removed the burden on massive importation of products, which hitherto was the case in the Nigerian economy. The Dangote Refinery needs to be assisted in securing its crude in the same currency in which it sells its refined products.
Second, given the statement from the Nigerian Midstream Downstream Petroleum Regulatory Authority (NMDPRA) that Dangote Refinery and other local refineries supply 50 per cent of the 60 million litres national demand per day, of premium motor spirit while the rest are imported, it makes sense to state that supporting the Dangote Refinery to increase its production capacity, which is currently largely unutilised, could be the way forward in the minimisation of the importation of refined products and thus put less pressure on the demand for foreign exchange and thus on the naira-U.S. dollar exchange rate.
The focus should be on the domestication of petroleum products refining in Nigeria. The combination of the products of the Dangote, Port Harcourt and Warri Refineries, among the other modular refineries in the country, should be adequate to gradually wipe out the 50 per cent portion that is currently being imported. Even the challenges in importation are laden with additional challenges, as has always been the case over the years.
In this regard, the warning by the Independent Petroleum Marketers Association of Nigeria (IPMAN) that the country could experience fuel scarcity and rising pump prices due to foreign exchange challenges under the evolving scenario should be taken seriously by the authorities. As things stand now, if the NNPCL does not assist the local refineries to buy crude in the same currency in which it sells to the public, then the sustainability of the widely celebrated deceleration of petroleum product prices is now evidently at risk. Efforts should be made by the authorities to avoid a volatile or “yo-yo” scenario in the pricing of refined products, except this is externally induced by unexpected developments in the global oil market for crude.
The broader macroeconomic concerns in this issue of the appropriate and relatively stable price for refined petroleum products are there. For example, demand for foreign exchange will increase, the naira-dollar exchange rate will depreciate, and there will be pressures on the country’s foreign reserves.
The revival of the naira-for-crude policy also has positive effects on domestic prices in terms of eliminating some importation costs like shipping, insurance and tariffs. The policy needs to be sustained for price stability. This brings down the costs of production and subsequently the sales prices of petrol and petroleum products. How this is sustained is critical to avoid the disruption in exchange rate and prices experienced when the policy was suspended.
The government needs to lay the ghost of the fuel subsidy to rest. The oil sector needs stability. Prices of refined products have implications for transportation costs and ultimately for inflation. The implications are broad and far-reaching, and the government should ensure it does not place more burdens on the ordinary citizens who are perpetually struggling to eke out a living for themselves and their families in these trying times.
