Subsidy removal: Deregulate, set market reflective administrative pricing for PMS, World Bank tells FG

As controversies continue to trail Federal Government’s plan to remove subsidy on the Petroleum Motor Spirit (PMS) by February 2022, the World Bank(WB) in its latest report, has advised the FG to deregulate petrol pricing as well as set administrative prices based on market factors.

The report titled: Time For Business Unusual pointed out that the Petroleum Industry Act(PIA) has several provisions that affect the future PMS pricing policy.

Part of these provisions it stated, include phasing out the Petroleum Equalisation Fund (PEF), an instrument used until now to set uniform prices throughout the country.

It said with the absence of PEF, PMS prices will now vary from location to location depending on the distance from the closest port of entry or refinery as well as the economies of scale in a given market.

Also, it noted that the PIA requires that the Nigerian Midstream and Downstream Petroleum Regulatory Authority base pricing on “unrestricted free-market pricing “conditions” unless there is a monopoly or “an excessively dominant supplier” in the market.

“The Authority will issue a new PMS pricing regulation that would remove the subsidy and allow retail prices to rise immediately to their market levels without government
intervention.

“Once they have been persuaded that the policy is credible, oil-marketing companies other than the NNPC would start importing PMS. Pump prices would be driven by global oil prices, the exchange rate, and the efficiency of supply systems in Nigeria, and domestic PMS prices would vary by location just as diesel prices do,” it said.

In terms of setting administrative prices based on market factors, it advised that the Authority issue a new PMS pricing regulation, aligning domestic prices with market forces.

“Administrative pricing should be relatively short-lived because there is no reason why the PMS market should take years to attain adequate competition when all other fuel markets are already deemed to be competitive.

“The regulation should include provisions for fostering and promoting competition and define benchmark performance indicators, the fulfilment of which signals an end to administrative pricing and the start of deregulation.”

To that end, it said the Authority could set price ceilings for PMS that are adequate to cover the costs of efficient supply while preventing price-fixing or other forms of anti-competitive behaviour and use the degree of departure from the price ceilings as a measure of emerging competition.

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Subsidy removal: Deregulate, set market reflective administrative pricing for PMS, World Bank to FG

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