Will Nigerians pay more for fuel as crude price rallies?

The federal government slashed the pump price of PMS when the price of crude fell at the global market with government officials saying that marked the end of fuel subsidy. Now that the price of crude is rising and with the Petroleum Equalisation Fund Act still in place, will Nigerians pay more for fuel? Olatunde Dodondawa reports.

Nigeria’s efforts at removing fuel subsidy since the advent of democratic rule since 1999 have been unsuccessful. Recent announcement by the government that fuel subsidy is gone forever now seems to be just a political statement due to the fact that the government failed to provide any pricing template for May 2020.

This follows the 2016 pattern when the federal government attempted to remove fuel subsidy by increasing the pump price of petrol for N98 per litre to N145 per litre. The government introduced price modulation mechanism meant to review the current crude oil price and ensures it reflects the pump price of petrol.

Former Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, assured Nigerians that the pump price of petrol would be reviewed quarterly to reflect the price of crude oil prices. However, price modulation was never reviewed and Nigerians were shocked when former

Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru, told Nigerians in December 2018, that NNPC was paying fuel subsidy in form of ‘under-recovery’ to sustain pump price of petrol at N145 per litre.

Fuel subsidy refers to that fraction of the price that consumers are supposed to pay to enjoy the use of petroleum products but is paid by government so as to ease the price burden.

When NNPC Group Managing Director, Mallam Mele Kyari, announced early last month that

fuel subsidy was gone forever, it was met by stakeholders with mixed reactions. This is because he lacks the power to remove fuel subsidy, according to industry stakeholders. They said it was the sole responsibility of the federal government through the Petroleum Products Pricing Regulatory Agency (PPPRA).

Now, there is uncertainty over fuel subsidy removal among downstream industry stakeholders.

Speaking during a webinar last Thursday, Group Chief Operating Officer, MRS Holdings, Amina Maina, said it is one thing to announce deregulation and it is another thing to have policy that backs deregulation and “I think on this conversation, we are talking about the enabling laws because where you have a fully deregulated market, you will not have PEF (Petroleum Equalization Fund) as you have it today.”

She added, “In a deregulated market, each of us will go out and try to see how to maximize the

options available. What can be done to put consumers in a position that they will get equal service perhaps at the same price? We will rethink the entire structure of the industry because we will not have those comforts that we get from government anymore.”

On fear of potential emergence of a cartel in a deregulated market, she argued that there can never be a cartel because “if you are looking for an industry where people stab each other, come to the downstream industry. You will find that everyone wants to outdo the other person in the market who has the lowest price. I assure you that we do not have enough cohesion, enough cooperation within downstream companies to ever form a cartel. That’s not happening now and it is not going to happen.”

On his part, Managing Director of 11Plc and the Chairman of Major Oil Marketers Association of Nigeria (MOMAN), Mr. Tunji Oyebanji, said “Going forward, it is important to ensure that only people who have significant investment in the business are the ones granted the

opportunities to import fuel, and then things will be much better. I think that a critical aspect of deregulated environment is to ensure that only people who have invested in the business with facilities will get access to foreign exchange so that you don’t have marginal players who are trying to just play a game and benefit from the system.

“Certainly, given that most of our products are currently imported, foreign exchange becomes a very key aspect, access to that forex has to be on a level playing field basis.  We cannot have a situation whereby some people have access to forex at a rate different from other players thereby undermining free and competitive market. This has to be set out as some of the basic principles in a fully deregulated environment.

“Currently, we are engaged in consultation with the CBN and NNPC as to how this will be made available. Payment of our subsidy debt will make us to be more liquid to access forex and get credit from suppliers overseas. All these things work together and integrated.”

The Chairman of Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN) who also is the Managing Director and Chief Executive Officer of Northwest Petroleum and Gas Company Limited, Mrs. Winifred Akpani, said deregulation does not necessarily mean consumers are going to pay more, especially now that crude oil prices are low.

“If we had full deregulation, I’m sure the pump price would have been less than N125 per litre. I have told people that if we deregulate, we have so many advantages for consumers. We will have very healthy competition; it is company A against company B. And at the end of the

day, the consumers are the beneficiaries with better prices. We understand that when crude prices go up again, prices of the product will go up too and the customers will have to pay more.

“It is not necessary that all profit that will come to marketers is going to come from consumers. A lot of it will come from the competitive atmosphere that will exist because people are going to be a lot more conscious of what they are paying money for, watching their costs and every aspect of the business, at the end, it is going to be a win-win for everyone.”

Former Executive Secretary of MOMAN, Mr. Femi Olawore, called for more engagement between the federal government and industry stakeholders.

“I want to urge the government to continue to engage the main players that’s the marketers, majorly MOMAN, DAPPMAN and IPMAN to engage them so that whatever arrangement it is carrying out the process will be seamless. For me, it was done in 1999 and government was very open and carried major marketers who were the key players then, and the whole process took off smoothly. My appeal would be that the government and the key players should meet often and craft out the process and back the whole thing up with the requisite legislation, that’s all.

“When prices were coming down, government should have been engaging key players including labour and civil society groups. They should engage them so that they will be aware that prices are coming down but it cannot be down forever, at some time, it may rise and if it rises, they should please cooperate with the government because free market situation is not a straight line, it fluctuates.”

According to National President of the National Union of Petroleum and Natural Gas workers (NUPENG), Comrade Williams Akporeha, “Our position on fuel subsidy has been that it is high time the downstream sector was fully liberalized. Continuing to cage it will not be in the interest of Nigeria. But it should not be import-driven. I really don’t know how they want to do that, because it is dangerous to leave the market forces to global crude oil prices due to its volatility.

“Looking at the fragile economy we are running. As a union, our position is that the sector should be liberalized. We will advise the government to introduce some measures of palliative if the downstream will be fully deregulated today. To cushion the immediate effects on

Nigerians, palliative should be given to Nigerians in areas of transportation, medical health and all that.”

 

Conclusion

Scrapping or suspension of pricing templates by the PPPRA is a sign that pump price of petrol may have to be adjusted upward for the month of June which is expected as crude oil prices have begun to rise above $35 per barrel. Pronouncement of policy statement or legal framework backing deregulation would have allayed such fears and Nigerians would have known that pump price of petrol will be fluctuating periodically.

Fuel price adjustments since 1973
1973:   6k to 8.45k
1976:  8.45k to 9k
Oct 1,1978:   9k to 15.3k
April 20,1982:   15.3k to 20k
March 31, 1986:  20k to 39.5k
April 10, 1988:   39.5k to 42k
January 1, 1989:  42k to 60k
March 6, 1991:  60k to70k
Nov 8, 1993:  70k to N5
Nov 22, 1993: N5 to N3.25k
Oct 2, 1994: N3.25k to N15
Oct 4, 1994: N15 to N11
Dec 20, 1998: N11 toN25
Jan 6,1999: N25 to N20
June 1, 2000: N20 to N30
June 8, 2000: N30 to N22
January 1, 2002: N22 to N26
June, 2003: N26 to N42
May 29, 2004: N42 to N50
August 25, 2004: N50 to N65
May 27, 2007: N65 to N75
June, 2007: N75 to N65
Jan 1,2012: N65 to N141
Jan 17, 2012: N141 to N97
Jan 18, 2015 N97 to N87
May 11, 2016: N87 to N145
March 18, 2020: N145 to N125
April 1, 20202: N125 to N123.50

 

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