The cut in pump price of fuel (1)

In what should be regarded as going against the trend in such matters, an announcement came on the airwaves made by our minister of Petroleum Resources and current president of OPEC on the evening of Sunday, January 18, 2015 – Sunday of all days – that President Jonathan has approved a reduction in the pump price of PMS from N 97 per litre to N87, a drop of N10, representing a reduction of about 10.3 percent.

It must be clearly stated here that most compatriots were long in expectation of this reduction in pump price as reductions have taken place in almost all other countries across the globe in reaction to the cascading fall in fuel price. If therefore there were any matters arising therefrom, it was the fact that the reduction came a bit late in the day and, as some have argued, considering the extent of fall in price of crude oil of about 50 percent over the period commencing from June 2014 when the fall started till now, a commensurate reduction in pump price was expected. But as has been explained severally, such sentiments have not taken fully into account the implication of the subsidy on imported petroleum products. And therefore what the drop in price first impacted was essentially a reduction in the amount of subsidy which this country had borne against wise counsel in this regard. This development therefore gives the rationale for a massively reduced provision in the 2015 budget of N200 billion for the payment of subsidy.

Following the announcement, it was indicated by the relevant authority that a subsidy of N2.84 per litre was still being sustained and you cannot but wonder what sort of rationale informed this level of reduction. It was generally felt that an opportunity should have been seized of this development to eliminate the subsidy which had attained scandalous levels of about N1 trillion per annum, several billion naira in excess of the capital budget. It has since been announced that subsidy of up to N3.64 per litre is still being retained after the Petroleum Products Pricing and Regulatory Agency (PPPRA) suddenly removed its pricing template from its website to replace it with a not-so-detailed template which had the effect of making the whole process less transparent than it had been hitherto.

As should be expected, marketers have taken their time in responding to this cut in price as most filling stations still displayed the old price, justifying such a stance with the selfish logic that they will comply only when the existing products have been sold. But the increase would have been automatic if the price adjustment had been upwards as it had been the case lately, underscoring the selfish mindset of our businessmen. The Department of Petroleum Resources (DPR) has had to wield the big stick by taking the drastic step of sealing up some of the stations that were in default thereby effectively stopping such stations from dispensing PMS to customers. One only hopes that DPR will intensify its monitoring efforts to guarantee compliance by all concerned marketers and to checkmate attempts to manipulate the meter to take advantage of the customer and unethically continue to earn unmerited high profit.

We cannot decry enough the shame of the fact that Nigeria, which is probably the eighth largest exporter of crude petroleum in the world, still goes ahead to import refined products for domestic consumption because of utter mismanagement of the petroleum sector in the country. The four refineries in the country are notorious for operating well below installed capacity despite routine huge turnaround maintenance expenditure. One is also at a loss to rationalize why the Kaduna Refinery had been configured to refine imported heavy version of crude which the country does not produce! What is even more stunning is the fact that the country proceeded to allow the public sector to import refined products in a manner that is rife with all manner of scams and malpractices in the process, doing considerable damage to the unflattering image of a corrupt nation which has been tagged to this country. But all economists are unanimous on the view that subsidy is not advisable as it represents a veritable misallocation of resources.

To be continued tomorrow…

 

Boniface Chizea