• Sunday, April 21, 2024
businessday logo


Opposing fuel price increase will return queues, hurt economy

fuel queue

The price of crude oil in the last two weeks rallied between $59 and $62 per barrel, the highest in thirteen months. This was after oil price sank to historical lows in the wake of the Covid-19 pandemic in 2020.

Ordinarily, for a country like Nigeria that is heavily dependent on revenues from oil, the price rally should be good news as it portends more money for the government to provide social amenities for the welfare of the citizens. But the cheery news of oil price rally is dampened by the prospect of a rise in the pump price of Premium Motor Spirit (petrol).

During the launch of the Nigerian Upstream Cost Optimization Programme (NUCOP), both, Timipre Sylva, the minister of State for Petroleum Resources and Mele Kyari, group managing director of NNPC, hinted at the prospect of a rise in the pump price of petrol in the country. This was to be in line with the deregulation regime operational in the downstream, following the rise in the price of crude oil.

Since then, the leadership of organised labour has been beating drums of war, contending that a pump price increase would impose more hardship on Nigerians who are already battling the effect of a sluggish economy. Deregulation of the downstream and pump price increase have been very testy issues that have generated a lot of conflict between the government and labour for close to two decades.

The organised labour’s persistent opposition to government attempts to increase price of Petrol can at best be described as a misplaced priority, whereas the union should put pressure on the government to fix the comatose refineries.

The Labour Union vehemently opposed the sales of Port Harcourt Refineries by the then Olusegun Obasanjo administration simply because they feared their members could lose their jobs. Successive governments have not been able to fix the refineries since 2007.

Since 2004 when the Federal Government started the policy of selling the crude oil earmarked for local refining/consumption at international price, it created a situation where the landing price of petroleum products was higher than the regulated pump price of petroleum products in the country. The old system where crude oil earmarked for local refining/consumption was sold to the NNPC at a subsidized rate was able to take care of price differential between landing cost and regulated pump price.

With the new policy, a system of subsidy payment was introduced to take care of the price differential. But over time, the subsidy system became cumbersome and the Federal Government began to find it unwieldy and unsustainable. The various attempts to end the subsidy regime by deregulating the downstream became a constant subject of bitter conflicts between the government and labour sometimes resulting in debilitating strikes.

In March 2020, the Federal Government finally took the bull by the horns and deregulated the downstream by taking advantage of the low oil prices induced by the Covid-19 pandemic. The Minister of State for Petroleum Resources and the Petroleum Products Pricing Regulatory Agency (PPPRA) stated repeatedly that going forward, the price of PMS would be determined by prevailing market forces. One of those forces is the price of crude oil.

With the current rise in the price of crude oil, it is inevitable that the price of petrol would go up in the local market. More so when there is no provision in the 2021 Appropriation Act for subsidy payment.

With the current rise in the price of crude oil at between $55-$61 per barrel at the international market, it has become expedient for Price Premium Motor Spirit otherwise known as petrol to get a commensurate rise in price. The landing price of petrol is about N180 while its price at the filling station is N162 and in some places N165 per litre.

The deregulation of the downstream is supposed to bring about some sort of liberalization of the sector, which would make it possible for all petroleum products marketers to source their products from anywhere and sell at any price dictated by prevailing market forces. The competition arising from that would have helped to force pump prices down to the benefit of the citizens. But the scarcity of foreign exchange has made it difficult for the marketers to import products, thereby making NNPC the sole importer in keeping with its statutory role as marketer of last resort.

According to Tunji Oyebanji, chairman of Major Oil Marketers Association of Nigeria (MOMAN), with a fully deregulated downstream industry, the natural fear and anticipation of Nigerians is the increase in the price of transportation, food items and the attendant economic hardships. Solutions to these challenges can only emanate from a collective resolve by all stakeholders to face these challenges together. We must as a nation debate and share pragmatic and realistic initiatives to mitigate the impact of a pump price increase which could follow a fully deregulated downstream.

With the agitation of labour to roll back the deregulation, NNPC is inadvertently being made to absorb the cost of the price differential between landing cost and pump price. This would put NNPC in a very bad spot financially and eventually lead to a situation where it would be difficult to further import products. The obvious implication of that is fuel scarcity and the return of fuel queues. However, if the market forces are allowed to determine the prices, more players would be allowed to come in and there would be more petrol brought into the country by marketers. This would engender competition, which may bring down the price of the petrol.

The same people who are resisting the deregulation would be the same people who would turn around to castigate NNPC for not supplying enough fuel to guarantee zero fuel queues and for not making a profit at the end of its financial year.

Labour must learn to be objective in its resistance to the downstream sector reforms meant to eradicate the distortions in the market, which have been responsible for bouts of scarcity and lack of investments in the sector.

If the labour leaders spearheading the resistance to deregulation take a cursory look, they would realise that the deregulation has largely stabilised petroleum products supply over the past year. Once the foreign exchange issue that has made it difficult for major and independent marketers to engage in importation of petroleum products is resolved, the other gains of deregulation will kick in and Nigerians will be better for it.

One of the key arguments of labour is that if the refineries were in operation, it would help reduce the prices of products and mitigate the hardship that deregulation would impose. But the reality on ground does not support that. The revamping of the refineries will only result in marginal decrease in the pump price of petroleum products since the only cost element it would affect is the freight cost. Since the refineries would pay international price for crude oil, the benefit from local refining in terms of products pricing would be marginal.

The market stabilisation that has been brought about by the past one year of deregulation should be enough to assure labour that full deregulation is the way to go if Nigerians are to enjoy the full benefits of their hydrocarbon wealth. Resisting deregulation under the guise of fighting for the welfare of Nigerians could be likened to an attempt at hoodwinking Nigerians into believing that they can eat their cake and still have it.