• Monday, June 24, 2024
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BusinessDay

Nigerians’ petrol tanks run dry, yet fuel inflation

While the petrol tanks of most Nigerians might be running on ‘E’ (empty), their activities (during this era of fuel scarcity) on the other hand might just be fueling inflationary pressures in the near term.

After a long, loud build-up, Nigerians’ intense reaction over the ongoing fuel scarcity got serious after a ‘war-torn’ week between Russia and Ukraine. If the government had hoped that a muted announcement would lead to a muted reaction, they were, to put it mildly, disappointed.

The ongoing war between Russia and Ukraine may further prolong the over three-week scarcity of Premium Motor Spirit (PMS), popularly called petrol, as the bulk of the refined products coming into the country from the warring region and its adjoining areas are likely to face some delays.

The current petrol debacle led to a more than doubling of fuel prices on Monday morning. This, in turn, has spurred an increase in transportation costs, reports say. Unsurprisingly, Nigerians are furious. This is because, for many of them, the current subsidy retainment represents one of the few tangible benefits they receive as citizens of Africa’s largest crude-oil producer.

The crisis trigger

A few weeks ago, some oil marketers in the country imported petrol with high methanol content. The product was recalled, leading to a shortfall in supply and a hike in its price. The product became as high as N600 per litre in some states.

The Independent Petroleum Marketers Association of Nigeria (IPMAN), which has been having a face-off with the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG), over the illegal increase in the pump price of petrol, stated that the increase in the pump price of petrol by many filling stations was due to the hike in the ex-depot price of the product by the private depot owners.

Douglas Iyke, the Chairman of IPMAN on Monday stated that NUPENG as a union had no powers to take over the duties of regulatory agencies in the petroleum sector. Iyke added that the increment is due to the hike in the ex-depot price of petrol. This is where NUPENG should direct its threat rather than direct it at marketers.

“There has been an increment in the ex-depot price which has left marketers with no option than to increase the pump price of petrol above the official N165 per litre in recent weeks,” Oyke said.

“We want to place it on record that the increment is not due to any fault of oil marketers because we can only sell based on the price at which we buy petrol from the depots.

“We believe that addressing the issue of the ex-depot price should be the focus of NUPENG and not attempting to picket petrol stations which might lead to a breakdown of law and order.”

Inflationary pressures will thicken in the near future as a direct effect of the crisis triggered by the toxic fuell imported by NNPC, Simon Harry the statistician general of the federation, maintains. He revealed this while announcing January’s inflation figures which stood at 15.60%.

Data from the NBS transport fare watch indicated that the transportation segment, which accounts for 6.5% of the basket, again posted a price increase of 15.1% year-on-year and 1.3% month-on-month last month.

Omobola Adu, a senior investment officer at Afriinvest stated that food inflation would most likely witness a significant increase in the next NBS report on the back of the current fuel scarcity.

He stated that while transport costs are increasing, food prices should also expect to witness an increase due to the addition of transport costs from the various harvest locations to the respective states of delivery.

Read also: Despite slowing inflation, Nigerians contend with squeezed wallets

“With PMS prices rising above 200% of its original price of N165 per litre in most states, transportation of food items from the various food baskets of the country would contribute immensely to food inflation as a result of transferred costs,” Adu said.

Food inflation, which has been the greatest driver of the elevated inflation headline reading, slowed to 17.13% y/y last month but is likely going to witness an uptick this February as a result of the current fuel crisis.

Garba Iwanger, a truck driver who distributes agricultural produce around the country stated that the price of distributing food items has more than doubled since the beginning of the month on the back of the ongoing scarcity.

“I had to increase my transport rates as the current fuel scarcity is getting worse. As a result my clients also had to increase the rates of their agricultural produce because if I don’t move, their products also don’t move,” Iwanger said.

“It’s a bad situation for the country considering food is a necessity and people’s incomes are not getting any better but prices of food items keep increasing and getting worse.”

Enter inflation

Imported food inflation recorded a 6bp increase to 17.4% last month, reflecting importers’ persistent challenge with fx availability and this might also worsen on the back of the ongoing Russian-Ukrainian conflict which would increase oil prices globally and by extension increase subsidy payments for the government.

Omobola further stated that even the prices of dispatch riders’ which took significant prominence after the pandemic in 20202, had begun to witness significant price increases.

“To show how bad it’s getting, the price of dispatch riders’ has increased from the former N500-N1,500 benchmark to N2,000-N3,000 regardless of your location or even the size of the parcel,” he said.

“If not checked on time, the domino effect would definitely cut across various sectors of the economy soon and would gravely impact on GDP.”

Emeka Ucheaga, the CEO of EUA Intelligence and a financial analyst at Credit Direct limited stated that the last time Nigeria witnessed petrol/fuel scarcity as intense as this was the year Nigeria witnessed its highest inflation rate ever recorded to date.

“The last time Nigeria witnessed fuel scarcity of this intensity was in 2016/2017 when its inflation rate broke a record high of 18.72%.

“A record that the country prays never to witness ever again,” Ucheaga said.

Data culled from the NBS show that between December of 2016 and January of 2017, the country recorded inflation rates of 18.55% and 18.72% respectively. These figures are the highest ever recorded in the country all through the last decade.

Further investigation of the data revealed that these inflation figures were mainly driven by food, transportation cost and yuletide pressures on core inflation as a result of added pressures from the fuel scarcity which emanated from increased pump prices.

The story today is a vivid replica of the situation back in 2016. While pump prices are doubling, traffic queues on the other hand are tripling while black marketers maximize the opportunities by quadrupling their prices.

The pump price of 10 liters of fuel as of Thursday stood at N2,500 while the price at the black market stood at N4,000; that is four times the original price which stands at N165/liter.

Eke Hakeem, an Uber driver in Abuja who was interviewed by BusinessDay, said he spent his whole Wednesday on the queue at an NNPC filling station along Wuse road. He stated that no authority (union) whatsoever could make him reduce the price of his transport fares for the next as he had already lost 2 days’ worth of wages trying to get petrol which costs double the amount he had originally budgeted.

“I spent 2 days on this queue without profit and I’m currently running on an already fixed budget. There is no way I’m not going to double my transport fare all through this month.

“If I don’t, I might not have a business to run by the end of this month or even the beginning of next,” he said.

This anticipated inflationary trend has potential of stifling the already commendable GDP growth witnessed last year as these inflationary pressures would most likely be transferred to the general public.

Nigeria may be a net oil exporter, but the country remains dependent on product imports to keep its economy ticking over. Those products are imported by local companies from international oil trading intermediaries and distributed at prices which are further subsidized by the government.

The two-fold problem

The problem Nigeria faces now is in two folds. First, it still owes international intermediaries substantial arrears and has already had to resort to so-called oil-for-product swaps to ensure imports keep flowing, albeit on terms that look increasingly unfavourable.

Second, while Nigeria has in the past favoured domestic importers and marketers in favour of international parties when it comes to payments, these domestic entities are also complaining about delayed or non-existent payments.

This in turn has prompted local distributors and retailers to suspend services in an effort to get the NNPC to pay up the sums it owes them in subsidies which happened to stifle the pace at which the country replaced the current Sulphur/ethanol infested fuel which in turn has spiralled an anticipated inflationary trend in the near term. As this deadlock grows, however, so do fuel shortages on the ground as well as near term inflationary pressures.

All told, this reflects a bad start to 2022, particularly after 2021 had ended so well.