• Thursday, May 23, 2024
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BusinessDay

Petrol landing cost hits N1,000/litre on FX crisis

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The landing cost of imported petrol has surpassed N1,000 per litre as the country’s foreign exchange crisis deepened, according to findings by BusinessDay.

At the black-market rate of N1,500 per dollar, findings showed the landing cost of petrol, which includes the product’s international price, shipping, insurance, and other charges, increased to N1,009/litre from N720/litre in October 2023.

“The rising landing cost of petrol is a result of the rising FX crisis. There are interventions in the market through subsidies as most Nigerians cannot afford the market price for petrol,” a senior executive in the downstream sector said.

After trading on Monday, the naira lost 4.19 percent of its value as one dollar was quoted at N1,534.39 as against N1,469.97 quoted on Friday at the Nigerian Autonomous Foreign Exchange Market, data from the FMDQ showed.

The naira also depreciated by 1.33 percent at the parallel market, known as the black market. The dollar traded at N1,505 on Monday, compared with N1,485 on Friday.

“The truth is that subsidy has been reduced,” Bismarck Rewane, chief executive officer of the Financial Derivatives Company, said. “If the subsidy has been removed, then the price of PMS as you see it today will be much higher than what it is.”

Aisha Mohammed, an energy analyst at the Lagos-based Centre for Development Studies, said the commodity was being partially subsidised by the government for political, social and economic reasons.

“All of us who were saying that they should remove the subsidy, we can see that they have partially removed it now, but look at the consequences. Economically, it will sound good, but socially and politically, it is very costly,” Mohammed said.

Further findings showed the landing cost of N1,009 does not include Nigerian Ports Authority charges, vessel charges, the Nigerian Maritime Administration and Safety Agency charge, and other distribution costs.

Some of these are charged in dollars, and some experts are calling for a review to reduce petrol costs.

“We must resist the dollarization of the Nigerian economy; there are some fee collections in dollars that are also pushing up the landing cost of petrol,” the source said.

Efforts to get Olufemi Soneye, the chief corporate communications officer at Nigerian National Petroleum Company Limited (NNPC), to confirm if the federal government has reverted to petrol subsidy proved abortive.

President Bola Tinubu, during his inaugural speech on May 29, 2023, declared that subsidy on petrol was gone, a declaration that was effectively implemented the next day by the NNPC.

Before Tinubu’s declaration, the pump price of petrol was below N190/litre; it jumped to over N500/litre after the President’s statement, and moved up again to over N600/litre a few weeks later.

Whether to continue subsidising fuel has been part of the public debate since the early 1980s, as public spending on the sector continues to rise even while oil production falls due to chronic under-investment in infrastructure and widespread smuggling.

State-owned NNPC became the sole importer of petrol again in Nigeria since October after marketers downed tools as higher oil prices and naira depreciation pushed up the landing cost of the product.

The government had promised to reinvest gains of the subsidy removal into critical areas of the economy but with 80 percent more cash than they got before, nothing has changed particularly at the state level.

Experts said persuading Nigerians to tolerate yet another hike in petrol prices is a difficult sell, given the absence of transparency over the allocation of the surplus funds realised from the elimination of subsidies.

Sources familiar with the situation said some state governors have been converting their naira cash to dollars, adding pressure on the value of the currency, rather than using the extra money to improve infrastructure and human capital in their states.