• Tuesday, March 19, 2024
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BusinessDay

FG cuts petrol price to N121.50 but could raise risk for marketers

Why price of petrol would continue to be high

The Petroleum Products Pricing Regulatory Agency (PPPRA) has cut pump price of Premium Motor Spirit (petrol) from N123 to N121.50 per litre for the month of June, but some marketers say frequent movement of prices may impair their ability to hold stock.

The PPPRA also announced ex-depot price at N102.13-N104.13 per litre, while it put ex-depot for collection at N109.78-N111.78 per litre. The adjustment, BusinessDay learnt, was arrived at last night without the involvement of the marketers across the country whose current stock would be impacted by the price review.

“If the price goes up or down, we are impacted with either a price gain or loss depending on what you have in your tank,” said Clement Isong, CEO/executive director, Major Oil Marketers Association of Nigeria (MOMAN).

The implication is that these marketers could incur losses on their previous stock as this new price review was done without an assessment of their current stock. It creates an uncertainty around how much stock to hold and the possibility of replenishing future stock quickly as frequent adjustment of prices raises risks, Isong said.

According to Isong, South Africa uses the average price of fuel for the previous month to set current prices. At the end of the month, the marketer already knows the price of the next product and how much stock to hold.

However, Nigeria does not refine all the petrol it needs like South Africa and it takes at least three weeks for the product to come into Nigeria. This leaves a three-week lead time.

Isong recommended the average of Platts and a fixed amount so that there is transparency encouraging marketers to take the risk of stocking up product.

Isong said when prices go up and down without consultation, it creates uncertainty and risks and people will stop stocking and importing product. He recommended that the marketers be involved in decision-making to arrive at a price template.

The Muhammadu Buhari-led administration moved the petrol price peg of N145/litre to N125 in March 2020. It was the first time the price would be adjusted since it was reviewed in 2016, from N86 per litre to N145, by President Buhari.

Following this review, the government said it has deregulated the downstream sector but analysts say it has to fully deregulate the sector.

At a recent virtual conference organised by the Nigerian Petroleum Downstream Consultative Summit, panellists said government pronouncements on deregulation may indicate intent but it must be backed by law to be effective, attract investments into the sector and this must be done quickly.

The continued existence of agencies that were created to support a regulated price environment, like the Petroleum Equalisation Fund (PEF) which tries to ensure uniform retail petrol price across Nigeria by subsidising distribution of petrol to remote locations, and the PPPRA which fixes prices, would need to be disbanded to indicate a seriousness to deregulate.

“In regulated deregulation, what should obtain is a regulation of technical standards and ensure quality control,” said Timothy Okon, managing director, Teno Energy Resources Ltd.

Okon also said that monitoring and enforcement would become more effective.

Adetunji Oyebanji, chairman, Major Oil Marketers Association, said the PPPRA needs to consult wider before price pegging to ensure a more holistic response from marketers.

“The Central Bank of Nigeria (CBN) always holds bankers’ committee meeting with bank officials before coming out with monetary policy decisions. This is how it should be in order to get a holistic response,” he said.

PPPRA said it could not announce the price review for May, citing concerns with accessing foreign exchange. The agency is in talks with the CBN to open a foreign exchange window for major oil marketers.

Industry operators say this is the sore point in importing petroleum products into the country. Preferential access to dollars granted the NNPC allowed it to continue importing products when the landing cost rose higher than the pump price of fuel and marketers abandoned the exercise.

Now the government is moving towards a free exchange rate where fixing the price of petroleum products will pose more risk to marketers.

In a statement on Monday, Abdulkadir Saidu, PPPRA executive secretary, revealed that the guiding price comes into effect on June and is expected to apply at all retail outlets nationwide for the month of June.

He stated that PPPRA and other relevant regulatory agencies would continue to monitor compliance to extant regulations for a sustainable downstream petroleum sector.