Nigeria has a fuel price that is currently lower than that of Saudi Arabia and the United Arab Emirates (UAE) as both countries recently increased their fuel prices in response to higher crude oil prices.
Nigeria is the least wealthy country selling petrol below $0.5 (N180) per litre, as no single country offering fuel that cheaply has GDP per-capita below $4,000, except Nigeria, according to data compiled by BusinessDay.
Saudi Arabia raised its retail petrol price on Monday by 125 percent to $USD 50 cents (N180) from $USD 24 cents (N86.40) per litre, in a move that will see Saudis pay 24 percent more than Nigerians pay for petrol.
The Emiratis will also now pay 40 percent more than Nigerians pay for petrol after the UAE raised prices by 21.7 percent to $US0.56 cents (N201.6) from US$0.46 cents (N165.6).
“So even Saudis are now paying 54 US cents for a litre of fuel. Nigeria’s subsidised price of NGN145 is equivalent to 40 US cents per litre. Yet Saudi produces 5 times more oil than Nigeria and exports 27 times more per person,” Charles Roberston, the chief global economist at Russia-based investment bank, Renaissance Capital said in a tweet.
“Populists are wrong to suggest that Nigeria should keep petrol prices low just because other energy exporters do so. These other countries exports far more energy per capita and are far wealthier, and can therefore better afford petrol subsidies,” Robertson added.
Saudi Arabia’s price hike is part of a programme to gradually eliminate energy subsidies as the kingdom seeks to overhaul its economy and balance the budget, while the UAE is simply making adjustments for the increase in international oil prices which translates to higher cost for refiners.
Nigeria is having none of a price increase in petrol, having fended off such since the last review in May 2016 to keep prices pegged at N145 per litre (40 US cents), despite being on significantly lower financial footing compared to the wealthy Middle-east.
The peg has been overtaken by higher oil prices and a weaker naira exchange rate, but the political cost of any price hike has spooked the government ahead of presidential elections in 2019, even as a long-standing battle with high inflation has also dimed hope for any short-term upward review in petrol prices.
Instead, the government’s solution to fuel shortages triggered by oil marketers unwilling to take loses from petrol importation, is to arrange a special consideration exchange rate for oil marketers to access Foreign Exchange (FOREX) at a rate below the official N305 per dollar.
This is to enable importers resume importation of petrol and is part of resolutions reached at an adhoc meeting in Abuja between Ibe Kachikwu, the minister of state for petroleum resources and the oil marketers in Abuja on Wednesday.
A special committee in collaboration with the Central Bank of Nigeria (CBN) and Ministry of Finance is working out the new rate. It’s not the first special intervention since the last price review and the worry for analysts has always been that such a solution is but a short-term fix and is unsustainable in the long run.
The need for Nigeria to jettison petrol subsidies is hardly a new counsel, but it is a solution the current government will shy away from as the next election nears, as it is unpopular among Nigerians.
“The government can’t afford the political cost of raising fuel prices and the marketers will not import at a loss,” said Rafiq Raji, chief economist at Lagos-based Macroafricaintel.
“A workable solution could be to seek ways off cutting off extra costs incurred as part of importation,” Raji said.
The current petrol price template introduced on May 11 2016, after acute fuel shortages crimped economic output and fanned inflation, saw prices jump 62 percent to N145 per litre from N86.50 per litre, as officials ran out of ideas on how to sustain artificially low prices at a time of falling revenue.
However, the current oil price and exchange rate have rendered the template obsolete, given that oil sold for $45 per barrel at the time of agreement on the price peg and the exchange rate was N280 per US dollar.
Oil price currently sits at a two and the half year high of $67.7 per barrel, as OPEC cuts (1.2 million barrels daily) introduced late 2016 has helped wipe out a supply glut that dampened prices.
“I have never supported subsidising consumption, the multiplier effect of subsidising production is much beneficial,” said Kyari Bukar, chairman of private sector think-thank, Nigerian economic Summit Group.
“Petrol subsidy is only beneficial to the wealthy and has little or no impact on the poor,” Bukar added.
Hammered by a collapse in oil prices, some of the commodity’s largest producers are making unprecedented cuts to fuel and utilities subsidies amid preparations or life after oil and in a bid to balance their budgets.
“The price hike in OPEC countries will send a signal to governments of other countries still practicing the subsidy regime and also influence other countries’ decision to remove subsidy on PMS in their respective countries,” said Emmanuel Afimia, an energy analyst at a Lagos-based consulting firm.
Nigeria has since insisted it no longer incurs subsidies on petrol, pointing to its 2016, 2017 and 2018 budgets as being silent on such provisions. Sources say state-owned Nigerian National Petroleum Corporation (NNPC) has had to take a hit providing subsidies.
Last week, (NNPC), disclosed that the Landing Cost of PMS is N171 per litre, meaning that at N145 per litre, a subsidy of N26 on a litre is being incurred by the oil company.
“We lost our chance to remove fuel subsidy when the price of oil crashed in 2015, then it could have being understandable but not now that the misery index which reflects inflation and unemployment is at sky-high levels, any increase in the current petrol price will further increase the citizens cost of living,” said Abayomi Fawehinmi, an energy analyst at a Lagos-based consulting firm.
LOLADE AKINMURELE & DIPO OLADEHINDE
