• Monday, May 27, 2024
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Petrol price cut signals way out of subsidy

Petrol Price

Nigeria’s government Wednesday cut the price of Premium Motor Spirit (PMS) to N125, from the current N145, but fuel dealers and oil marketing firms are unsure if this signals a pathway to the much-desired deregulation of the country’s downstream sector of the oil industry.

This price reduction, necessitated by a fall in crude oil prices, represents a 13.7 percent cut from the previous price. Crude plunged as much as 9 percent, touching a low of $24.42 a barrel on Wednesday due to crushing combination of excess supply and shrinking demand.

Asked if he thought Wednesday’s pump price cut should be seen as signposting the deregulation of the sector, one key industry player said, “The sharp drop in the international price of crude oil meant that subsidy removed itself. There is nothing in the statements by the minister of state for petroleum and NNPC to suggest that government really opted to dismantle the subsidy regime.”

BusinessDay learnt from dealers across Lagos that while they have canvassed an end to the fuel subsidy regime, they have not received any notification that this has happened.

The worry is that in a deregulated regime, the regulator, the PPRA, should be the one announcing the new PMS pricing template, but it has so far been quiet while NNPC, which is the retailer, is the one making all the announcements. In addition, there has been nothing said about the adjustment of margins for the dealers and retailers.

Today, a large petrol station, say, along Awolowo Road in Ikoyi-Lagos, which sells an estimated one million litres a month, gets a margin of N2.36 and this translates into a total margin per month of N2.36 million. If he rented the property, he should be paying virtually all of that for rent and he is left with nothing for salaries and diesel to power the petrol pumps.

Oil marketers, keen to see an end to the misery that has emasculated their business, have expectedly thrown their weight behind the government’s action to slash the price of petrol from N145 to N125, saying they are ready to support any government policy that would help to alleviate the economic problems of the masses.

Tunji Oyebanji, chairman, Major Oil Marketers Association of Nigeria (MOMAN), said the association hopes the policy would lead to the long-term sustainability of the downstream sector.

Muda Yusuf, director-general, Lagos Chamber of Commerce and Industry (LCCI), said the current oil price slump offers government the opportunity to exit the oil subsidy conundrum.

“What is desirable ultimately is for the Federal Government to come up with an exit strategy to pave the way for a complete liberalisation of the downstream oil sector,” said Yusuf.

He said over the years, the Nigerian economy has suffered huge losses as result of overregulation of the downstream oil sector.

Chuks Nwani, an energy lawyer based in Lagos, said, “A drop in oil prices should naturally lead to lower pump price of fuel but the naira may yet be devalued. What will happen when the government factors in devaluation and sees it has to raise prices again? That may create new problems.”

Nwani said the cut in price is one way the government is managing the fallout of global fall in oil prices which has shrunk government revenues and threatened private businesses.

The Nigerian National Petroleum Corporation (NNPC) sells crude and remits the value at the official rate of N306/$1. A devaluation of the naira may translate to further increase in the pump price. However, with a price template pegged at the international price of oil, the Nigerian government is signalling an intention to exit the costly fuel subsidy programme. Oil price recovery will test this intention.

The Petroleum Products Pricing Regulatory Agency (PPPRA) stock data indicates that Nigeria has 2.2 billion litres of petrol in its stock which is capable of lasting for 39 days.

BusinessDay gathered from presidency sources that the approval for a cut in prices followed presentation by Timipre Sylva, minister of state for petroleum resources, to the Federal Executive Council (FEC) on Wednesday on the need to reduce the pump price following the global fall in oil price.

A statement signed by Mele Kyari, group managing director (GMD) of the NNPC, said in compliance with the directives of the minister of state for petroleum resources on PMS pricing, the corporation has reviewed its ex-coastal, ex-depot and NNPC retail pump prices accordingly, despite the cost implications of the immediate adjustment to the corporation.

“Effective 19th March 2020, NNPC ex-coastal price for PMS has been reviewed downwards from N117.6/litre to N99.44/litre while ex-depot price is reduced from N133.28/litre to N113.28/litre. These reductions will therefore translate to N125/litre retail pump price,” Kyari said.

“Accordingly, all NNPC retail stations nationwide have been directed to change the retail pump price to N125/litre,” he said.

Nigeria is, however, in a fix because it continues to let a good crisis go to waste. Oil prices fell below $30 a barrel in 2016 and despite counsel from many analysts to get out of fuel subsidy, President Buhari ignored it causing a huge drain on the economy. The same opportunity presents itself and the government is not taking advantage of it.

The government has signalled that going forward, it would allow the international price of crude to determine the prices of the product in Nigeria. However, it remains to be seen if it would match its words with actions or renege on them if and when crude oil prices rebound.