•Marketers confirm return of competition in downstream oil sector
•NLC demands immediate reversal of fuel price increase
•NACCIMA, CPPE, NECA say latest hike ill-timed, will fuel inflation, stifle businesses
•FG to set Naira for Dangote crude sales using market rate
Subsidy is gone! Though President Bola Ahmed Tinubu made that consequential announcement on May 29, 2023, it was not until yesterday, nearly 17 months after that the federal government finally summoned the courage to fully deregulate the petroleum product pricing.
The Nigerian National Petroleum Company Limited (NNPC) yesterday officially increased the official pump price of petrol in its retail outlets to N1,030 per litre in Abuja from the N897 it announced on September 3 and from N855 to N998 in Lagos.
The move, it was learnt, has now effectively put an end to Nigeria’s multi-decade wasteful petrol subsidy regime, at least for now.
With the latest price adjustment, it means that in the less than 17 months of the current administration, the price of the fuel has risen by over 430 per cent from May 29 when President Bola Tinubu took over the reins of power.
Last month, the national oil company raised the pump price of petrol to N897 per litre from the official price of N617 it hitherto sold per litre in Abuja.
It came days after the NNPC said it was heavily constrained by the huge debt it owed international suppliers. The debt is estimated to be over $6.8 billion.
THISDAY observed that many NNPC filling stations in Abuja had already effected the prices as of yesterday afternoon, with its downstream facilities selling for the new price benchmark. However, independent filling stations were expected to sell for higher.
Although the NNPC typically does not issue public statements on petrol price increases, it sends signals to depot owners when there is a new price review.
At some NNPC filling stations visited by THISDAY, including the Mega station at Zone 1 and its filling station at Mabushi in Abuja, the company had already adjusted its pumps to reflect the new price.
Also, recently the NNPC terminated its exclusive purchase agreement with Dangote Refinery which it earlier reluctantly accepted, thereby opening up the market for other marketers to buy petrol directly from the refinery.
On Tuesday, while responding to a different matter, the Minister of State Petroleum Resources (Oil), Senator Heineken Lokpobiri, alluded to the fact that the sector is now fully deregulated, with market forces set to determine prices.
“The oil and gas sector is fully deregulated, and the Nigerian government remains committed to promoting in-country refining. We encourage companies, including NNPC, to operate independently, following global best practices. While we provide strategic guidance. We do not interfere directly in the operations of these companies,” he said.
With the introduction of a deregulated downstream environment and removal of subsidy in petrol marketing, the NNPC has now effectively withdrawn its role and position as sole supplier of the product in the country.
This followed the latest price adjustments by NNPC for its filling stations nationwide and confirmation by marketers that subsidy had been removed while deregulation and competition had returned in the petrol marketing business in the country.
However, private petroleum products marketers, who spoke with THISDAY, yesterday, confirmed that government had deregulated petrol pricing, thereby paving the way for market forces to now be the determinant of petrol prices in the country.
A former Chairman of the Major Energies Marketers Association of Nigeria (MEMAN), Mr. Tunji Oyebanji, confirmed the deregulation of petrol and removal of subsidy. He said the move was inevitable as the government could no longer bear the burden.
“I believe the price of Premium Motor Spirit (PMS) or petrol has finally been deregulated, and subsidy has finally been eliminated. Henceforth, the price of PMS will be determined by market dynamics. This is inevitable as the government could no longer bear the burden of the subsidy.
“A good measure the government has taken to mitigate the development is the sale of crude oil to local refineries in Naira at a fixed exchange rate. This will protect consumers from the negative impact of the fluctuations in exchange rates,” he stated.
He noted that refining crude oil at local refineries will also save the cost of transporting crude to offshore refineries and transporting refined products back to Nigeria.
He said without these two factors, prices would have been higher, adding that another positive outcome of the deregulation was that the incentive to smuggle petrol from Nigeria to neighbouring countries will be greatly reduced.
Henceforth, Oyebanji maintained that prices could change at any time, depending on market dynamics.
He added: “Customers will make informed choices about where to buy from. Operators will need to improve on safety, customer service, and accurate measurement to retain customers.”
He said consumers should at this time consider alternative sources of powering their vehicles like Compressed Natural Gas (CNG).
“The era of full competition has come to Nigeria. With time, things will settle down, and people will make informed choices.
“The government should invest in mass transportation, especially with CNG buses. Greater incentives should be given in terms of duty waivers on conversion kits and other CNG equipment and vehicles,” he pointed out.
But Organised labour under the auspices of the Nigeria Labour Congress (NLC), has asked the federal government to immediately reverse the hike in the pump price of petrol as well as previous increases.
It said that the hike did not produce any good result but has only made the people poorer.
A statement signed by the NLC President, Joe Ajaero, expressed dismay that the present administration has continued to increase the pump price of petrol without commensurate capacity of Nigerians to mitigate the measures.
“We are dismayed by the latest increase in the pump price of petrol. It looks like the only thing this government is known for is increase in the pump price of petrol without commensurate capacity of Nigerians or ‘mitigatory’ measures,” he said.
NLC said that following the logic of market forces, it was an aberration that a private company like the NNPC was the one fixing prices and projecting itself as a hegemonic monopoly.
“We challenge the government to go to the drawing board and present us with a blueprint for an inclusive economic growth and national development instead of this spasmodic ad hocism and palliative policy.
“It needs no stating the fact that the latest wave of increase has grossly altered the calculations of Nigerians once again at a time they were reluctantly coming to terms with their new realities.
“It will further deepen poverty as production capacities dip, more jobs lost with multidimensional negative effects. In light of this, we urge the government to immediately reverse this rate hike as previous increases did not produce any good result. People only got poorer.
“But more fundamentally, the government should be bold enough to tell Nigerians in advance the destination it wants to take the country,” Ajaero added.
In the same vein, the Centre for the Promotion of Private Enterprises (CPPE) and the Nigeria Employers’ Consultative Association (NECA) have described the latest hike as an ill-timed decision that would further worsen inflationary pressure on businesses and households.
According to the Director General of NECA, Mr. Adewale-Smatt Oyerinde, the announced increase in the price of petrol, notwithstanding its justification, has the potential to further erode the purchasing power of Nigerians, while putting more pressure on both organised and unorganised businesses.
Oyerinde said: “There’s no gainsaying that petrol remains the predominant source of energy for many sectors, including transportation and household uses. Thus, this new increase will further distort the cash flow potential of many, leading to likely increase in general cost of living.”
Similarly, the Founder/Chief Executive Officer of CPPE, Dr. Muda Yusuf, said that the latest increase in PMS price was regrettably ill-timed and did not reckon with the prevailing difficult economic conditions in the country.
Yusuf stressed the need for social, economic and political considerations in policy choices of this nature, adding that commercial considerations alone should not completely override them.
According to him, there is always a place for political economy in the interest of the vulnerable segments of society.
He said: “The Nigerian economy is not ripe for full blown deregulation and market’s principles on all fronts. The social costs of such policy choices are typically very high. This is an economy with very weak social safety nets where over 100 million people are wallowing in various variants of poverty.”
Yusuf pointed out the importance of policy sequencing in view of the fact that the present administration has presented an Economic Stabilisation Bill (ESB) to the National Assembly, which is expected to bring some relief to the citizens and businesses.
According to him, it would have been better to allow the proposed mitigating measures to be activated and gain traction before coming up with the petrol price hike.
He argued that what the economy needs at this time are measures to ease the current economic and social challenges and not policies that would aggravate them.
Yusuf said: “It is desirable at this time to urgently cut import duties and taxes by a minimum of 25 per cent on all industrial raw materials, passenger buses of 18-seater and above and cars of 2000cc engine capacity and below.
“The customs duty exchange rate should be fixed at a maximum of N1000/dollar to reduce current prohibitive cost of imports. Relevant legislation should be amended to that effect. This is without prejudice to the fiscal policy measures contained in the economic stabilisation plan.”
According to him, the government must be ready to trade off some revenue in the current situation because there is a need to seek to achieve the maximisation of welfare function for citizens and productivity function for businesses.
Therefore, he maintained that the government should not be too fixated on revenue maximisation.
Also yesterday, a Bloomberg report said that Nigeria will settle crude sales to Africa’s newest and biggest oil refinery using the local currency’s rate in its foreign-exchange market, dousing concerns that it would fix below-market naira levels for the transactions.
The mega oil refinery owned by Nigerian billionaire Aliko Dangote will pay the local-currency equivalent of the prevailing international benchmark price of oil using the closing rate in the central bank’s Nafem window, a foreign-exchange trading portal for investors, exporters and end-users, three people familiar with the negotiations said.
This is part of an agreement that started on October 1 to supply the 650,000 barrels-a-day refinery with crude, the report quoted them as saying.
By doing this, the government has shunned a return to a past system of varying exchange rates, which partly pressured the naira and stoked inflation on imported goods.
Attempts to control the naira under the past administration gave rise to a multiple exchange-rate system, with large corporations, connected politicians and certain travellers getting dollars at different rates. That led to arbitrage and widened the gap between the official and street levels.
President Tinubu criticised the practice when he took office in May 2023, and he ended it as part of reforms at the central bank that also saw Governor Olayemi Cardoso take control.
For years, Africa’s top crude producer shipped its oil abroad and imported finished petroleum with scarce foreign exchange. Local gasoline production, which began at the Dangote refinery in September, was considered crucial to ending Nigeria’s dependence on imported fuel and saving between 10 per cent and 15 per cent of dollar demand, according to Cardoso.
To ensure the refinery met the nation’s aspirations, a committee headed by Finance Minister Wale Edun reached a deal for the first-ever sale of crude in naira to the plant. This was to reduce pressure on the local currency and boost supply of gasoline to the domestic market.
Still, the agreement with the Dangote refinery raised concerns that the government was about to row back on its currency reforms after Dangote said that the Edun committee will come up with an “agreed” foreign-exchange rate for the transaction, and also fix the price at which he’d sell his gasoline.
The central bank pushed back on conversations to fix a rate for the transaction, one of the people said, asking not to be identified to enable them speak freely on private negotiations. Spokespeople for the Dangote refinery and the Central Bank of Nigeria declined to comment.
The state-owned NNPC has also signalled that it plans to end its role as the sole domestic buyer of the billionaire’s gasoline, paving the way for other retailers to negotiate with the Lagos plant as the government moves toward full deregulation of the market. That will likely see pump prices that rose 45% in September go up again.
The refusal to also fix petrol prices from the refinery may result in an effective end to subsidy payments on the fuel that totalled about $10 billion in 2022.
Also yesterday, the Nigerian Association of Chambers of Commerce Industry Mines and Agriculture (NACCIMA) declared that the new petrol prices would stifle Micro, Small and Medium Enterprises (MSMEs) out of business and pose significant challenges for Nigerian businesses and households.
NACCIMA said that the households would grapple with inflated cost of living while businesses would face increased operational costs that might lead to reduced profit margins and, ultimately, job cuts.
It also stated that the failure of NNPC to adequately support local refineries, such as the Dangote’s, and the Central Bank of Nigeria’s ineffective monetary policies combined to position the business community and Nigerians in a precarious economic climate.
These views were expressed by the National President of NACCIMA, Kelvin Oye, who said that the recent fuel price increase “will have a profound impact on micro and nano businesses, many of which rely heavily on petrol generators to power their operations.”
According to him, Nigeria is home to over 41.5 million micro enterprises, which constitute 99.8 per cent of all businesses in the country.
“These small-scale businesses are already grappling with challenges such as poor power supply and rising operational costs. The surge in petrol prices will further strain their already meagre resources.
“These enterprises (MSMEs), often operate on tight margins. Many SMEs rely on affordable logistics to maintain competitiveness in the market; however, as freight charges rise, they may face tough choices: either pass the increased costs onto consumers or absorb the expenses, which could erode their profitability.
“This situation can lead to reduced investment in growth or innovation, causing stagnation in the sector. Furthermore, with rising prices for raw materials and utilities—heavily influenced by fuel costs—small businesses might find it increasingly difficult to maintain their operations, leading to potential layoffs or, in the worst-case scenario, closures,” he said.
According to Oye, the overall economic landscape for SMEs could thus shift from one of potential growth to one of survival, which would not only impact individual enterprises but also limit job creation and economic development in communities across Nigeria.”
He also said that the apparent failure of NNPCmto deliver on the multi-billion dollar Port Harcourt refinery has left gaps in our local production capabilities.
Oye said: “The lack of adequate support for the Dangote refinery, which promises to reduce Nigeria’s dependence on imported petrol, has further perpetuated the national reliance on external supply chains.
“There is general sentiment that NNPC has not demonstrated the necessary goodwill to support Dangote’s operations, which would ideally stabilise local petrol prices and contribute to national self-sufficiency.
“The ongoing issues surrounding crude oil supply to the Dangote refinery signal systemic inefficiencies that can exacerbate the current crisis.”
The issue, according to Oye, is further compounded by the depreciation of the Naira, which has now nearly approached N1700 to the US Dollar and causing Nigerians to face a double jeopardy.
“The Central Bank of Nigeria (CBN) has not been effective in implementing monetary policies that stabilise or strengthen the Naira, adding to the cost burdens faced by consumers.
“As importation costs rise due to currency depreciation, domestic fuel prices will likely continue on an upward trajectory,” he said.
He added: “Additionally, the geopolitical turmoil in the Middle East, particularly between Israel and Iran, has raised concerns regarding international oil prices. These uncertainties have already driven crude oil prices higher in the global market, leading to subsequent pressures on local pump prices.
“It is imperative that we advocate for robust strategies that not only stabilise fuel prices but also bolster domestic production capabilities, ensuring that the Nigerian economy can navigate these turbulent times more effectively.
“As stakeholders, NACCIMA will continue to engage with government entities to encourage a more conducive climate for growth and sustainability.”
THISDAY
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