BY
JIDE AYOBOLU
The Federal Government (FG) has approved the reduction of the pump price
of Premium Motor Spirit (PMS), popularly referred to as petrol, from
N145 per litre to N125 per litre with immediate effect. The order from
FG to the Nigerian National Petroleum Corporation (NNPC) for the
reduction is coming against the backdrop of the crash in crude oil
prices globally. The President also ordered NNPC to immediately reduce
the ex-coastal and ex-depot price of the premium motor spirit to reflect
the current market realities.
The President said that it was part of the measure put being put in
place by the Federal Government to help provide relief to Nigerians and
provide a framework for the sustainable supply of the product. Given the
directive on behalf of the President, the Minister of State for
Petroleum Resources, Mr Timipre Sylva, said that enforcement of
compliance by petroleum marketers is to be enforced by NNPC and the
Petroleum Product Pricing Regulatory Agency (PPPRA). The price reduction
is expected to affect all petroleum products.
The minister also said that the ministry is going to adopt a price
modulation mechanism so that the price of petroleum product can be
regulated as the market dictates. The minister also assured Nigerians
that the ministry will continue to encourage Nigerians to make use of
compressed natural gas to complement PMS utilization as a transport
fuel.
The pricing template puts the total landing cost for a litre of petrol
at Nigerian port at N137/litre as of February 12, 2020, when Brent crude
price stood at US$55.79/bb. This has however declined to N64.33/L as of
16 March 2020 following the dip in crude oil price to US$30/bbl.
The decision has been lauded by many as a signal towards deregulation of
the downstream sector. While we see the rationale behind the move, we
are concerned that the government is giving up an opportunity to prop up
its already slumped revenue prospect given the significant drop in crude
price. That said, the decrease will likely ease inflationary pressures
at a time when inflation is on the rise. Headline inflation stood at
12.2% y/y in February, up from 12.13% in January.
On May 11, 2016, petrol pump prices were hiked by around 68% from
N87/litre to N145/litre and many assumed this signalled full
deregulation. This wasn’t the case however as the subsidy regime was
still in place. The exchange rate factored into the landed cost of fuel
was between N280 and N285/US$1.
A steep devaluation in the currency and an increase in crude prices in
the international market, implied an increase in the landing cost which
necessitated the continuation of the subsidy regime, though now booked
as under-recovery losses in the books of NNPC.
The removal of the subsidy is a critical free-market reform, and it is
beneficial to the economy and government finances, though it will almost
certainly put pressure on consumers and small businesses. Beyond the
impact on government revenues, the removal of the subsidy also removes
disincentives to refine petroleum product and may improve the balance of
payments through import substitution. We, however, refrain from
labelling this price reduction move as any sign of deregulation as the
price of fuel is likely to remain regulated.
The Group Managing Director of NNPC, Mallam Mele Kyari, listed
over-supply and the outbreak of the coronavirus, which has led to a
considerable fall in the price of crude oil, as the two major challenges
facing the oil and gas industry today. “The combination of these two
events means that there would be a lull in activities in the oil
industry, and if forecasts are right, we may witness very low oil prices
throughout the year and that will have a collateral effect on the
economy,” the GMD observed. As the landing cost of petrol yesterday
crashed to N64.32 per litre, going by the recent pricing template
released by the Petroleum Products Pricing Regulatory Agency (PPPRA),
there are fresh agitations for the government to deregulate the
downstream subsector, using the opportunity provided by the current oil
slump.
The outbreak of the deadly coronavirus and its spread across the world
has forced the international oil market to a near standstill, leaving
crude oil price to crash from around $60 per barrel to about $29. The
drastic fall in the price reduced the expected pump price of petrol to
N64.32. Despite the development, the ex-depot price stood at N125.63 per
litre, while the government’s approved retail price hovers between
N135.00 and N145.00 under a subsidy scheme that has been repeatedly
criticized. While the PPPRA disclosed that the country currently has
about 2,217,972,763 litres of PMS in stock, expected to last for 39 days
in the face of the growing concern as businesses close down across the
world over the coronavirus pandemic, there are indications that the
Federal Government could save the N450 billion that was budgeted for
subsidy in 2020.
The immediate past president of the Nigerian Association for Energy
Economics (NAEE), Prof. Wumi Iledare, said there was the need for
government to allow market realities to drive the sector. “I wish the
government will have the will to let the PPPRA take charge, using the
template for petroleum products pricing. Government must take advantage
of this to liberalise or restructure the market to readjust itself going
forward in proportion to relate changes in crude oil prices and exchange
rates,” Iledare stated.
Also, oil marketers under the umbrella of Major Marketers Association of
Nigeria (MOMAN), stated that the global reduction in crude oil prices
had presented Nigeria with the opportunity to reform and restructure the
downstream sector of its petroleum industry. MOMAN Chairman, Tunji
Oyebanji, said the fall in oil prices would open up petrol importation
by bringing multiple players to participate. He appealed to the
government to review industry margins. According to him, removing fuel
subsidy at the period of a drop in prices would eliminate waste, address
the issue of the low margin of marketers, as well as, set the country on
the path of determining appropriate pricing for the product in the
country. He also advocated the need for the restructuring of the
nation’s downstream oil industry in order to set it on the path to
sustainability. “The elimination of oil theft and leakages in the
system, the optimization of the supply chain, the introduction of
alternative energies and the regular and consistent maintenance of the
distribution infrastructure are all necessary aspects of this downstream
reform, which the passage of the Petroleum Industry Bill (PIB) will
provide an opportunity for the country to resolve once and for
all.’’
Though the Federal Government unveiled a new template for the pump price
of petrol, there are concerns among operators on when it will become
operational as existing stocks are yet to be dispensed, thus fuelling
the fear of possible hoarding and scarcity of the product.
The Petroleum Products Pricing Regulatory Agency (PPPRA) said the
N125.00 new official pump price for Premium Motor Spirit (PMS) would
cover the entire month. The Executive Secretary of the PPPRA, Abdulkadir
Saidu, disclosed this in a statement in Abuja. He said: “In exercising
one of its key statutory mandates to determine the pricing policy of
petroleum products as enshrined in the PPPRA Act No.8 of May 2003, the
Agency hereby announces a new price regime of Premium Motor Spirit (PMS)
and other Petroleum products as approved by the Government.
“Consequent on the new NNPC Ex-Coastal price and taking into
consideration all existing approved margins on the PPPRA pricing
template, the new pump price of PMS is N125.00 per litre, effective
March 19.
“This new price will guide PMS pricing in Nigeria for the rest of the
month of March 2020,” Saidu said the agency would continue to monitor
trends in market fundamentals and announce a monthly Guiding/Expected
Open Market price at the beginning of every month effective from April
1. He added that the new price regime would emplace a more transparent
pricing model, stimulate investment growth in the downstream sector of
the petroleum industry and encourage the resumption of products
importation by Oil Marketing Companies (OMCs). This, he noted, would
translate to more job creation as many depots and facilities that were
presently dormant would now become active. “The directive of
Government to the NNPC is to reduce the Ex-Coastal price of PMS, despite
the fact that the current stock of product was imported during the
months of January and February 2020 is highly commendable, although this
action is not without costs to the Corporation. “We believe that the
recent efforts by the Government to develop an alternative Fuels market
will come to fruition in the medium term while various initiatives are
being undertaken to deepen the utilisation of LPG/CNG as autogas in
Nigeria. “The PPPRA wishes to assure all Nigerians of Government’s
dedication to building a more vibrant and sustainable downstream
sector,” the PPPRA chief added.
In a move signalling possible deregulation of the downstream sector, the
Petroleum Products Pricing Regulatory Agency, PPPRA, said that there is
the possibility of a new price regime for Premium Motor Spirit, PMS,
also known as petrol on April 1, noting that the new N125 per litre pump
price will last till the end of March 2020. Addressing newsmen in Abuja,
Executive Secretary, PPPRA, Mr. Abdulkadir Saidu, stated that the agency
would be undertaking a review of PMS price and would announce a new
price for the commodity, April 1, 2020, if there is a change in the
parameters used in determining the current price.
He noted that the price announced Wednesday, March 18, 2020, would apply
till March 31, 2020, and a new price might come into effect after the
review, adding that henceforth, PPPRA would be undertaking a review of
petroleum products prices every month. He said: “The approved price of
N125 per litre comes into effect from today, which is going to be what
we would apply till the end of the month. Then, from the 1st of April,
PPPRA will be modulating a monthly price of petroleum products based on
the market fundamentals. What the new pricing regime is going to be
doing is going to be looking at the actual market price. It is going to
be a reflection of what the market is doing. “The way the market is
going, this is N125 today, if by the end of March, the prices go below
where they are today, then the Nigerian populace will be expected to pay
less than N125. It is going to be a reflection of what the market is
doing in any particular period. “What we are trying to say is that
going forward, the price will be a reflection of what the international
market is doing. Normally, the crude oil price determines the product
price that we pay. Therefore, if the crude oil price moves it is going
to affect the price of PMS. If it goes down, Nigeria will pay lower.”
However, the government must strive to repair the oil refineries and
ensure that they are working in full capacity; also government should
build new refineries as well as give licenses to the private sector to
invest in building new refineries. Government should equally encourage
the setting up of modular refineries too, so as to, stop the importation
of petroleum products for local consumption.
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