<\/p>\n
BY<\/p>\n
JIDE AYOBOLU<\/p>\n
The Federal Government (FG) has approved the reduction of the pump price
\nof Premium Motor Spirit (PMS), popularly referred to as petrol, from
\nN145 per litre to N125 per litre with immediate effect. The order from
\nFG to the Nigerian National Petroleum Corporation (NNPC) for the
\nreduction is coming against the backdrop of the crash in crude oil
\nprices globally. The President also ordered NNPC to immediately reduce
\nthe ex-coastal and ex-depot price of the premium motor spirit to reflect
\nthe current market realities.<\/p>\n
The President said that it was part of the measure put being put in
\nplace by the Federal Government to help provide relief to Nigerians and
\nprovide a framework for the sustainable supply of the product. Given the
\ndirective on behalf of the President, the Minister of State for
\nPetroleum Resources, Mr Timipre Sylva, said that enforcement of
\ncompliance by petroleum marketers is to be enforced by NNPC and the
\nPetroleum Product Pricing Regulatory Agency (PPPRA). The price reduction
\nis expected to affect all petroleum products.<\/p>\n
The minister also said that the ministry is going to adopt a price
\nmodulation mechanism so that the price of petroleum product can be
\nregulated as the market dictates. The minister also assured Nigerians
\nthat the ministry will continue to encourage Nigerians to make use of
\ncompressed natural gas to complement PMS utilization as a transport
\nfuel.<\/p>\n
The pricing template puts the total landing cost for a litre of petrol
\nat Nigerian port at N137\/litre as of February 12, 2020, when Brent crude
\nprice stood at US$55.79\/bb. This has however declined to N64.33\/L as of
\n16 March 2020 following the dip in crude oil price to US$30\/bbl.<\/p>\n
The decision has been lauded by many as a signal towards deregulation of
\nthe downstream sector. While we see the rationale behind the move, we
\nare concerned that the government is giving up an opportunity to prop up
\nits already slumped revenue prospect given the significant drop in crude
\nprice. That said, the decrease will likely ease inflationary pressures
\nat a time when inflation is on the rise. Headline inflation stood at
\n12.2% y\/y in February, up from 12.13% in January.<\/p>\n
On May 11, 2016, petrol pump prices were hiked by around 68% from
\nN87\/litre to N145\/litre and many assumed this signalled full
\nderegulation. This wasn\u2019t the case however as the subsidy regime was
\nstill in place. The exchange rate factored into the landed cost of fuel
\nwas between N280 and N285\/US$1.<\/p>\n
A steep devaluation in the currency and an increase in crude prices in
\nthe international market, implied an increase in the landing cost which
\nnecessitated the continuation of the subsidy regime, though now booked
\nas under-recovery losses in the books of NNPC.<\/p>\n
The removal of the subsidy is a critical free-market reform, and it is
\nbeneficial to the economy and government finances, though it will almost
\ncertainly put pressure on consumers and small businesses. Beyond the
\nimpact on government revenues, the removal of the subsidy also removes
\ndisincentives to refine petroleum product and may improve the balance of
\npayments through import substitution. We, however, refrain from
\nlabelling this price reduction move as any sign of deregulation as the
\nprice of fuel is likely to remain regulated.<\/p>\n
The Group Managing Director of NNPC, Mallam Mele Kyari, listed
\nover-supply and the outbreak of the coronavirus, which has led to a
\nconsiderable fall in the price of crude oil, as the two major challenges
\nfacing the oil and gas industry today. \u201cThe combination of these two
\nevents means that there would be a lull in activities in the oil
\nindustry, and if forecasts are right, we may witness very low oil prices
\nthroughout the year and that will have a collateral effect on the
\neconomy,\u201d the GMD observed. As the landing cost of petrol yesterday
\ncrashed to N64.32 per litre, going by the recent pricing template
\nreleased by the Petroleum Products Pricing Regulatory Agency (PPPRA),
\nthere are fresh agitations for the government to deregulate the
\ndownstream subsector, using the opportunity provided by the current oil
\nslump.<\/p>\n
The outbreak of the deadly coronavirus and its spread across the world
\nhas forced the international oil market to a near standstill, leaving
\ncrude oil price to crash from around $60 per barrel to about $29. The
\ndrastic fall in the price reduced the expected pump price of petrol to
\nN64.32. Despite the development, the ex-depot price stood at N125.63 per
\nlitre, while the government\u2019s approved retail price hovers between
\nN135.00 and N145.00 under a subsidy scheme that has been repeatedly
\ncriticized. While the PPPRA disclosed that the country currently has
\nabout 2,217,972,763 litres of PMS in stock, expected to last for 39 days
\nin the face of the growing concern as businesses close down across the
\nworld over the coronavirus pandemic, there are indications that the
\nFederal Government could save the N450 billion that was budgeted for
\nsubsidy in 2020.<\/p>\n
The immediate past president of the Nigerian Association for Energy
\nEconomics (NAEE), Prof. Wumi Iledare, said there was the need for
\ngovernment to allow market realities to drive the sector. \u201cI wish the
\ngovernment will have the will to let the PPPRA take charge, using the
\ntemplate for petroleum products pricing. Government must take advantage
\nof this to liberalise or restructure the market to readjust itself going
\nforward in proportion to relate changes in crude oil prices and exchange
\nrates,\u201d Iledare stated.<\/p>\n
Also, oil marketers under the umbrella of Major Marketers Association of
\nNigeria (MOMAN), stated that the global reduction in crude oil prices
\nhad presented Nigeria with the opportunity to reform and restructure the
\ndownstream sector of its petroleum industry. MOMAN Chairman, Tunji
\nOyebanji, said the fall in oil prices would open up petrol importation
\nby bringing multiple players to participate. He appealed to the
\ngovernment to review industry margins. According to him, removing fuel
\nsubsidy at the period of a drop in prices would eliminate waste, address
\nthe issue of the low margin of marketers, as well as, set the country on
\nthe path of determining appropriate pricing for the product in the
\ncountry. He also advocated the need for the restructuring of the
\nnation\u2019s downstream oil industry in order to set it on the path to
\nsustainability. \u201cThe elimination of oil theft and leakages in the
\nsystem, the optimization of the supply chain, the introduction of
\nalternative energies and the regular and consistent maintenance of the
\ndistribution infrastructure are all necessary aspects of this downstream
\nreform, which the passage of the Petroleum Industry Bill (PIB) will
\nprovide an opportunity for the country to resolve once and for
\nall.\u2019\u2019<\/p>\n
Though the Federal Government unveiled a new template for the pump price
\nof petrol, there are concerns among operators on when it will become
\noperational as existing stocks are yet to be dispensed, thus fuelling
\nthe fear of possible hoarding and scarcity of the product.<\/p>\n
The Petroleum Products Pricing Regulatory Agency (PPPRA) said the
\nN125.00 new official pump price for Premium Motor Spirit (PMS) would
\ncover the entire month. The Executive Secretary of the PPPRA, Abdulkadir
\nSaidu, disclosed this in a statement in Abuja. He said: \u201cIn exercising
\none of its key statutory mandates to determine the pricing policy of
\npetroleum products as enshrined in the PPPRA Act No.8 of May 2003, the
\nAgency hereby announces a new price regime of Premium Motor Spirit (PMS)
\nand other Petroleum products as approved by the Government.
\n\u201cConsequent on the new NNPC Ex-Coastal price and taking into
\nconsideration all existing approved margins on the PPPRA pricing
\ntemplate, the new pump price of PMS is N125.00 per litre, effective
\nMarch 19.<\/p>\n
\u201cThis new price will guide PMS pricing in Nigeria for the rest of the
\nmonth of March 2020,\u201d Saidu said the agency would continue to monitor
\ntrends in market fundamentals and announce a monthly Guiding\/Expected
\nOpen Market price at the beginning of every month effective from April
\n1. He added that the new price regime would emplace a more transparent
\npricing model, stimulate investment growth in the downstream sector of
\nthe petroleum industry and encourage the resumption of products
\nimportation by Oil Marketing Companies (OMCs). This, he noted, would
\ntranslate to more job creation as many depots and facilities that were
\npresently dormant would now become active. \u201cThe directive of
\nGovernment to the NNPC is to reduce the Ex-Coastal price of PMS, despite
\nthe fact that the current stock of product was imported during the
\nmonths of January and February 2020 is highly commendable, although this
\naction is not without costs to the Corporation. \u201cWe believe that the
\nrecent efforts by the Government to develop an alternative Fuels market
\nwill come to fruition in the medium term while various initiatives are
\nbeing undertaken to deepen the utilisation of LPG\/CNG as autogas in
\nNigeria. \u201cThe PPPRA wishes to assure all Nigerians of Government\u2019s
\ndedication to building a more vibrant and sustainable downstream
\nsector,\u201d the PPPRA chief added.<\/p>\n
In a move signalling possible deregulation of the downstream sector, the
\nPetroleum Products Pricing Regulatory Agency, PPPRA, said that there is
\nthe possibility of a new price regime for Premium Motor Spirit, PMS,
\nalso known as petrol on April 1, noting that the new N125 per litre pump
\nprice will last till the end of March 2020. Addressing newsmen in Abuja,
\nExecutive Secretary, PPPRA, Mr. Abdulkadir Saidu, stated that the agency
\nwould be undertaking a review of PMS price and would announce a new
\nprice for the commodity, April 1, 2020, if there is a change in the
\nparameters used in determining the current price.<\/p>\n
He noted that the price announced Wednesday, March 18, 2020, would apply
\ntill March 31, 2020, and a new price might come into effect after the
\nreview, adding that henceforth, PPPRA would be undertaking a review of
\npetroleum products prices every month. He said: \u201cThe approved price of
\nN125 per litre comes into effect from today, which is going to be what
\nwe would apply till the end of the month. Then, from the 1st of April,
\nPPPRA will be modulating a monthly price of petroleum products based on
\nthe market fundamentals. What the new pricing regime is going to be
\ndoing is going to be looking at the actual market price. It is going to
\nbe a reflection of what the market is doing. \u201cThe way the market is
\ngoing, this is N125 today, if by the end of March, the prices go below
\nwhere they are today, then the Nigerian populace will be expected to pay
\nless than N125. It is going to be a reflection of what the market is
\ndoing in any particular period. \u201cWhat we are trying to say is that
\ngoing forward, the price will be a reflection of what the international
\nmarket is doing. Normally, the crude oil price determines the product
\nprice that we pay. Therefore, if the crude oil price moves it is going
\nto affect the price of PMS. If it goes down, Nigeria will pay lower.\u201d<\/p>\n
However, the government must strive to repair the oil refineries and
\nensure that they are working in full capacity; also government should
\nbuild new refineries as well as give licenses to the private sector to
\ninvest in building new refineries. Government should equally encourage
\nthe setting up of modular refineries too, so as to, stop the importation
\nof petroleum products for local consumption.<\/p>\n
ReplyReply allForward<\/p>\n
<\/p>\n","protected":false},"excerpt":{"rendered":"
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