The International Monetary Fund (IMF) has said the Nigerian government has, through the backdoor, resumed the payment of subsidies on the premium motor spirit (PMS), otherwise known as petrol.
Recall that on May 29, 2023, during his swearing-in speech, President Bola Tinubu announced an end to petrol subsidy, triggering a hike in the prices of goods and services in the country.
A few weeks later, the Central Bank of Nigeria (CBN) collapsed the different exchange rate regimes into one, with the value of the naira to the dollar weakening.
As of yesterday, it was N1,499/$1 at the official window and N1,515/$1 at the parallel market.
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Over the weekend, the IMF issued a statement on the conclusion of its Executive Board’s Post Financing Assessment with Nigeria, and it expressed concerns that the government had capped the prices of fuel at retail stations.
The global lender advised the administration of President Tinubu to completely stop the payment of subsidies on petrol to free funds to run the government.
However, prominent Nigerians and regional groups had at different times scolded the IMF for what they described as “anti-masses policies”, and called on Nigerian government to explore home grown options that would fix the economy and better the life of the people.
In the past few days, there have been reports of queues returning to petrol stations in major cities in the country, but the Nigerian National Petroleum Company (NNPC) Limited allayed the fears of consumers, assuring that it has enough to go around.
How petrol prices fared since subsidy removal
After the removal of the petrol subsidy in May 2023, the pump price changed from N185 per litre to N400 per litre, and then to N568 per litre at NNPC fueling stations, while others currently sell above N600.
The government had said the prices would fluctuate after subsidy removal from time to time but the pump price has maintained a steady rise despite the fact that the price of crude oil in the global market keeps going up and down.
The IMF, in its latest statement at the weekend, said the Tinubu administration has “capped retail fuel and electricity prices” ostensibly to “ease the impact of rapidly rising inflation on living conditions, thus partially reversing the fuel subsidy removal.”
Daily Trust investigation in September revealed that despite the numerous assurances by President Tinubu that the subsidy was gone, the federal government paid N169.4 billion as subsidy in August to keep the pump price at N620 per litre.
A document from the Federal Account Allocation Committee (FAAC), sighted by one of our reporters, showed that in August 2023, the Nigerian Liquefied Natural Gas (NLNG) paid $275m as dividends to Nigeria via NNPC Limited. NNPC Limited used $220 million (N169.4 billion at N770/$) out of the $275 million to pay for the PMS subsidy. Then NNPC held back $55 million, illegally.
Petrol may sell for over N1000/l due to devaluation
The recent devaluation of the naira at the official forex window which has seen it exchange for N1, 499/$ will likely push pump price of petrol to cross the N1, 000 per litre mark.
A breakdown of the landing cost of petrol before the latest devaluation showed that product cost was N627.82 per litre, finance cost was N11.61, and operations/administrative cost N12.32, bringing the total landing cost to N651.75 per litre with local currency pegged at N900/dollar ceiling.
The amount has seen independent marketers adjust pump price three times between August and December 2023, forcing them to sell between N660 per litre to N670 per litre.
NNPC retail outlets have however continued to sale at N617 per litre.
With the old situation, it is fully suggestive that petrol ought to sell at over N720, and someone, most probably, is paying the price differential.
Therefore, the new exchange rate indicates that prices should to be above N1,000 per litre
Oil Marketers react
Leaders of the Major Oil Marketers Association of Nigeria of Nigeria, Independent Petroleum Marketers Association of Nigeria, and Petroleum Products Retail Outlets Owners Association of Nigeria said there was a need for the federal government to intervene to address the impending crisis.
Speaking recently, the National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria, Chief Chinedu Ukadike, explained that the price of petrol was now driven by the fluctuations in forex, hence Nigerians should expect a hike soon.
Asked whether oil marketers were considering an increase in petrol price, he replied, “Once there is a slack in the naira against the dollar, there is going to be an effect. The demand and supply of forex is a key factor. We should also understand that it is not only petroleum products that use forex.
“It is simple mathematics, once the dollar is going up, have it in mind that the prices of petroleum products would definitely increase because the products are dollar-driven.”
Also speaking to Daily Trust, the Secretary General of NUPENG, Afolabi Olawale Olufemi said: “Our people are losing confidence in the naira and it is unfortunate. People should stop exploiting the situation because it is not good for anybody.
“We are fortunate that there are positive signs that Dangote refinery is going to start very soon. We should be hopeful and that would help moderate the fluctuations that are expected.”
Speaking on the development, Abiola Rasaq, former Economist and Head, Investor Relation at UBA plc said: “The sharp rise in petroleum price is a reflection of both the full deregulation of the downstream oil & gas sector as well as Naira weakness. Notably, crude oil is a dollarised commodity, hence the notable devaluation of the local currency has direct impact on the Naira-cost of petroleum prices, especially as the subsidy removal meant the retail price has to reflect the true market price of the product. So, it’s a double whammy effect.”
NNPC says no increase in petrol pump price
When Daily Trust reached out to the Chief Corporate Communications Officer, NNPC Ltd, Olufemi Soneye on the likelihood of pump price shifting beyond the current N617 per litre, he said: “We are pleased to confirm that there are no supply issues, and our products remain readily available. The recent tightness experienced in certain areas was due to a brief distribution issue in Lagos, which has since been resolved.”
He said there is no imminent increase in the cost of petrol.
No need for panic buying–Tanker drivers
The Petroleum Tanker Drivers (PTD) union has advised Nigerians against panic buying, assuring that there is no shortfall in the distribution of petroleum products.
It gave the advice in a statement yesterday by its National Chairman and Secretary, Lucky Osesua and Humble Power Obinna, respectively.
It asked its members to ignore any threat from the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) not to lift petroleum products from certain depots in the country.
PTD said the alleged plot to remove Osesua, Obinna and Deputy Chairman, Yusuf Garga, had failed.
“There is no shortfall in the distribution of petroleum products across the six geo political zones of the country and PTD, under the legitimate leadership of Comrade Lucky Osesua and his deputy, Comrade Dayyabu Garga, has redoubled its commitment to ensure and guarantee lifting and distribution of petroleum products without encumbrance in observance of its statutory responsibility.
“We equally urge Nigerians and motorists to avoid storing of petrol at home because of the dangers associated with it,” the statement read in part.
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