Nigeria Still Postponing the Evil Day for Appropriate Price of Fuel

Ibe Kachikwu, group managing director, NNPC


The federal government appears to be postponing the evil day by rejecting the idea of the former group managing directors of the Nigerian National Petroleum Corporation that the current pump price of fuel is unsustainable and should be liberalised

By Olu Ojewale  |  Sep 19, 2016 @ 01:00 GMT  |

THE Nigerian government is again at crossroads about fixing the appropriate pump price of fuel. For obvious reasons, allowing marketers to jack up the pump price of fuel looks inevitable, but that could also mean a political doom for the President Muhammadu Buhari government. Hence, it was no real surprise that the government rejected the recommendation of the former group managing directors of the Nigerian National Petroleum Corporation, NNPC, who stated that the current pump price of premium motor spirit, PMS, also known as fuel, in the country is unsustainable. The technocrats argued that the present price cap of N145 per litre has become unrealistic considering the current economic situation.

Indeed, the current price cap had been set when the dollar exchange rate at the parallel market was less than N300, when the government then argued that the decision for the increase from N87 to N145 was to ensure that marketers would not sell petrol at their desired price. But now at the same parallel market, the dollar exchange rate oscillates between N410 and N415.

Hence, the former GMDs came up with their recommendation after a one-day meeting held in Abuja on Sunday, September 4, in which Maikanti Kacalla Baru, the current GMD of the NNPC, was present while Ibe Kachikwu, minister of state for Petroleum Resources was represented. The former GMDs said the PMS price cap of N145 per litre was not in consonant with the liberalisation policy, especially in view of the current foreign exchange rate and other price determining components such as crude cost, Nigerian Ports Authority, NPA, charges, among others, remaining uncapped.

Similarly, the former GMDs also expressed concern over the declining production level of crude oil in Nigeria and its consequences on the environment and the nation’s revenue. They expressed fear that if the current situation was left unchecked, it could lead to the crippling of the NNPC and the nation’s oil and gas sector. The nation’s crude oil production recently dipped by 700,000 barrels per day, bpd, to 1.56 million bpd in the last few months, occasioned by incessant attacks on oil installations in the Niger Delta region by a group known as the Niger Delta Avengers. Only a few weeks ago, the group said it had agreed to a ceasefire and was ready for negotiations with the federal government.

Apparently sensing the political implications of allowing another hike in fuel price, barely four months after the last increase in May, President Buhari must have reasoned that this was not the kind of change he promised Nigerians who voted him into power as he rejected the proposal. Besides, the ruling All Progressives Congress, APC, is also mindful of governorship polls scheduled to hold soon in Edo and Ondo states. Hence, on Monday, September 5, the government dismissed the notion that the pump price of fuel was about to go up.


It also came to the public knowledge that Buhari had to hold a very serious meeting with Kachikwu and Baru to douse the tension the recommendation was already causing in various quarters.  Little wonder, the two government officials had to put on bold face as they spoke separately with State House correspondents after meeting with President Buhari at the Presidential Villa, Abuja, on Monday, September 5, denying any of such plans.

Baru, who was the first to emerge from the meeting, and pressed to comment on the proposed hike in fuel price, said “there is nothing like that” and referred journalists to the Petroleum Products Pricing and Regulatory Agency, PPPRA.

Similarly, Kachikwu who came out about 15 minutes later directed journalists to speak with Baru on the matter. But when told that Baru had declined comments on the matter, Kachikwu said there was no memo before the federal government asking for a review of the fuel price.

That must have emboldened Sotonye Iyoyo, acting executive secretary of the PPPPRA, who said that the agency would not accept the former GMDs advice. Iyoyo claimed that the proposal was the personal opinion of the former GMDs of the NNPC. “I am not aware that the government is planning any fuel price increase. We are in a liberalised market already,” she insisted.

No matter how anyone may want to view it, accepting the GMDs’ recommendation would probably have been a political hara-kiri for the Buhari administration. For instance, Nigerians have not been happy with the economic situation in the country as prices of goods and services are skyrocketing almost every day.  Adding increase in fuel price to an already uncomfortable situation is bound to produce a political backlash for the APC whose candidates are participating in governorship elections soon in Edo and Ondo states.

Nevertheless, there appears to be no easy solution out of the quagmire. It is common sense to have a seamless supply of fuel supply across the country, at least in order to have a well-oiled and thriving economy. The previous experience of fuel scarcity, leading to supply difficulties and exorbitant prices being paid by Nigerians on each occasion has never being a palatable one. Hence, Nigerians would be more comfortable with availability of the product even if the price is not flattering.

Prior to the announcement of the current pump price of N145 per litre last May, the federal government convened a meeting of various stakeholders in Aso Rock. The meeting, which was presided over by Vice President Yemi Osibanjo, had in attendance the leadership of the Senate, House of Representatives, Governors Forum, and Labour Unions, including the Nigerian Labour Congress,  NLC, the Trade Union Congress, TUC, the National Union of Petroleum and Natural Gas Workers NUPENG, and the Petroleum and Natural Gas Senior Staff Association of Nigeria, PENGASSAN.

In order to increase and stabilise the supply of the product, the meeting decided that any Nigerian entity is now free to import the product, subject to existing quality specifications and other guidelines issued by regulatory agencies.

This has given all oil marketers the leeway to import fuel on the basis of forex procured from secondary sources and accordingly the PPPRA template will reflect this in the pricing of the product. Thus, if the current price should be based on the current exchange rate, it is highly unlikely that it would remain at N145 per litre.

Maikanti Kacalla Baru

Nevertheless, it is believed that the current measure being used by the federal government will not solve the problem because the fundamental issues that should help to bring down the price of petrol have been largely ignored.

It is vehemently being touted that making all the refineries in the country work and produce at optimum capacity should be given utmost priority. At the moment, the refineries are not working optimally. Even when they are fixed and are working, their operations are often interrupted by the activities of pipeline vandals who burst pipelines conveying crude oil to the refineries. Thus, it has become impossible for the refineries to produce enough to meet the needs of the country which requires more than 33 million litres of petrol daily.

Consequently, observers say the price of fuel should be expected to  up in the months to come. Industrial watchers said that the only hope for stability lies with the completion and operation of the refinery being built by Dangote Group by 2018 – 2019.

Even with that, there is need for some drastic action to be taken to ensure that the older refineries in the country are also working by that time. If they fail to function, it is feared that the country will be depending on the Dangote refinery for fuel, thereby creating monopoly. This, it is believed, will drive up the price of fuel further up.

“If somebody does not take over the refineries and Dangote comes on stream alone, the price of fuel will still not come down because it will be a monopoly. This is why the government must work to ensure that such monopoly does not happen so as to avoid a situation where by other small importers are run out of business,” Barry Esimone, chief executive officer of Crusteam Group, once told Realnews.

In any case, the true price of petrol is not likely to emerge until there is a total deregulation, which means that importers are fully independent to sell at price differential in various parts of the country to recoup their investments. “What the federal government has done is to set the price of the fuel using black market exchange rate and make a categorical statement that the Central Bank of Nigeria will no longer fund fuel imports and that importers should source for funds for their imports. This means that the importers will go to the black market to raise dollars to import and set price accordingly. If the price of dollar keeps going up, the importers will continue to adjust the price of the product. This situation is bound to continue until there is internal production from the refineries to stabilise the system,” Esimone, told Realnews when the pump price of fuel was increased to N145.

This notwithstanding, one issue that is also troubling the mind of people is whether the government has also abolished subsidy for the transportation of fuel from the south to the north via trucks. The concern here is that corruption also takes place in the process of government offsetting the bridging cost through the Equalization fund. The idea is that deregulation is not totally done if the government is not allowing price disparity across the nation.  If this is not done then government cannot truly say that it has fully deregulated the downstream sector if the price of fuel per litre is the same all over the country. As a source who wishes anonymity told Realnews the deregulation must be total. “Once government pays the bridging cost then it is not deregulating. A cow does not cost the same in Lagos and Sokoto. There has to be price disparity. Government should hands off totally. If government is paying for the bridging, they have made nonsense of the policy. There must be price disparity. Who takes care of the transportation of fuel to the North?”

Queue in Mobil filling stations in Lagos
Queue in Mobil filling stations in Lagos

Realnews gathered from a top government functionary that government is still bridging the cost of transportation of fuel to the Northern part of the country. The government official said that gradually government will do away with that policy but for now it is still subsiding the cost of transportation of fuel.

Nevertheless, the Independent Petroleum Marketers Association of Nigeria, IPMAN, has warned that the much speculation of possible increase in price of PMS is real and should be expected. The IPMAN on Thursday, September 8, warned of threat to product availability in the country as the association is gripped with series of challenges confronting the petroleum sector.

Chinedu Okoronkwo, national president, IPMAN, in an interview noted that flexible access to forex should be allowed instead of marketers depending on parallel market for the purpose of importing fuel into the country. Okoronkwo said: “But I will advice for total deregulation. The price moderation, which is the cap placed is not healthy for the petroleum industry to grow. There are people who have the forex to bring product and sell. By so doing, forex will crash. But when the industry is overprotected like ours, the current challenges will be unending. The market force should drive the price.”

Besides, he opined that if the refineries were working to about 70 percent capacity, Nigerians would be paying less than N130 per litre. Hence, he argued that making the refineries to work maximally is one of the best ways out of the imminent crisis. “Because by the time you keep on importing, forex challenges will keep on re-occurring and there would no head way,” he said.

Aligning with the IPMAN boss’ argument, Tamuno Opubo, a public commentator, said Nigerians should just gear up for another scarcity of fuel because the present stock will soon finish and they should not expect marketers to sell at a loss when importing new stock. “If fuel had been allowed to float at forex price, there would be no problem. Price may be high but supply will remain,” he said.

From all indications, Nigerians are scared of going through another regime of fuel scarcity. Hence, they always struggle to buy at all costs during scarcity, but if the product is available, they are ready to buy at whatever cost. This should, perhaps serve as a signal to the government to go ahead with total deregulation. Waiting for the right political atmosphere is nothing but postponing the evil day, which turn out to be counterproductive for the Buhari administration after all.


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