The Petroleum Product Marketing Company (PPMC) on Wednesday, announced an increase in the pump price of fuel from N148 to N151.56. The third increase in three months is coming at a time when many Nigerians are passing through very peculiar and precarious times.
The PPMC, a subsidiary of the Nigerian National Petroleum Corporation, NNPC, had announced on September 2, 2020, an increment in the price of Premium Motor Spirit (PMS) to N151.56 per litre.
The federal government is not currently in a position, financially, to pay the subsidy, top official noted. Allowing market forces to determine the prices is now an option, as crude oil price goes up or down, it would reflect at the pumps.
The Petroleum Products Pricing Regulatory Agency (PPPRA) had disclosed that it would on a monthly basis, advise the NNPC and the oil marketers on the guiding retail price at which petrol would be sold across the country.
Before the global crash, the government paid the difference between the Expected Open Market Price (EOMP) and the approved retail price of petrol (fuel subsidy), in order to make the produce available to the populace at an affordable price, irrespective of the prevailing market forces.
Since the introduction of the deregulation policy in March 2020, the country had saved about N1 trillion. Also expulsion of N500 billion earmarked for subsidy payment in the 2020 budget and the removal of foreign exchange differentials, which saved the country around N500 billion.
‘The Authority’
Nigerian government had concluded plans of merging the Petroleum Products Pricing Regulatory Agency, PPPRA, and the Petroleum Equalisation Fund (PEF), into one agency called ‘The Authority’.
PPPRA and Petroleum Equalisation Fund (PEF) would not exist as they currently are, stating that with the passage of the Petroleum Industry Bill (PIB), the two organisations would be merged into one and called ‘The Authority’, to help monitor the downstream sector.
On the edge
While Nigerians react as most have not earned an income for months, as the COVID-19 pandemic had impacted negatively on the country’s economy. This action would have a knock-on effect on millions of poor Nigerians who will struggle to meet the increased costs of electricity transport and basic goods. Power distribution companies had been asked to put off any tariff increase until the first quarter of 2021 due to “the current economic challenges in Nigeria.”
What appeared like a strategic decision earlier in the year, following the deregulation of the downstream sector and the removal of fuel subsidised by the Federal Government. The price modulation for Premium Motor Spirit (PMS) or petrol seems to have been left in limbo, as the price remains uncertain.
Although the Nigerian government appears to still ‘fix’ the price of the product, it is within a band and based on prevailing market and operating conditions of petroleum products marketers.
The absence of a clear legislation to deregulate PMS was affected the sector, adding that it remained the responsibility of PPPRA to provide clarity to the market on pump prices. This was expressed through a PPPRA regulation passed in June 2020 and backdated to March 2020, where PPPRA stated that they would be responsible for publishing guides PMS pump prices.
Now, nearing economic and financial apocalypse, the Nigerian government has found itself between the devil and the deep blue sea, and is forced to see the death of subsidy as the only option.
From all indications, it appeared the government had lost touch with Nigerians, and there have been gradual and steady annihilation of Nigeria in the light of government action. As for the fact that the government of the day has implemented all the policies Nigerians have kicked against in the past.
Fixing prices
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The pump price of petrol was increased to N145 per litre, up from N86.50 in May 2016 where the previous government of Goodluck Jonathan left it. In March 2020, the pump price of petrol was reduced to N125 from N145 per litre.
Petroleum Products Pricing Regulatory Agency (PPPRA) announced a new pump price band to between N121.50 to N123.50 per litre on May 2020. In July 2020, it was further increased to between N140.80 and N143.80.
Similarly, on August 2020, it was again hiked to between N145.86 and N148.86. It was later increased on September 2, 2020 further to N151.56.
The absence of the PPPRA’s template created confusion coupled with the issuance of two conflicting statements by a subsidiary of the NNPC, Petroleum Products Marketing Company (PPMC). The two statements fixing two ex-depot prices: N147.67 and N151.56.
The PPMC, in the first statement dated September 2, 2020, with reference number PPMC/IB/LS/020, notified stakeholders that the price had increased to N151.56 per litre.
The same agency, in the second statement, with reference number PPMC/MOD/SALES/346, put ex-depot price at N147.67 for petrol.
The voices
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Those that rejected or kicked against the hikes were the minority caucus of the House of Representatives, Peoples Democratic Party (PDP), Socialist Party of Nigeria (SPN), and Advocacy for Integrity and Economic Development (AIED).
The Minority Caucus in the House of Representatives has challenged the All Progressives Congress (APC)-led government to rather come up with strategies that will lead to a decrease rather than an increase in the cost of domestic fuel, including revamping our nation’s refineries, instead of always resorting to price increase, to the detriment of Nigerians.
In contrast, the Nigeria Labour Congress (NLC) has also rejected the increase in the price of petrol, threatening that it would no longer guarantee industrial peace.
The All Progressives Congress (APC) in a statement issued in response to the Peoples Democratic Party(PDP)’s stance on the fuel hike, blamed the latter’s 16 years rule for the country’s current woes.
The way out
In the end, though, the big question will be what the government achieves with the oil price windfall. The real question must be whether as a nation, this can translate to higher revenue into economic growth.
The Nigerian government should liberalise PMS; allow marketers to bring in the products, promote competition, prevent price collusion, regulate quality and allow NNPC to compete and serve as a price leader to signal competitive price.
The full deregulation of PMS by law should remain priority of government to enshrine that there would be no more PMS subsidy by government, noting that uncertainty created by the monthly price review by the PPPRA and the challenge of accessing foreign exchange have been identified by marketers as major disincentives to the resumption of importation.
The government should monitor the prices, using its templates, to ensure the prices that marketers would churn out are fair, while any marketer found charging prices beyond the range it knows is fair, should be sanctioned.
The price increase is in the short run good for our national revenues even if not all of the extra cash is spent because of the budget benchmark. On the long run, however, the sharp price increase will accelerate the pursuit of alternative energy sources.
The government cannot continue fixing the pump price of petrol every month and expect private sector investors to be willing to resume the wholesale import or build refineries in the country. Structural reforms are needed to bring transparency into the activities of the Nigerian National Petroleum Corporation and deal with pre-existing conditions set up to fail at every unanticipated crisis.
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