The recent hike in the price of household kerosene from N50 to N83 per litre by the Petroleum Products Pricing Regulatory Agency (PPPRA) has raised fresh debates about the faulty template of petroleum products pricing in the country. Ibrahim Apekhade Yusuf and Yetunde Oladeinde in this report examine the issues
In his maiden broadcast to mark the 55 independence anniversary last October, President Muhammadu Buhari assured that the supply of petroleum products including kerosene would improve in the coming months. Of course, this was cheery news to a lot of Nigerians at the time. But not many expected that the planned improvement in the supply of household kerosene would amount to a new price regime.
The Petroleum Products Pricing Regulatory Agency (PPPRA) had last week increased price of household kerosene which hitherto sold at N50 to N83 per litre.
According to the PPPRA price template showed that the N83 price applied only to the Nigerian National Petroleum Corporation (NNPC) outlets just as the Federal Government is expected to make a gain of N10.72 on every litre.
Giving a breakdown of the price, the PPPRA template put the landing cost of ?the product at N57.98 per litre, while the total margin due? middlemen was put at N14.30.
Justification for new price regime
The main reason given for the new price regime was as a result of subsidy removal, which in the view of government spin doctors was long overdue.
Their argument is that over the years, government has spent huge sum on kerosene subsidy in order to make it affordable and available. Sadly, respite is yet to come the way of the Nigerian masses, as the commodity continues to remain scarce.
Last year alone, subsidy component in the country’s budget was about N40 billion. While in the last four years, over N1 trillion went into kerosene subsidy, yet the product could not get to the end users.
A peep into records at Pipeline and Products Marketing Company (PPMC), a subsidiary of the Nigeria National Petroleum Corporation (NNPC), indicated that the company imported a total of 9,732,437.17 metric tones of kerosene between 2010 and 2013.
However, despite the high volume, there is hardly anywhere in the country where kerosene was sold at the official price of N50 per litre.
Understanding the dynamics of petroleum pricing
When former president Olusegun Obasanjo learnt that kerosene, majority of Nigerians use in their homes, is the most expensive product among the petroleum products, his government charged African Petroleum, Capital Oil and other major independent marketers to bring the price of the product down. Government went ahead to announce that kerosene should be sold for N50 a litre.
However, despite government’s promise, and a follow up of subsidy payment to petroleum marketers, yet the product has continued to be beyond the reach of Nigerians.
But in the view of renowned economists and labour leaders, the issue of subsidy remains a thorny issue.
While the President of the Nigeria Labour Congress, NLC, Comrade Ayuba Wabba holds the view and very strongly too that provision of subsidy is a major function of the government and as such should not be ignored.
The NLC boss argued that as a result of the volatility of the global oil price, it was unfair to make Nigerians pay more for the price of petroleum products.
“We believe with the current price of oil globally, Nigerians are supposed to pay less, what they merely did is to adjust price upwards without any template, if there is template let them make it available so that Nigerians can be able to see,” he said.
The organised labour, he reiterated, was not carried along before the new price regime was effected and is therefore determine to resist the price increase at all cost.
The government, he said, continuously justify the hike in petroleum products under the pretext that it is importing from Europe when it can actually source products from within.
“We know for sure that if we have crude oil here and we have refineries within the shore of West Africa that can also be used to refine products and bring it back, the issue of freight would have reduced with lots of other tax components reduced and ultimately the price will reduce. But they have consistently relied on import from Europe as such this has helped to jack up pricing template and the component prices so that Nigerians will continue to pay more.”
The economics of fuel import, he said, “Is to satisfy the interest of those marketers and those importers. If you look at the policy carefully, it’s protecting their interest not protecting the interest of the larger consumers. And for me, it is more worrisome that policies of government which should be in favour of the poor and the most vulnerable who cannot afford to even pay more is favouring a few clique in the society.”
The labour leader, who fell short of accusing the federal government of adopting the International Monetary Fund (IMF) prescription on price modulation system, said Nigerians should braze up for more of such price adjustment anytime soon.
“I won’t be surprised that once the price of product goes beyond $46 to the barrel, we are sure that what they would do is to adjust the price and transfer the burden to Nigerians.”
In the view of Henry Boyo, an economist of repute who spoke in a recent interview the issue of subsidy removal on petroleum products is akin to the chicken and egg argument.
According to him, subsidy should be made to disappear naturally by allowing more dollars to chase the naira at the foreign exchange market, arguing that innovative approaches have to be taken to reduce the burden of subsidy until it disappears naturally from Nigeria’s economic system.
Boyo posited that the petroleum products could be sold at cheaper prices in the country on the basis of an appreciable exchange rate as this has a significant correlation with the price of crude oil.
Nigerians rue hike in kerosene price
The removal of subsidy from kerosene which the masses depends on for cooking and other domestic uses, has elicited mixed reactions. While some think that the action is a step in the right direction others think this would make life tougher for the masses who are still struggling to survive in a depressed economy.
For Sesan Adigun, a casual worker surviving with the allowances that he gets has been a nightmare. “They cannot increase the price of kerosene now. It is the hope of the common man and things are already very tough at the moment. Everything in the market is just too expensive and you cannot tell the children or my wife that there is no food to eat.”
Expatiating, he said: “I have six children and cooking for the household can be tough. Most times when we want to cook, my wife and I would raise money for a bottle, I cannot remember the last time that we bought a gallon. It is that bad and we cannot afford to fill the stove with kerosene. What we usually do is to put a small bowl that would take like a third of the quantity required. So you can imagine what would happen to us when the price of goes up. I just pray that government would have mercy on us.”
On her part, Cecelia Nnamdi, a single mother informs that she cooks with kerosene stove and if the price goes up it would make life worse for her and her children. “The problem we have is that a lot of petrol stations hoard kerosene and you would not find to buy at the rate government told them to sell it. Most times, I prefer to buy my kerosene from government’s filling station because that is where it is cheaper and always available. What we buy in the neighbourhood is expensive and you are also not sure that it is pure kerosene.”
She adds that: “What I usually do is to cook my beans, rice and any other food that takes a long while with the electric stove or boiling ring. Once it is tender then I can now put on the stove to avoid wasting the kerosene in my stove. The problem however is that you are usually not sure of when electricity would be available. However there are days when I keep vigil cooking all kinds of things once there is electricity. I have also come to realise that cooking with kerosene is not as cheap as we think. The only difference is that a lot of people cannot afford to put down the lump sum required to buy the cooker, cylinder and gas. On the other hand it is cheaper to maintain a stove.”
Some Nigerians are of the opinion that it is better if government removes the subsidy and makes kerosene available. Over the years, Nigerians in different parts of the country have had to contend with endless queues at filling stations, scarcity of kerosene at depots and filling stations as well as having to purchase the product at exorbitant prices far above the recommended retail price of N50 per litre.
Unfortunately, the four refineries that ought to have come to the rescue were performing far below capacity utilisation, a situation which led the NNPC to begin tinkering with the option of bringing in private operators to run them.
This may just bring about the needed solution because stakeholders have consistently faulted the supply monopoly given the NNPC as far as kerosene imports are concerned.
No light at the end of the tunnel
According to the World Bank report, over 70 percent of Nigerians use kerosene in their homes, for either cooking or powering their lanterns among other uses. This also includes Nigerians living in the cities who are unable to afford the generator known in local parlance as “I pass my neighbour.”
However, many Nigerians who heeded the call by the government to use stoves instead of firewoods to check the menace of deforestation ravaging the northern part of the country, can no longer afford the expensive kerosene to fuel their cooking stoves.
The scarcity usually force residents to use charcoal and firewood which experts say are harmful as well as have serious consequence on the environment. The way out of the wood some say is alternative energy. They argue that the continued usage of kerosene and its environmental effects poses a great threat to about 30 million households, killing mostly women across the country.