There’s a pall of uncertainty over whether or not, the Federal Government has fully deregulated the downstream oil sector, especially as it affects the retail price of petrol which is being sold above N170 per litre in some parts of the country, reports LUCAS AJANAKU.
The rising price of crude oil in the international market early this month set the stage for the confusion that has taken over the downstream oil sector.
Nigeria, Africa’s largest oil producer and sixth producer in the Organisation of Petroleum Exporting Countries (OPEC), relies on imported fuel to run the engine of the economy owing to the inefficiency in the running of the three state-owned refineries with combined capacity to process 445,000 barrels of oil per day (bpd).
Brent crude had risen from $58 to more than $63 per barrel, leading to refiners incurring additional cost in the process of procuring, refining and supplying petrol to consumers, thus causing marketers to also incur additional cost, especially as a bulk of the product is currently imported into the nation. Brent oil price crossed $66 on Wednesday.
Oil marketers, under the aegis of Independent Petroleum Marketers Association of Nigeria (IPMAN) advised Nigerians to brace for a higher petrol price. It warned that the price may rise to N195 per litre.
Another group, Petroleum Retail Outlets Owners Association of Nigeria (PETROAN) announced an increase in petrol price from the N160-N165 band approved by the Petroleum Products Pricing regulatory Agency (PPRA) to N178 per litre.
Its President, Dr Billy Gillis-Harry, announced an increase in the retail price of fuel from N160 to N178 per litre.
Earlier, the Federal Government said fuel subsidy/ under recovery had gone for good. Technically, this translated to full deregulation of the downstream oil sector. Former President Olusegun Obasanjo had removed subsidy on household cooking fuel, kerosene and diesel, a situation that had taken their retail prices to the stratosphere.
To underscore the seriousness of the government, the Minister of State, Petroleum Resources, Chief Timipre Sylva said the Nigerian National Petroleum Corporation (NNPC) cannot continue to bear the cost of under-recovery because there is no provision of subsidy in this year’s budget.
He said while government revenue had improved by the rise in oil price globally, it cannot be wasted in subsidy payments.
Sylva had said: “Since we are optimising about everything, NNPC needs to also think about the optimisation of product cost because as we all know oil prices are where they are today, $60.
“As desirable as this is, this has serious consequences as well on product prices. So we want to take the pleasure and we should as a country be ready to take the pain. Today the NNPC is taking a big hit from this. We all know that there is no provision in the budget for subsidy. So, somewhere along the line, I believe that the NNPC cannot continue to take this blow. There is no way because there is no provision for it. As a country, let us take the benefits of the higher crude oil prices and I hope that we will also be ready to take a little pain on the other side; on the side of higher product prices.”
The Group Managing Director of the NNPC, Mele Kyari, aligns with the minister’s position. He said although Nigeria, like other oil producing countries in the world, was happy about the increase in the price of crude, it comes with a consequence.
According to him, the increase has impacted the price of finished petroleum products anywhere in the world, including Nigeria.
Kyari said government was engaging with organised labour to make sure there is a structure that will ensure there is no exploitation of ordinary Nigerians resulting from the volatility of the market.
He said: “I am sure you must have seen a number of newspaper conversations around the price of petroleum; I am sure we are all happy here that crude oil has hit the $60 mark by yesterday and probably growing but certainly not going beyond this voodoo game.
“We don’t see it crossing the $65 per barrel mark. We said $60 now we have reached it and we are getting to $65 but it comes with its consequences.
“One of it is that it has impact on the price of finished petroleum products anywhere in the world, including our country. This is a tough challenge we are dealing with to be able to make sure that we are able to get this country wet; despite all the challenges we have the clear directive of government to deregulate the downstream sector.”
Since oil climbed, the landing cost of the product at private depots in Lagos and its environs, climbed to N180 per litre, meaning that the pump price would certainly be in excess of N192 per litre.
Furore over inconsistent policy
The government has come under attack over its inconsistent policy on deregulation.
Chief Executive Officer of Kankada Oil and Gas Nigeria Limited, Danasabe Kakanda, accused the government of giving the private depot owners edge over independent marketers.
He lamented that independent marketers were always left at the mercy of private depot owners from whom they rely on supplies even though they also own filling stations and compete with the marketers. He said: “With the inconsistencies of government, Nigerians should expect the price of fuel to be between N190 and N195.”
The Chief Executive Officer, Foste Nigeria Limited, Chief Austin Erhabor, urged Chief Sylva to explain to Nigerians whether there is deregulation in place or not. He said: “It is time for them to separate politics from economics. Our business is dying. How can you be talking about deregulation and you are mentioning official pump price.”
Erhabor said marketers should not be blamed for the uncertainty in the supply chain, saying the sector is suffering from confusing government policies.
Hear him: “These private depot owners were not supposed to own filling stations. They were supposed to be in the middle between NNPC and the independent marketers. Is it fair for somebody that I am buying from, my competitor, I buy from you, you come and build station close to me, and you are the one that is supplying me, how can I sell? Because if you want me to die off the business, all you need to do is to supply to the level you are selling to me in your depots.”
He accused private depot owners of systematically edging the independent marketers out of business by hoarding fuel to ensure that only their filling stations are loaded first.
“As we speak most of us have paid money to these depots without getting the product. And before your eyes, they are loading up their own trucks. These private depots are known,” he said.
Former National Publicity Secretary of IPMAN, Dr Emma Ihedigbo also said the oil marketers are no longer happy about what government agencies are doing with the petrol supply chain. “What we are saying in effect is that we are crying out that, PPMC want to strangulate IPMAN members and all the businessmen dealing in petroleum products and we are no longer happy about it. And if nothing is done, we will come out and tell the world what is going on,” he said.
Another group, Major Oil Marketers Association of Nigeria (MOMAN), has advised the Federal Government to muster the political will to walk its talks on deregulation.
Its Chairman, Mr. Adetunji Oyebanji, said in a deregulated environment where the forces of demand and supply determine the equilibrium price, price capping has no place. He wondered what role an agency such as PPRA has to play in a deregulated industry.
Speaking virtually on, After Deregulation, What Next? in Lagos, he had said: “With a fully deregulated downstream industry, the natural fear and anticipation of Nigerians is the increase in the price of transportation, food items, and the attendant economic hardships. Solutions to these challenges can only emanate from a collective resolve by all stakeholders to face up these challenges together. We must as a national debate and share pragmatic and realistic initiatives to mitigate the impact of a pump price increase that could follow a fully deregulated downstream.
“We stand with Nigeria and Nigerians through this difficult time and support the Federal Government’s promise to pass the Petroleum Industry Bill, PIB this year and fully deregulate the petroleum downstream sector.The benefit of a liberalised downstream is the most visible means of growing the economy in the medium to long term. “Nigeria can become the refining hub of West and Central Africa and eventually the whole of Africa if we stick to this path of investing in new refineries, adopting a cost optimisation initiative, building an environment that promotes competition, and create a sustainable petroleum sector. These actions would lead to increased employment, reduced poverty, and reduced social inequity. We must take advantage of the opportunities brought by the African Continental Free Trade Area agreement (AfCFTA) and fully benefit from our barrels of crude, getting the maximum value it can bring Nigeria. MOMAN is calling for a national discourse among all stakeholders including government, labour, Civil Society Organisations, the Organised Private Sector, and operators, not on the merits or demerits of petrol subsidy removal, but on the initiatives that can be taken to ease the impact of the subsidy removal on the most vulnerable in our society.
“The public, which includes the downstream operators, are key stakeholders in the Nigerian oil and gas industry. We believe that as a country, we have and should move beyond the debate on the arguments for the removal of petrol price subsidies. The discussion we should be having today is how best to maximise the benefits of the removal of price controls and subsidies while minimising the adverse effects of this action on our citizens.”
Even the National Assembly has joined the call for full deregulation. Its Joint Committee on Petroleum Industry Bill (PIB) sees deregulation as the panacea to incessant bickering between labour and government over fuel price hike.
Some members of the committee, compromising Chairman, Senate Committee on Petroleum Downstream and Petroleum Industry Bill (PIB), Senator Sabo Mohammed; Chairman, Senate Committee on Upstream, Senator Albert Bassey, and Chairman, Senate Committee on Gas, Senator James Manager, spoke to reporters during a facility tour of Dangote Refineries and Petrochemicals in Lekki free trade zone, Lagos.
According to Mohammed, the deregulation of the downstream operations of the oil sector is inevitable.
He said refineries were part of the downstream operations in the petroleum industry, adding that with the new PIB coming up, the joint committee intended to visit all the other refineries including Kaduna, Warri and Port Harcourt refineries.
“Deregulation is definitely inevitable. It will have to happen, either way. Either you will do it immediately or it will take a natural course, there is no two ways about it,” he said.
He expressed confidence that once the refinery commences full operations, one effect it would have is that it would strengthen the naira against other foreign currencies.
“And looking at this investment here, it is unbelievable that a single individual can confront this kind of project at this time of our economic life. But it’s good to say and I’m happy to say it this kind of edifice and with the potential, apart from job creation, I’m sure that by the time this industry comes on stream, even the local currency (the naira) is going to be strengthened because we spend millions and millions of dollars importing finished petroleum products and here we are, a single entity can satisfy the whole country’s requirements finished petroleum products,” he said.
Analysts say an increase in the price of fuel will spell doom for the country because of the centrality of fuel price to other sectors of the economy. Already, Nigerians are already impoverished because of increased electricity tariffs without a concomitant improvement in service quality.
While the National Assembly has legislated a N30,000 minimum wage, it is not clear if five out of the 36 states of the federation have started paying workers that wage.
Inflation continues to take its toll on the meagre available per capita disposable income of the citizens.
According to the latest figures from the National Bureau of Statistics (NBS), the nation’s January inflation rate hit 16.47per cent as against 15.75 per cent recorded in December 2020 as food prices soar to record high.
The consumer price index (CPI) which measures inflation increased by 16.47 per cent (year-on-year) in January 2021.
According to the report, Nigeria’s headline inflation has risen to its highest in over three years while food inflation rose to its highest since July 2008, when it stood at 20.9 per cent.
On a month-on-month basis, the Headline index increased by 1.49 per cent in January 2021. This is 0.12per cent points lower than the rate recorded in December 2020 (1.61 per cent).
The food index rose sharply to a record high to stand at 20.57 per cent in January 2021 compared to 19.56 per cent recorded in the previous month.
On a month-on-month basis, the food sub-index increased by 1.83per cent in January 2021, down by 0.22per cent points from 2.05per cent recorded in December 2020.
The rise in the food index was attributed to increases in prices of Bread and cereals, Potatoes, Yam and other tubers, Meat, Fruits, vegetables, Fish and Oils and Fats.
The “All items less farm produce” or Core inflation, which excludes the prices of volatile agricultural produce stood at 11.85 per cent in January 2021, up by 0.48per cent when compared with 11.37per cent recorded in December 2020.
On a month-on-month basis, the core sub-index increased by 1.26per cent in January 2021. This was up by 0.16per cent when compared with 1.10per cent recorded in December 2020.
The highest increases were recorded in prices of passenger transport by air, medical services, Hospital services, passenger transport by road, pharmaceutical products, paramedical services.
Others include; repair of furniture, vehicle spare parts, motor cars, miscellaneous services relating to the dwelling, maintenance, and repair of personal transport equipment.
Kogi States led the list of states with the highest inflation rate in January 2021 with 21.38%.
Closely followed by Oyo State with 20.17per cent, Bauchi (19.52%), Ebonyi (18.74%), and Benue State (18.33%).
On the other hand, Cross River recorded the lowest at 12.22% followed by Abuja (12.94%), Kwara (13.96%), Abia (14.03%), and Enugu (14.26%).
In terms of food inflation, Kogi State also recorded the highest at 26.64%, followed by Oyo State (23.69%).
Others on include; Rivers (23.49per cent), Benue (22.97per cent), and Kwara (22.76per cent).
It is worth noting that in analysing price movements under this section, note that the CPI is weighted by consumption expenditure patterns which differ across states.
Accordingly, the weight assigned to a particular food or non-food item may differ from state to state making interstate comparisons of consumption basket inadvisable and potentially misleading.
Also urban inflation rate rose to 17.03 per cent (year-on-year) in January 2021 from 16.33% recorded in December 2020, while the rural inflation rate stood at 15.92% in January 2021 compared to 15.20% recorded in December 2020.
