The Nation Newspaper

Tag: fuel

  • Govt sets up 16-man panel on fuel price palliatives

    Govt sets up 16-man panel on fuel price palliatives

    The sixteen-man Technical Committee for the implementation of the palliatives to cushion the effects of the hike in fuel price has been constituted.

    In a release from the Ministry of Labour and Empoyment, the committee, which will be chaired by the Minister of Labour and Employment, Sen. Dr. Chris Nwabueze Ngige (OON), has the representative of the office of the Secretary to the Government of the Federation, Prof. Adamu K. Usman as Secretary.

    Other members  includ Minister of State, Petroleum, Dr. Ibe Kachikwu, Minister of Budget and Planning Sen. Udo Udoma, Minister of Finance Mrs. Kemi Adeosun, Minister of Solid Minerals Dr. Kayode Fayemi, the Chairman of National Salaries and Wages Commission, Chief R.O Egbule and the representative of the Office of the Head of Service of the Federation.

    The Nigerian Labour Congress (NLC) will be represented by Comrade Peter Adeyemi, Comrade Amaechi Asugwuni, Comrade Ibrahim Khaleel, Comrade Igwe Achese and Comrade Abdullahi Sale.

    Similarly, the Trade Union Congress of Nigeria (TUC) will be represented by Comrade Augustine Etafo, Comrade Alade Bashir Lawal and Comrade Abdullahi Sale.

    The committee was inaugurated yesterday at the Conference Hall of the office of the Secretary to the Government of the Federation.

  • With fuel price hike, food prices go haywire

    With fuel price hike, food prices go haywire

    In response to the 69 per cent hike in fuel price, the prices  of food and the other commodities have risen. TONIA ’DIYAN and TAIWO ADEYANJU report. 

    It started like a rumour penultimate Wednesday afternoon, and by the close of work that day, Nigerians were faced with the stark reality that fuel price had been increased by about 69 per cent. The Federal Government increased the pump price of premium motor spirit (PMS), otherwise known as petrol, to N145.

    Characteristic of every PMS price increase, the food stuff segment has responded to the increase. Across the various markets, food prices have skyrocketed, making survival  more tasking.

    According to the Secretary of Tomatoes Sellers Association, Mile 12 branch, Lagos, Alhaji Biliya Adam, the new fuel price has affected the supply and transportation of tomatoes from the North.

    The Secretary of Daleko Market, Mushin, Lagos, Mr. Biola Owolabi, said the hike in  prices  affected everyone including retailers, wholesalers and manufacturers.

    Mrs. Modinat Badmus, a trader at the Iporin Market in Surulere, spoke of a low turnout of shoppers as the prices she usually bought her goods had increased. This, she said, affected the retail price.

    She said prices of beverages, such as milk, sugar and others, had increased at the market where she buys them.

    “A dozen of peak milk we used to buy for N450 now sells for N480, even five pieces of sugar we used to purchase for N250 is now N275,’’ she said.

    A trader, who at the Sabo Market in Sagamu, Ogun State, Miss. Deola Ajayi, said the removal of fuel subsidy had affected traders as the prices of items they buy from producers had increased.

    Ajayi said many shoppers had reduced their list, saying staple items such as 10kg of  Semolina has increased from N1,800 to N2,800, a bag of sugar which used to sell for N7,000 to N10,000, among others.

    The increase in price is not only applicable to staple items as a shopper, Mrs Omotayo Babajide, who bought local clothing material in large quantity for a ceremony, at the Idumota market on Lagos Island, said the trader she bought the same item from last week had increased it by N400. She said the trader claimed  that the price was increased by the manufacturer. This, she said, left her with no choice than to hike the retail prices of her items to cover cost and make a small profit margin.

    The price increase has also left a sour taste in the mouth of many traders. For instance, Mr. Abdulwahab Abdulkabeer, who deals in men’s wears at the Idumota Market, complained of low patronage and turn out of buyers.

    Also, at Yaba Market, Alhaja Oluwayomi Owolabi disclosed that traders have been experiencing low turnout of shoppers since the beginning of this year. For traders, who display their wares for sale till late night, the challenge of illuminating their stall is a worry for them, considering the cost of fueling their generators which is now seen as a luxury.

    She, however, urged the government to make the product available for the masses.

    Online shopping platforms are also not left out. For shoppers on the  platforms, it is double losses for them. First, they have to pay for the increase in commodity price and pay more for delivery services.

    Nosa Idehen, Founder, WesternMall Nigeria Limited, an online auction platform that deals with direct sales, said the main challenge for his kind of business was delivering of goods purchased. His words: “As expected the tariff involved in delivering to customers will increase. Because we always find ways of making shopping easier and cheaper we intend to use different drop points around Nigeria so that customers will be able to pick up their items at the closest drop off point saving cost.”

    SPAR Nigeria’s spokesperson, John Goldsmith, also agreed that the new fuel price is likely to affect The Hypermarket business and its numerous customers.

    His words: “SPAR Hypermarket stores are part of the community and the whole eco-system of the country and hence the impact of the strike on SPAR store will be same as other business establishment. Raising fuel prices definitely impact the operation of the stores in both short and long run. As a part of the business community, we aspire for stable business conditions which enables concrete decision making and helps align actions for enhancing shopper experiences.”

    Although he said there has not been any sign of panic buying across its stores, the situation, he explained, may induce temporary preponement of purchase and would never boost sales in a long run.

    Goldsmith explained that in the given economic scenario, the cost of inflation not only affects price of the products, but also the business operating cost.

    For online retail store Gidimall boss, Osamede Evbakhavbokun, the new fuel price has affected his business and in actual fact it is still affecting it. The price for all products has increased and as such reduced sales as customers and client are being cautious, taking their time to see what will happen in the coming weeks before they can make any purchase.

    “Yes, labour has advised Nigerians to stockpile their homes with food, though we are not into foodstuffs and perishable goods but even at that, the foodstuffs is actually too expensive to stock when a ball of tomato is about N150.00,” he said.

    Once there is an increase in price of products, it takes a little while before customers accept the change in price and it is eminent as the fuel price has increased the cost of all products.

  • Fuel and the death of Labour

    Let’s face up to it: the labour movement in Nigeria is on life support. Its potential to exert pressure towards influencing governance processes has been demystified, and it may require wholesale reinvention to regain the historical stature.

    The movement’s undoing was its internal contradiction. It was touted as an ‘organised labour movement,’ but had carried on for some time now in sheer disorganisation propelled by irreconcilable factions. At the threshing floor, last week, the movement found an undertaker in the Muhammadu Buhari administration, which seized on its dysfunction to subdue a headstrong faction of the Nigeria Labour Congress (NLC), while holding a pliant faction of the congress and other labour centres in check. Eventually, the headstrong faction bit the dust in an ill-advised venture to call out the public in rage against the recent increase of the pump price of petrol to N145 per litre. But the entire labour movement was no less the loser: its legendary solidarity and defining ideology – ‘an injury to one is an injury to all’ – was fatally done in. Now, each labour centre is for itself and solely bears the burden of its chosen path. As they say, it is every man for himself and God for us all!

    It wasn’t that the fall of labour was unforeseen. The movement had it coming since the NLC split up in March 2015, following a shameful inability to manage an internal election into its leadership. In consequence, the Ayuba Wabba squad led some affiliate unions of the congress away in one direction, while the Joe Ajaero camp headed off with other affiliate unions in another direction. The two factions have ever since dug down in their trenches and have refused to be reconciled. As a result, labour is presently a house divided, and hardly presents a common front on any single issue.

    With the universal effect of the new fuel price on all workers and other Nigerians, one would expect that labour centres would for once attain to a common cause in unity of purpose. Well, they only almost did. The Wabba-led faction of the NLC and the Trade Union Congress (TUC), along with their civil society allies, served the government an ultimatum to back down on the new price or face public mass actions that they planned to call. For its part, the Ajaero faction of the NLC did not join the Wabba-TUC initiative, but rather issued a separate ultimatum – literally to the same effect. Oil industry unions, including the Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) and Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), however voiced qualified support for the price hike.

    Only that, even with the semblance of a consensus, this was one issue on which labour leaders grossly misjudged the public mood. If they had hoped to re-enact the crippling mass protests against fuel price increase that were staged in 2012 under the former Goodluck Jonathan administration, they apparently overlooked the fact that the labour movement now lacks the kind of cohesion it had in 2012, and that the context of the price increase by the present administration differed in a large measure from what obtained in 2012.

    And really, you could say the latest call to mass actions was presumptuous. When labour leaders asked Nigerians to make ready for a drawn-out strike against the government by stockpiling food and other essential provisions, they apparently didn’t consider that a majority of citizens were having enough challenge affording provisions barely enough to get by for just one day at a time. This is particularly so, with unpaid salary arrears to workers in many sectors, about which the labour leadership hasn’t done much to win them some succour. Also, there are unprecedented levels of inflation in the economy at the moment that severely constrain the average citizen’s purchasing power and, in effect, the ability to stockpile provisions. Besides, many Nigerians had been so roughened up by recent shortages in fuel supply at petrol stations across the country that they would readily swallow the bitter pill of a higher price to get steady supply at the pumps. And then, perhaps most significantly, not a few citizens have come to terms with the reality that payment of trillions of naira by government in subsidy to fuel marketers was simply unsustainable: it was a corruption ridden scheme that served only a few at the expense of many.

    And so, the call to mass actions didn’t resonate with the public, even though the warriors in labour did not appear to have realised this. The government, of course, seized the moment to persuade some of the labour centres against the threatened strike and it succeeded. On the eve of the expiration of their deadline, the TUC and the Ajaero faction of the NLC dumped all plans for a strike and settled for continuing dialogue with the government, which, apparently for good effect, threw in a legal weapon by way of a restraining order against labour from the National Industrial Court (NIC). But the Wabba camp chose a different tack: it stormed out of the meeting with government and defied the NIC order to stay its course on the threatened strike. Only that in doing this, it ended up tipping the labour factor over the precipice. For instance, the talk by government of further negotiations with the labour unions and other interest groups makes a good sound bite; though I dare say that labour, as a pressure movement, has lost its clout and can only hope now in the moral conscience of the Muhammadu Buhari administration for a fair deal. We really must refrain from overstating things here, but I think it should give freedom-loving Nigerians cause for worry that what seems left of the labour movement in the near future are no more than pulsating nodes of a supine bulldog securely leashed by the government.

    Most Nigerians have accepted the latest increase in the pump price of petrol as an inevitable, if painful policy decision by the government. Still, it would seem that labour missed an opportunity to break down its petty barriers and coalesce, to correctly represent the interest of citizens to the government. Negotiating palliatives with government isn’t the most important task for labour leadership in the circumstance. There are many questions with the fuel price policy as presently formulated, and labour could help in holding the government to thinking through.

    For instance, the perennial shortage in fuel supply was linked to the fact that independent marketers left importation of refined fuel to the Nigerian National Petroleum Corporation (NNPC) because they could not source forex at the official rate. The government said the new fuel price was less about subsidy removal, and more a function of the prevailing rate of forex at the parallel market. The new pricing template is thus in the expectation that independent marketers would source foreign exchange from parallel sources to complement fuel importation by the NNPC. One question to ask, though, is where the parallel market would get its supply of forex to meet expectedly huge demands by independent fuel marketers. And then, would marketers’ recourse to the parallel market not worsen the scarcity of forex and further inflate the rates at that source? In such event, what happens if the marketers find the new price template unattractive and yet decline to engage infuel importation? Would we not be back to inadequate supply, and would that not compel further increases by government in pump price ad infinitum?

    Questions, and indeed many more questions. Labour would be much help to the citizenry by engaging the government to think through. But it needs cohesion and unity of purpose to do this.

  • NUPENG to suspend loading of fuel at Mosimi

    NUPENG to suspend loading of fuel at Mosimi

    The National Union of Petroleum and Natural Gas Workers have bemoaned the deplorable state of the Sagamu – Ikorodu road leading to Mosimi Depot, Ogun State.

    It threatened to shut down loading activity,  if the Federal Government fails to repair the road.

    The Mosimi depot supplies petroleum product to Lagos, Ogun and some states in the Southwest.

    Lagos Zonal Chairman Tokunbo Korodo made this known at the weekend at the inauguration of the secretariat of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Mosimi Unit.

    Korodo rued that despite the significant amount of money the government gets from the depot, the road  has remained in a bad shape.

    He warned that NUPENG may suspend loading of fuel for Lagos and Ogun consumers as well as adjourning states in the Southwest, if the poor state of road persists.

    “This is the only road that connects Ogun and Lagos besides the Lagos- Ibadan Expressway.

    It is also an alternative route. The way tankers are passing and making use of that road, God forbid, if any tanker should tumble, the aftermath will be too disastrous.

    “That’s why we are using this medium to call on the government to ensure proper rehabilitation, because if the government fails to do that, we will not hesitate to shut down loading at the depot and that will be too bad,” he said.

    The Akarigbo of Remoland, Oba Michael Sonariwo, blamed former President Olusegun Obasanjo on the state of the road.

    Sonariwo said he had led a delegation to meet Obasanjo when he was President but lamented he did not respond.

  • Fuel price hike: Why I support Fed Govt, by Oshiomhole

    Fuel price hike: Why I support Fed Govt, by Oshiomhole

    Edo State Governor Adams Oshiomhole has explained why he stands with the Federal Government on the new price of petrol.

    According to him, it doesn’t make economic sense for the government to spend more than half its earnings just on fuel subsidy to the detriment of other development programmes.

    He spoke at a special thanksgiving service organised  by Apostle Charles Osazuwa, Senior Pastor and founder of Rock of Ages Christian Assembly International (RACAi), Benin City, to round off a 7-day programme of the church yesterday.,

    Oshiomhole said the former President Goodluck Jonathan spent as much as N1.2 trillion on fuel subsidy.

    He said: “l have listened to our chairman, Chief John Odigie-Oyegun, and he reminded us that the Hon. Minister of Petroleum, Dr. Ibe Kachikwu, has been under fire. I believe the fire will continue for some time. In spite of all that he is going through, the Minister recognized that we can’t be too busy to come to the church to ask God to help us to do the job. After all, the Bible says that the unless the Lord builds the house, the labourer labours in vain.”

    He said: “The fire that he is going through, the end of it will translate to prosperity for our people. Leaders must see ahead of their followers, and when followers can’t see what leader is seeing, with time and consistency, the followers will see the benefits of the decisions the leader has taken.

    “As many of you might have known, this is not my first time in the struggle against pump price increase. I have fought it over and over again, and at a point, God used us to shut down the country just to make a point to the then government in power, but the truth is that the fundamentals have changed.

    Under President Olusegun Obasanjo, we were talking of N20 billion for subsidy. And Obasanjo would ask me, Comrade, N20 billion can build XYZ road. I think the last one was about N40 to N45 billion a year for subsidy.

    “However, the last government under President Goodluck Jonathan quadrupled the number to N1.2 trillion. When your total earning is about N2 trillion and you spend more than half for petrol, how much will you use for your house? How much money will you use for clothing of your children? How much will you use to send your children to school?

    “Government must make investments in research, in education, in technology. If we spend all our money or half of it on subsidy, we will drink petrol without vehicles for us to ride in. It simply doesn’t make sense anymore.

    “The life of a nation is not different from the life of a human being. When you are traveling on a road which you believe will take you to a destination, sixteen years down the road, it appears to be getting longer and longer, only a fool will continue to travel on that road. From the way it is, this is the time to stop, look back and see other options that are available. I believe that is what this Minister of Petroleum and President  Muhammadu Buhari have done. I give my full support.”

    He added: “When a nation and a people could not for good reason trust the leadership, even when the leadership asks you to make a sacrifice, the first question you ask is, if I make the sacrifice, what about you? Obviously, for a government that was sharing money for security services to party leaders, that government didn’t have the moral standing to call on Nigerians to make sacrifices.

    “So, I think it was that thing that was missing, having a president that cares, a President that is not corrupt, a President that commands respect within the country and outside the country. When he asks you, change your ways of life, look at my own lifestyle, let us restart, we have all sinned in the past, let us repent so that we might not sin again, I think it makes sense to listen.

    “There will be sacrifice, so, no pain, no gain. I believe this is the time to accept a lot of pains, so that once free, the gains will come. I know under President Buhari the gains will come. I know that this time will come and go and Nigeria will maintain its progress.”

    Also speaking, Minister of State for Petroleum Dr. Ibe Kachukwu said the Buhari administration would change the country, explaining that things could not continue the way they had been.

    All Progressives Congress (APC) National Chairman Chief John Odigie-Oyegun noted that the country was going through difficult times, but the people had to change their ways for things to get better.

  • Facts and fallacies of fuel subsidy

    Facts and fallacies of fuel subsidy

    Umana Okon Umana, an economist, is the former governorship candidate of the All Progressives Congress (APC) in Akwa Ibom State. In this piece, he highlights the fallacies associated with the fuel subsidy and what can be done to guarantee regular fuel supply for domestic consumption.

    Many boisterous and healthy debates have broken out on social media platforms and, indeed, other fora on the recently adjusted price of petrol. But quite unexpectedly, some of the arguments are grounded in myths. Here are a few and my attempt to burst them.

    The first myth is that subsidy does not exist.

    There is a subsidy when the pump price of petrol is below the effective cost. The effective cost is the landing cost plus the distribution cost plus margin. Subsidy is the difference between effective cost and the pump price of fuel. Landing cost for a litre of refined petroleum depends on the price per barrel of crude oil. When government fixes the pump price of fuel below the effective cost, distortions are created.

    In elementary Economics, when a price is fixed below the equilibrium price, there will be a shortage and a black market will be created. The government in Nigeria was paying for the difference between the effective cost and the pump price. Government was therefore subsidizing the cost of fuel. Nigeria spent over $35 billion between 2010 and 2014 to subsidise petroleum products.

    The second myth is that subsidy favours mostly the poor.

    This is not true. By paying fuel subsidies, we were subsidizing the consumption of imported petroleum products. We were therefore supporting production abroad and creating jobs abroad at the expense of Nigerians. Besides, outside Lagos and Abuja and other major cities where the controlled price of N86 was enforced, fuel was sold at between N150 and N180 in the rural communities.The government guaranteed price of N86 was therefore a myth as the poor people outside Lagos and Abuja had always paid N150 or more for a litre of fuel.

    The reality is that it is the rich and not the poor who benefit the most from Nigeria’s fuel subsidy. Findings by the IMF show that globally, the bottom 20% of households take only 7% of fuel subsidy while the richest 20% take 43%. Nigeria’s fuel subsidy at some point accounted for 30% of total expenditure of the Federal Government and 118% of the capital budget. It also accounted for over 90% of annual oil revenues.

    Payment of oil subsidies was not only not sustainable, it crowded out spending on core infrastructure projects such as roads, railways and power with grave consequences for the standard of living of Nigerians. Besides, the artificially low and government guaranteed and subsidized price of fuel was a disincentive to private investment in the oil sector.

    It is not surprising that although the Federal Government approved over 20 refinery licenses to private investors many years ago, not one refinery has been built. I must however commend Aliko Dangote for his entrepreneurial acumen in this regard. His new refinery being built in Lagos and scheduled to becompleted late 2018 will enhance local refining capacity.Rather than subsidizing the consumption of imported petroleum products we should support the private sector to build new refineries.

    Fuel subsidy also took a disproportionate share of dwindling foreign exchange allocated based on official rate. There was therefore an imperative need to free the resources deployed for the payment of fuel subsidies. Thankfully, government has made meaningful appropriations in the 2016 capital budget to upgrade infrastructure in the areas of roads, railways, agriculture, education, and provide support for small businesses.

    The third myth is that at N86 per litre, Nigerians were already paying too much for fuel.

    The facts do not support this position. The Table below shows that at N145 per litre, the petrol price in Nigeria is about the lowest in West Africa. It is now clear why, at the old price of N86, the opportunities existed for arbitrage and corruption as fuel for which Nigeria already paid subsidy was smuggled to Niger, Cameroon, Ghana, etc, where there is no subsidy regime. Ghana, Cameroon, Mali, Senegal and Mauritania have petrol pump prices of N185, N218.9, N228.85, N234.82 and N256.71, respectively.

    Removing fuel subsidy will fuel inflation is the fourth and the commonest of the myths.

    While it is true that the upward adjustment in the price of fuel will affect some components of the Consumer Price Index, the overall impact on prices will be cushioned by activities in other sectors of the economy, upgrade in public transportation and improved fiscal discipline. Over time, the efficiency of the market will drive down prices.

    The fifth myth is also a fallacy. It states that if other oil-producing countries like Saudi Arabia and Kuwait are paying fuel subsidies, why can’t Nigeria pay?

    Saudi Arabia pays out of a huge surplus after meeting the expenditure needs of the country. Nigeria’s revenue is not enough to cover basic expenditure requirements. We cannot continue to run a country that spends more on subsidies than on the total capital budget. Other countries like Malaysia, Indonesia, Ghana and Angola already took the bold step to remove subsidies on fuel prices. We should commend President Muhammadu Buhari for taking a decisive action to deregulate the downstream petroleum sector in the face of dwindling oil revenues and the pressure on the Naira.

  • ‘Why govt shouldn’t cap fuel price’

    It was wrong for the Federal Government to have capped the price of petrol following its deregulation, an oil magnate, Chief Bintan Famutimi has said.

    He said the price of the product should be set by market forces since government no longer subsidises and have opened up the subsector to private investors. This he noted will lead to competition in the industry and a further reduction in the price of the commodity.

    Chief Famutimi, who doubles as the Chairman of Tricontinental Oil Services Limited and President of the Nigerian-American Chamber of Commerce, spoke on phone. He  argued that  government has no business in fuel marketing, importation and distribution, adding that this has been the position of the Association of Oil Marketers for long.

    He said this is the reason why the country has ‘traditionally’ been suffering from fuel shortage, saying it is also the reason why private investors are yet to set up refineries in the country.

  • ‘Fuel subsidy removal good for Nigerians’

    ‘Fuel subsidy removal good for Nigerians’

    Nigerians are coming to terms with the realities of the times. For the first time, fuel subsidy removal and the attendant price increase got widespread backing from all stakeholders, including labour and civil society groups. Aside a little resistance from the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC), the support could have been total. This is a step in the right direction,if the nation is to attain its aspiration of becoming an industrial giant and member of the league of developed nations. EMEKA UGWUANYI reports.

    After over a decade of advocacy for the deregulation of the downstream sector of the petroleum industry, and removal of all forms of fuel subsidy by the Federal Government, Nigerians at last have accepted that the continued support of fuel subsidy is a mere postponement of the evil day.

    This understanding made last week’s subsidy removal seamless, even in the face of the anticipated consequences and hardship the citizenry knew they would go through in the short-term. But because the fact speaks for itself, the factors adduced by the government for removing the subsidy were faultless. The real sector operators, and their counterparts in the oil and gas industry, including the labour groups – Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) and Nigeria Union of Petroleum and Natural Gas Workers (NUPENG) – as well as the majority of the public, gave their unreserved support to the decision.

    Subsidy over the years had encouraged corruption in the downstream operation and some unscrupulous marketers took undue advantage of the gaps in the subsidy programme to immensely rip-off the government and nation. There were all manners of sharp practices – diversion of subsidised imported fuel to neighbouring countries where pump prices are higher, and round-tripping of cargoes, which made government pay double shipments.

    When the pump price of petrol was N86.50 per litre, Nigeria’s fuel was the fourth cheapest in the world after Saudi Arabia ($0.23) per litre, Algeria ($0.30), and Malaysia ($0.44). Even at N145 per litre, which is ($0.73), Nigeria’s fuel is still cheaper than those of its neighbours. For instance, Ghana sells $0.92 per litre, Cameroon ($1.11), Chad ($0.79), Togo ($0.83) and Niger ($0.93), which made diversion a booming and lucrative business. Although Nigeria’s fuel is still cheaper compared to its neighbours, the disparity has been bridged considerably.

    It is also for this reason that some analysts urge the government to remove all forms of bridging provision for fuel to any part of the country to discourage diversion. According to them, as long as any form of subsidy exists, Nigeria will continue to subsidise neighbouring countries whose pump prices are higher because marketers will continue to divert products. They noted that in the United States, gasoline (petrol) is cheapest in Texas because it produces and refines oil. Similarly, products will be cheaper in oil producing and refining states of Nigeria, and in case of importation, fuel will be cheaper at areas closest to the ports.

    They noted that if a marketer takes a truck from Lagos to Jigawa, Maiduguri or Enugu State, after factoring in the cost of bridging, it would make no sense to divert it, but with the current bridging cost of about N18 per litre, diversion will still be lucrative.

     Why government stopped subsidy

    According to data from the Ministry of Petroleum Resources and its arms, despite the huge imports, which cost the country N16.4billion monthly, petrol prices remained high as marketers disregarded compliance with the Petroleum Products Pricing Regulatory Agency (PPPRA) ceiling price of N86.50k per litre. The document said pricing trend in the past one year demonstrates that citizens in areas other than Lagos and Abuja have consistently paid 20-50 per cent more for fuel purchased at the pumps, adding that survey by National Bureau of Statistics (NBS) indicates that apart from the Federal capital and Lagos, citizens continue to pay for fuel at an average price of N150 per litre.

    The survey established that subsidy benefits only a few urban- metropolitan and few higher income groups, as opposed to the larger citizenry. Expectedly, market trend indicates that the pump price of N86.50 per litre for petrol does not assure marketers of over-recovery if crude oil price continues to trade above $40 per barrel, which makes the price template unrealistic in view of market realities.

    It said: “Currently, 80 per cent of the downstream operators are still unable to carry out their business due to unavailability of foreign exchange (forex) at the prescribed Central Bank of Nigeria’s (CBN) rate. PPPRA’s pricing template, as approved, only recognises prevailing CBN interbank rate which averages N197 to a dollar in this year’s first and second quarter import allocations.  Investigations revealed that the alternative source of forex available to marketers is the autonomous market rate, which averages N285 to a dollar in 2016.

    “Therefore, to explain the prevailing high prices in certain states, marketers who source forex independently of CBN in order to carry on participation in premium motor spirit (PMS) supply will continue to sell at prices that enable them achieve full cost recovery. As such, the false assumption that the current ceiling price adequately covers cost needs to be addressed by providing marketers, an alternative to the primary forex market (CBN). The consequence of disregarding this solution will lead to the unsustainable development of NNPC maintaining the role of sole supplier to the detriment of federation revenues.

    “For a Corporation known to be inefficient and unprofitable, NNPC maintains 100 per cent responsibility for fuel importation at subsidised pricing using crude oil as a means of exchange. Estimated loss to NNPC is approximately N12.5billion per month. To sustain supply, NNPC extended its crude source for products importation from outside the traditional refinery requirement of 445 barrels per day for petroleum products imports, to the use of federation cargoes further reducing the ability of the government to earn forex,” petroleum ministry sources said.

    Besides, at an import bill of $600million per month for PMS, CBN’s liquidity to support the importation of PMS is challenged in the face of dwindling crude oil for exports. The limited crude oil output caused by renewed vandalism and sabotage of oil infrastructure in the Niger Delta leading to loss of 420,000 barrels per day, and increased participation of NNPC in products supply continue to imply limited ability to earn forex for the federation and potential crippling of the economy. The solution is immediate reduction of this crude to products control by NNPC in order to free up crude for federation revenue. Also the movement of marketers to the autonomous forex market will make available approximately $600 million of forex via CBN to be used in other sectors of the economy.

    At the last count, the government was subsidising a litre of petrol with N13.79, partly why some states fail in their fiscal responsibilities. Besides the fact that subsidy was growing as crude price goes up and there was no provision for subsidy payment in the 2016 budget, the only way out is to end subsidy.

    The sourcing of forex from the primary market (CBN) was responsible for the unavailability of forex marketers and their inability to open letter of credit, a situation that compelled them to stop product importation, thereby imposing over 90 per cent supply on NNPC since October 2015 as against the past where NNPC supplied 48 per cent of the national requirement. But with the dwindling revenues for the government on account of low oil price, NNPC does not have the resources for and is not designed to meet this increase in supply, the situation resulted in the over 60 days fuel scarcity witnessed before subsidy removal.

    Renewed insurgency and pipeline vandalism in the Niger Delta didn’t help matters as it drastically reduced national crude oil production to 1.65 million barrels per day from 2.2 million barrels per day planned in the 2016 budget, further reducing income to the Federation Account. “In the absence of available forex lines or crude volumes to continue massive importation of PMS, it is clear that unless immediate action is taken to liberalise the petroleum supply and distribution, the queues will persist, diversion will worsen and the current prices will spiral out of control.

    “Subsidy removal will free out private marketers and any Nigerian entity willing to supply PMS to source for their Forex exchange and import PMS to ensure availability of products in all locations of the country.  All products will be sold within the recommended PPPRA price band to be reviewed periodically and PPPRA and DPR will be further empowered to ensure level playing ground, strict compliance with market rules by all stakeholders and consumers,” the document said.

    Last year, N1 trillion was spent on subsidy and between April and last week when government announced the removal, N16.5billion has been spent. With the removal of subsidy, these funds will be directed to other sectors, and proceeds from the 445,000bpd will be judiciously used.

    There will also be adequate availability of fuel across the country as hoarding, smuggling and diversion  will  be drastically reduced or eliminated. Investors will be encouraged to come and invest in building of refineries and retail outlets. Estimated $2 to $3 billion investments are expected in the refineries and retails this year with the removal of subsidy.The exercise will create about  200,000 new jobs and prevent potential loss of about 400,000 jobs in existing investments.

    It will enable government to provide funds for the construction of social and infrastructural facilities such as power generation, security, education, and healthcare, among others needed in the country.

    Organised private sector’s position

    The Director-General, Lagos Chamber of Commerce and Industry (LCCI), Mr. Muda Yusuf, said government’s decision to liberalise the petroleum downstream sector was inevitable given the acute resource constraint that the country is currently facing. “The overregulation of the sector and the subsidy regime had put enormous pressure on government finances and on our foreign reserves. It was evident that the policy choice was not sustainable. The review is in the long term interest of the economy and the people.”

    Yusuf said petroleum subsidy management has been characterised by serious transparency issues for several decades. According to him, there are two components of the subsidy phenomenon. The first is the actual subsidy, which is the differential between the pump price and the landing and other costs of fuel. The second, which is  more disturbing, is the blatant corruption inherent in the fuel subsidy regime.

    “For several years, the Nigerian economy suffered severe bleeding from this phenomenon; with subsidy payments in the one trillion naira threshold, and even more. In an economy with huge deficit in economic and social infrastructure, it was simply scandalous. It is in the overall interest of the economy and citizens for it to be discontinued.

    “One of the positive spin-offs, will be the free up of resources for investment in critical infrastructure such as power, roads, the rail systems, health sector, education sector, among others,” he added.

    The Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) said it was pertinent to note that deregulation with the influence of government in pricing is not good for the economy. NACCIMA in a statement signed by its National President, Chief Bassey Edem, said: “We therefore, counsel that government should allow market forces to determine price instead of fixing a ceiling of N145 per litre. Accordingly, we counsel that the DPR and PPPRA be restructured and merged into one regulatory body for better monitoring and efficient service provision.”

  • The new fuel price

    The new fuel price

    •We urge Nigerians to see it as necessary sacrifice

    NIGERIANS may have long accepted it as something of a déjà vu; yet, most were caught by surprise when the announcement came Wednesday last week that Premium Motor Spirit (petrol) will henceforth sell for N145 per litre.

    As announced by the Minister of State, Petroleum Resources, Ibe Kachikwu, any Nigerian entity is now free to import petrol, “subject to existing quality specifications and other guidelines issued by regulatory agencies”. Oil marketers, he said “will be allowed to import PMS on the basis of forex procured from secondary sources…”; finally, a new price band for PMS not above N145 per litre effective …11th May, 2016″.

    Only last week, we had argued – sequel to the latest price template released by the Petroleum Products Prices Regulatory Agency (PPPRA) showing under-recovery of costs – that the subsidy regime had become unsustainable and quite frankly, unaffordable. A second kernel of our argument in that editorial is that the sale of petrol at the so-called official retail price of N86.50 is actually limited to the Lagos metropolis and perhaps, Abuja. That elsewhere, motorists and other fuel users were buying the product at prices dictated solely by the marketers – so long as it was available.

    When this is added to the difficulties faced by oil marketers in accessing forex – a situation that has since reduced the Nigerian National Petroleum Corporation (NNPC) to the sole importer of petrol  –  the picture of a nation consigned to endure the crisis interminably comes as stark clear.

    We had argued that a different path, in such dire circumstance, had become inevitable. It is heart-warming that the Federal Government gave heed to that admonition.

    As it is, Nigerians know too well that the root and branch of the current problem is inadequate supply of petrol. Solving the problem would therefore seem as simple as boosting the supply.

    Nigerians are also not unaware of constraints inhibiting supply. Today, even with the determined efforts by the administration to turn them around, the nation’s four refineries – combined – still fall miserably short in meeting domestic requirements. Left with no other choice but to import the product at enormous costs to the foreign reserves, the state of the foreign reserves in the environment of severely constrained inflow has rendered access to forex by fuel importers difficult, if not impossible, hence, the monopoly by the NNPC of the fuel import trade. The result, as we have seen in the last few weeks, has been, to put it mildly, catastrophic.

    Last week’s move, although in several respects belated, is nonetheless a positive development.

    Allowing the private sector to import fuel with funds sourced from secondary, autonomous source, and also allowing them sufficient margin to recoup their investments obviously accord with the current realities. We can only hope that the move signals the final resolve of the Federal Government to yield the scene to the private sector.

    The new price is, no doubt, the beginning, a first step in the long journey. Although, we are not under any illusion that the hike will be anything but a difficult pill for Nigerians to swallow, we nonetheless welcome it because of the potentially great benefits lying ahead. We urge Nigerians to accept it as part of the necessary rites of transition to full deregulation of the sector.

    Of course, from the players, we expect to see, in the immediate term, improvement in product supply across board. In due course, we expect to see competition coming in to moderate the price. As against what obtained in the past, Nigerians expect to see the players adhere to the rules of competition and fair play.

    Above all, Nigerians expect the Federal Government to move massively, particularly in the coming weeks, to give practical effect to the clamour for the so-called dividends of democracy, to mitigate the hardships from the fuel price hike.

    And, as we have always argued, price deregulation is only a means to an end. The end is more investment in the downstream sector – particularly in refining and ancillary infrastructure. Nigerians, we reiterate, can no longer wait to see new refineries come on board.

  • We support deregulation, not N145 per litre, says PENGASSAN

    We support deregulation, not N145 per litre, says PENGASSAN

    President of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), Comrade Francis Olabode Johnson has said unions in the oil and gas sector have not endorsed the recent N145 price of Premium Motor Spirit known as petrol.
    Speaking with newsmen at the NLC secretariat in Abuja after a joint press conference of the NLC and TUC, Johnson said the two unions in the sector merely supported the deregulation of down stream sector with a proviso that government must immediately engage all stakeholders in the nation’s economy to find a way forward.
    Johnson however expressed the fear that the factionalisation of the Nigeria Labour Congress may affect effective negotiation with government on the way forward, pointing out that labour must find a way of presenting a common position on all issues.
    He said oil unions were also opposed to allowing the deregulation of the industry to be driven by import, pointing out that government must also find a way of ensuring that the nation’s refineries are working at optimal capacity, while the construction of new one must be made a priority.
    He maintained that the government must also have the political will to drive the process of deregulation just like it did in the telecom sector, pointing out that it is unfortunate that the Petroleum Industry Bill is yet to be passed into law.