Since the removal of petroleum subsidy last May, the price of PMS and other petroleum products have gone haywire with consumers at the receiving end as petroleum marketers charge different prices, a development, experts say does not bode for the economy ultimately as businesses continue to groan over the excruciatingly high cost of energy. In this report, Ibrahim Apekhade Yusuf examines the issues
For Johnson Ameye, a haulage contractor, his business has experienced a lull lately, especially within the last four months.
The reason for this is not far to seek: the cost of doing business and surviving the hard times has taken a serious toll on not just his finances but mental wellbeing as well.
Before the removal of the fuel subsidy in May, he managed to strap by somehow.
In a week, he made at least four trips going from Lagos to Port Harcourt, hauling goods for his customers, most of whom are majorly importers and exporters alike.
But these days, he barely makes a trip and the expenses he incurs for his diesel-propelled truck on that singular trip alone is thrice the amount he expends for the four trips weekly at N1100 per litre, and sometimes more if he buys diesel from outside Lagos.
To make matters worse, he is neck deep in debts so much so that he can ill-afford the basic necessities of life these days.
Like Ameye, most Nigerians have literally fallen on evil days as the reality of the parlous state of the economy bites even harder, no thanks to the high cost of petroleum products which remain the driver and determinant of both commercial and industrial activities across the country.
The price of petroleum products, especially the premium motor spirit (PMS) across the federation is as varied as the colour wheel, which comes in different forms.
From Isolo, Mushin, Agege, Iyana-Ipaja, Abule-Egba, Lafiaji, Noforija, all in Lagos State to Ugbowo, Akpakpava, New Benin, Santana Market, all in Edo State, to Ajilete, Molete, Challenge, Ibadan, Ojoor, Soka, in Oyo State to Trans Amadi, Port Harcourt, Andoni, in Rivers State to Sabon Gari, Rano, Danbatta, in Kano State, to Maitama, Jabi, Wuse, in the federal capital territory, Abuja, the pump price of the PMS is as odd as it is annoyingly unfathomable.
A market survey conducted by The Nation revealed that consumers pay exorbitantly high prices for the same product sold across the country, sometimes with even wider margins in the prices.
NBS damning report
The National Bureau of Statistics (NBS) penultimate Friday revealed that the average price of petrol per litre rose by 230.78 percent in August.
The agency disclosed this in its Petrol Price Watch for August 2023 released in Abuja.
According to NBS, the average retail price of petrol per litre rose from N189.46 per litre in August 2022 to N626.70 the same month this year.
On a month-on-month basis, the price of petrol notched higher by 4.39 percent from N600.35 reported in July 2023.
It added that Taraba, Borno and Benue States paid the highest price for the product last month.
The report read: “On state profiles analysis, Taraba paid the highest average retail price of N680 per litre, followed by Borno and Benue at N657.27 and N649, respectively.
“Conversely, Adamawa paid the lowest average retail prices of N594.81 per litre, followed by Rivers at N596.80 and Delta at N604.63.”
On a region-by-region basis, the NBS revealed that the highest average retail price was recorded in the North-East where the product was sold at N636.93 per litre.
The South-South recorded the lowest price with N616.95 per litre.
For diesel, the agency said the average retail price for the product rose by 8.57 percent from N786.88 in August 2022 to N854.32 per litre in August this year.
“On a month-on-month basis, the price increased by 7.53 per cent from the N794.48 per litre recorded in July 2023.
The average price of the diesel was highest in Abia, where it was sold at N970 per litre.
Niger and Abuja followed with N960.14 per and N950.22 per litre respectively.
This is just as Bayelsa, Katsina and Kaduna States recorded the lowest prices of diesel with N700, N771.43 and N775.42 per litre during the period.
Also, the region with the highest average price was the North-Central with N907.86 per litre, while the lowest price of N820.02 per litre was reported in South-South.
Natural gas to the rescue
Nigeria is turning to gas as an alternative fuel after it scrapped a popular but costly subsidy on petrol that has seen pump prices rise sharply, angering motorists and businesses that use petrol to generate their own power.
State-oil firm NNPC said late on Thursday it has partnered with NIPCO Gas to speed up the adoption of compressed natural gas for buses, cars and tricycles to lower transportation costs.
These costs have soared in Africa’s largest economy, worsening a cost of living crisis after president Bola Tinubu embarked on the country’s boldest reforms in decades, which he hopes will kick-start the economy out of slow growth.
Under the NNPC-NIPCO deal, 35 compressed natural gas stations will be rolled out in phases to be completed next year and will be able to serve more than 200,000 vehicles daily.
NIPCO already operates 14 compressed natural gas stations, NNPC said, and that the local firm has turned more than 7,000 vehicles to gas, it said.
NNPC added that it intends to deploy an extra 56 stations to complement NIPCO’s and that it expects other oil marketing firms to join to boost availability, it said.
Nigeria, Africa’s biggest oil producer, has some of the world’s biggest gas reserves and is seeking investment to boost its domestic supplies in addition to exports.
Last month, NNPC signed an agreement with UTM Offshore for the local company to construct a 1.5 metric tonnes per annum floating liquefied natural gas plant.
In the view of Jeleel Usman, the higher diesel prices translate directly into increased transportation costs for households.
Expectedly, this has led to adjustments in household budgets, potentially resulting in cutbacks on non-essential expenditures.
According to Usman, the increased financial burden from higher transportation costs can create stress and limit access to vital services, especially for lower-income households. It can also impede mobility and restrict opportunities for employment, education, and healthcare.
Rise and rise of price of gasoline
The price of gasoline has jumped almost 30% in Nigeria since President Bola Tinubu ended a longstanding fuel subsidy on May 30, with the country’s state-owned oil company blaming market forces that now determine pump prices in a statement July 19.
The price of gasoline hit an all-time high of Naira 617/litre (81 cents/liter) on July 19, up from Naira 488/l six weeks ago, prompting protests by rights groups and labor unions.
“These are just prices depending on the market realities,” said Mele Kyari, CEO of Nigeria National Petroleum Corporation. “This is the meaning of making sure that the market regulates itself. Prices will go up and sometimes they will come down also.”
Kyari added that “there is no supply issue” and Nigeria’s current gasoline stock is capable of meeting demand for 32 days without new imports.
Experts blamed the price rises on rising global oil prices and a weak naira.
On May 30, Kyari said the NNPC had funded the costly subsidy — estimated at $10 billion in 2022 — from its own tight cash flow, because the government was unable to cover it.
Despite being Africa’s top oil producer, with current production of 1.4 million b/d of crude and condensate, Nigeria imports around 1 million-1.25 million mt/month of gasoline to meet national demand of around 50 million-60 million liters/day, due to the poor state of its refineries, which are currently down for repairs. The subsidy represented the difference between the landing cost of imported gasoline and the regulated pump price at filling stations nationwide.
With state-owned refineries offline, the country is depending on the new Dangote refinery to bridge the gap in local fuel supply and make Africa’s biggest economy self-sufficient in fuels.
Built by Aliku Dangote, Africa’s richest man, the 650,000 b/d refinery was inaugurated on May 22 and is expected to begin production next month. However, company sources told S&P Global Commodity Insights that operations are being delayed due to logistical problems.
The project has faced years of delays and cost overruns since first being mooted in 2014.
With Nigeria still dependent on fuel imports for now, the country’s fuel regulator, the Nigerian Midstream and Downstream Petroleum Regulatory Agency, said dozens of private companies have taken advantage of the free-market price regime to enter the gasoline import game.
Previously the NNPC was the sole importer of gasoline, using crude swap contracts, but now 56 private firms have been licensed to import gasoline, with 10 of them approved to supply products in the third quarter of 2023.
Refined product imports have been a huge drain on Nigeria’s foreign exchange reserves and the value of its currency, worsening the country’s economic hand.
On July 18, agency head Farouk Ahmed announced the delivery of the first cargo of imported gasoline by private companies. The 20 mt cargo was brought in jointly by three companies: A.Y. M. Ashafa, Prudent and Emadeb Energy Services.
No longer at ease with recalcitrant fuel marketers
The Nigerian Midstream and Downstream Petroleum Regulatory Authority said it will penalise fuel station operators who tamper with petroleum pumps.
Speaking recently, the NMDPRA Chief Executive, Farouk Ahmed during an interactive session with commissioners of the Revenue Mobilisation Allocation and Fiscal Commission in Abuja, raised concerns over the alteration of fuel pumps by filling station operators, saying it is a major concern to the oil regulatory bodies and the federal government.
Ahmed said petrol stations caught dispensing fuel with altered pumps would face sanctions.
The sanctions, he said, will include revocation of operating licenses, suspension, or shutdown depending on the severity of the offence.
“What we are doing now is that we have some of our staff going round to take on-the-spot checks of some of the petrol stations.
“If you drive into a station, drive out, you will not know if you have been cheated until you do a measurement.
“Sometimes we do a physical measurement where we go to some stations and buy one litre, look at that environment to see whether that one litre is really one litre.
“Then we will know whether or not they have tampered with the pump,” he said.
The NMDPRA boss said that the authority would continue to collaborate with the RMAFC to generate more revenue for the federation.
Lamentations galore
Indications are that more manufacturing companies and businesses in the country may shut down in the coming months due to the unabating energy crisis, which has now pushed diesel prices to over N1,100 per litre.
As to be expected, this already precarious situation has been worsened by the foreign exchange crisis and the floating of the naira, even in the midst of poor purchasing power as there are signs that the prices of Liquified Petroleum Gas and Compressed Natural Gas, which are being adopted as alternative energy sources, may spike further.
The Nigerian Association of Liquefied Petroleum Gas Marketers Gas said that the price of a 12.5kg cooking gas may hit N18,000 from the current N10,000.
Already, the number of factories shutting down yearly due to power shortages and harsh economic conditions remains worrisome as stakeholders recently expressed deep concerns that without urgent actions, including halting taxes on petroleum products, job losses and revenue declines from the sector could severely impact the nation’s economic growth and its expected contributions to Gross Domestic Product (GDP).
This crisis was further exacerbated by the impacts of the CBN Naira redesign policy. In the second quarter of this year, manufacturers witnessed a 17.3 percent increase in the cost of production and distribution. Capacity utilisation plummeted by 5.6 percent, volume of production contracted by 6.1 percent, manufacturing investment decreased by 5.6 percent, employment dropped by 5.7 percent, sales volume plunged by 6.3 percent, and the cost of shipment went up by 14.3 percent.
From available information, the Manufacturers Association of Nigeria’s Confidence Index for the second quarter of the year identified high cost of energy as the foremost challenge facing manufacturing in the country. This challenge is compounded by high credit costs and lack of loanable funds, multiple taxes, charges, levies, consistent tax policies for local producers and importers, raw material unavailability and delays in receiving imported raw materials, high raw material costs, forex scarcity, high exchange rates, and poor forex allocation.
This is just as the nation’s electricity grid remains unreliable for manufacturing activities with over 134 system collapses in the last 10 years, manufacturers have spent nearly N1 trillion to source alternative energy in the last seven years.
The manufacturers spent N129 billion in 2016, N117.38 billion in 2017, N93.11 billion in 2018, N61.38 billion in 2019, N81.91 billion in 2020, N71.22 billion in 2021 and N144.3 billion in 2022.
With an average of 95 manufacturing companies shutting down yearly, with GlaxoSmithKline being the latest, over 4,451 job losses are being recorded yearly in manufacturing sector alone as factory output value dropped to N2.68 trillion in first quarter of 2022 from N3.73 trillion in the first quarter of the year.
With the price of crude oil inching towards the $100 per barrel mark, stakeholders have predicted tougher times ahead for businesses in the country as the actual electricity output remains around 3500 megawatts in the last 10 years.
Commenting on the parlous state of the economy, Director for the Centre for the Promotion of Private Enterprise (CPPE) Dr. Muda Yusuf said the implications of the increase in the pump price of diesel would result in increased production costs for industries.
“Most small-scale producers are dependent on diesel generators as alternative sources of energy and this means that the production costs for them will go up. When you combine this with the forex crisis and all the other problems manufacturers are battling with, you can only imagine what will happen in the next few months.”
“Also, it will affect the transportation of goods and services. The trucks and trailers we see on our roads are the ones delivering everything from raw materials to finished goods and they all use diesel. Almost 100 per cent of haulage in Nigeria is by road as our rail and water systems are under-developed. This will mean an increase in the cost of moving goods from one place to another, since they’re powered by diesel engines.”
Yusuf noted that these challenges would further cause inflation to skyrocket.
While most heavy-duty vehicles rely on diesel, Nigerians have been advised to explore other alternative transport means to cope with the rising price of diesel in the country.
Stakeholders within the transport sector encouraged Nigerians to consider carpooling, explore electric vehicles, while adopting public transit options to cushion the effect of the hike.
They noted that the increment will mean an increase in household items, commodities and other things, stating that the government must quickly address fundamentals like wages; foreign exchange regime and security.
This is even as the Nigeria Employers’ Consultative Association (NECA) has called on the federal government to remove the 7.5 per cent Value Added Tax (VAT) on Diesel and Premium Motor Spirit (PMS), as measures to moderate increases in the prices of fuels in the immediate term.
Blame game
In what analysts have described as a blame game, the Independent Petroleum Marketers Association of Nigeria (IPMAN) has attributed the recent fuel price hike to extortion by security agencies and arbitrary levies by government institutions.
The IPMAN National President, Chinedu Okoronkwo who spoke at a public hearing organised by the House of Representatives Ad-hoc Committee on the Recent Hike in Petrol Pump Price, said those factors added to international pricing to hike the product in the country.
Okoronkwo told the lawmakers that IPMAN members are presently cash trapped and cannot engage in direct importation of fuel as the Nigerian National Petroleum Company (NNPCL) was owing them about N250 billion.
The IPMAN President further called on the federal government to instruct all its agencies to put a stop to arbitrary charges which are built into the price of fuel by marketers.
He recommended a switch over to the use of Compressed Natural Gas (CNG) to permanently address the rising cost of PMS and ease the challenges brought by the removal of subsidy.
Okoronkwo said in spite of the excruciating pain of subsidy removal, it was a right decision and what was left was for the government to bring succour.
“Energy everywhere is critical, it is in the security list of every nation and God has given us about the best in gas that can last for over 500 years.
“What we require now is to build the market, the demand will be there, we need this House to help us build the market.
“Everyone is feeling the pinch, everyone has taken the bullet; palliatives are just for some time, what is the permanent solution is what we have brought to the nation and we tag it good news because with little money you can fill your tank and still do business,” he said.
Also speaking, a partner of IPMAN and the Managing Director of Gas Analytics and Sorutiral Index, Brian Amonu said Nigeria has more gas than crude oil, noting that a lot of gas is flared in the country because there is no organised market for the product.
“This solution lies in the Central Bank of Nigeria (CBN), in it lies a N250 billion gas expansion facility. The objective of that facility is to support the utilisation of natural gas; we have written to CBN since last year way ahead of subsidy removal, we have had meetings convened by the former Finance Minister and the CBN, NNPC and other stakeholders and we told them the solution to subsidy removal can be implemented in one day.
“Nigerians, vehicle owners and the state government should be given access to borrow N200,000 to convert their vehicle or tricycle from that N250 billion. That will catalyse investments along the value chain because you need to have a large pull of converted vehicles to justify the investment to deliver that gas to every part of the country.
“The solution is here, we have been preaching this since last year, the government does not have to do anything new; there is funding at CBN to support this. The only way natural gas can be a substitute is by providing loans for vehicle users.
“If we transit just 10 percent of the 48 million litres of Premium Motor Spirit (PMS) otherwise known as petrol we consume a day to natural gas, it will save Nigerians two billion naira everyday or N730 billion every year.
“Just by transitioning 10 percent of the petrol we consume today to natural gas and what that means is that, we can deliver natural gas through the IPMAN platform in Kebbi, in Borno at N200 per litre equivalent,” he said.
In his remarks, chairman of the Committee, Hon. Babajimi Benson said petrol is the lifeline of the Nigerian economy and an increase in the price will affect the price of food on which Nigerians spend 80 per cent of their income.
“This is why we fear that this recent increase will further push Nigerians deeper below the poverty line. This committee is confident that the government means well for Nigerians and has its justification for this action. This is what we want to hear at this investigative hearing. Nigerians need to understand the rationale behind this action.
“But beyond that, they need to be assured that this price hike will not have a more devastating effect on their livelihoods. We need to be able to convince Nigerians that their interest will always be protected.
“We therefore urge you to be open and objective in your submissions and provide the necessary information that will guide the committee in reaching a decision that will be mutually beneficial for the government and Nigerians in general since the primary goal of governance is the welfare of citizens,” he said.
Prices of gasoline prices in African countries
Nigeria may not be alone as far as the issue of rising prices of gasoline is concerned. From available information gleaned from Statista.com, consumers in the Central African Republic paid the highest price for gasoline in Africa as of August 2023, with one litre of fuel costing an average $1.83 in the country.
In Senegal, the retail price for gasoline octane-95 reached an average $1.65 per litre, the second-highest in the continent. On the other hand, consumers living in traditional crude oil producers in Africa, such as Egypt, Nigeria, Angola, Algeria, and Libya spent less money on gasoline. For instance, one litre cost 0.03 U.S. dollars in Libya.
Average retail prices for gasoline in Africa as of August 2023, by country (in U.S. dollars per litre).
Failure of regulator
Weak enforcement by regulators has also been attributed to the rather lukewarm attitude by petroleum marketers in the brazen manner they adjust pump prices according to their whims and caprices.
For instance, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) saddled with the responsibility of enforcement may not have been applying the sledge hammer as well as it should.
Kolawole Adio, an oil and gas expert, who was unsparing in his criticism, claimed that NUPRC more often than not looked the other way when some top tier oil marketers committed infractions of the kind that would ordinarily warrant a heavy penalty.
But the NUPRC has said it is always fine-tuning its laws to meet with the current realities.
Only recently the NUPRC Chief Executive Gbenga Komolafe said it issued seven new regulations aimed at providing a regulatory environment that assures efficiency, predictability, clarity and effectiveness to the Nigerian oil and gas sector.
Mr Komolafe said the new regulations were signed and issued at the commission’s headquarters in a ceremony witnessed by Ogonnaya Orji, the Executive Secretary of the Nigerian Extractive Industry Transparency Initiative (NEITI).
He said these bring to 12 the number of regulations so far concluded and issued by the commission in line with its mandate as prescribed by the Petroleum Industry Act (PIA), 2021.
“All the 12 regulations and others to be finalised soon would serve as the key regulatory tools to be deployed by the commission in the discharge of its statutory functions under the PIA regime.
“Eighteen regulations were initially identified as a priority. Issuing the regulations represents a significant milestone achievement for the commission in its continued stride towards the attainment of the goals of the PIA and the reformation of the upstream petroleum sector,” he said.
He listed the seven new regulations to include, the Nigeria Upstream Petroleum measurement regulations 2023, Production Curtailment and domestic crude oil supply obligation regulations 2023, Frontier basins exploration fund administration regulations 2023, and the Nigeria Upstream Decommissioning and abandonment regulations 2023.
Others are Significant crude oil and Gas discovery regulations 2023, Gas flaring, Venting and methane emission (Prevention of Waste and Pollution) regulations 2023 and the Nigeria Upstream Petroleum Unitisation regulations, 2023.
Mr Komolafe noted that five regulations were successfully gazetted into law between June and October 2022.
“All the regulations are revolutionary and aimed at providing a regulatory environment that assures efficiency, predictability, clarity, and effectiveness to the industry in the discharge of the commission’s mandate.
“The PIA 2021 empowers the Commission to make regulations which will give meaning and intent to the spirit of the Act. Consequently, the Commission, in fulfilment of this mandate, swung into action with the drafting of regulations of which five were initially gazette and published,” he said.
