High PMS Price, Expensive Subsidy Bill: Tough Choices Before Nigeria
-By Gideon Osaka
Since late 2020, the beginning of a new month often comes with fear, anxiety and uncertainty for most Nigerians, because it is the period when the price of premium motor spirit (PMS), better known as petrol, usually goes up.
Increase in the price of PMS, which is the most used fuel for transport and electricity generation at homes and small-to-medium scale businesses, often has spiral effects on transport cost, food and ultimately the general purchasing power of Nigerians.
But the PMS price, either at the depot, or retail stations, have since February this year been frozen – thanks to the Nigerian National Petroleum Corporation (NNPC) who, as the sole importer of the product in Nigeria, has pledged to maintain the current price until the end of negotiations with the organised labour.
Reports of possible increase in the price of petrol have continued to dominate the public space. Queues resurface and disappear in many cities as residents besiege fuel stations in anticipation of yet another season of fuel scarcity.
Since September 2020, the organised labour has been in a series of engagements with government agents over whether to increase the PMS price or not. An agreement the labour unions reached with the Federal Government had led to the suspension of a planned nationwide strike and mass protest on the eve of commencement on September 28. Affiliates of the Nigeria Labour Congress (NLC) and their Trade Union Congress of Nigeria (TUC) counterparts have been grumbling over the consequences of recent increases, and talks of newer pump price adjustments have been rejected by the unions which represent hundreds of thousands of workers.
The President of NLC, Ayuba Wabba, in a statement in November, warned against any further increase.
“There is a limit to what the citizens can tolerate, if (these) abysmal increases in the price of refined petroleum products and other essential goods and services continue,” he said.
State governors and the NNPC have also been meeting to find solutions to the issues of fuel pricing. According to the Minister of Labour and Employment, Senator Chris Ngige, the final decision, whether or not to increase pump price will be taken by the 36 state governors, and their decision is still being awaited.
It was based on the strength of these meetings and negotiations that the NNPC, in a March statement, said it was not contemplating any raise in the price of petrol in order not to jeopardise the ongoing engagements with the organised labour and other stakeholders on an acceptable framework that will not expose the ordinary Nigerian to any hardship.
Valuechain reports that social dialogue between the Federal Government and labour is billed to hold soon just as governors of the 36 states are being awaited to take a decision on the PMS pricing.
Already, the NNPC has announced that it will, again, not increase the ex-depot price of petrol in May.
The ex-depot price is the price the marketers buy the products from depot owners. It determines the pump price at filling stations.
“We want to inform oil marketing companies that NNPC will not increase the pump price of PMS in May,” the NNPC Group Managing Director (GMD), Mallam Mele Kyari, said at the end of a closed door meeting with petroleum tanker drivers in April.
Some reports have it that the NNPC will retain the current price of N162-N170 per litre for, at least, six months so that a price increase does not harm the ordinary Nigerians, if the planned full deregulation must go on. In essence, the NNPC will continue to subsidise the product, at least, for now.
Postponing the evil days
Realities in the oil market give glimmer hope of how long the government can continue to play its primary purpose of making sure that citizens do not suffer the consequences of what they have not bargained for, i.e increase in PMS price.
Every available statistics shows that it may not be possible for the government to continue keeping for long the price of the PMS where it is currently, because of the huge subsidy bill that will be involved.
As it could no longer afford to subsidise the price of petrol, the Federal Government, last year, announced the removal of subsidy as crude oil price reached an all-time low.
The announcement of the removal of subsidy that time signaled the commencement of a deregulated pricing of petrol. At the time the scheme was adopted, crude oil prices were in the $20 per barrel region, and that was why there was a reduction in petrol price.
However, the price of Brent crude, the benchmark for Nigeria’s crude grade, has hit as much as $69 per barrel. Crude price is projected to rise to $80 by the third quarter of 2021. The price of crude constitutes over 60 per cent of the cost of refined petrol.
While the country’s economy still remains fragile, suffering two recessions recently, and struggling to stay afloat from shocks occasioned by the Coronavirus (COVID-19) Pandemic, subsidy re-surfaced as increase in crude oil price sent the pump price of petrol to record high.
NNPC had, in March, disclosed that the fuel pump price of N165 was not sustainable as it costs the Corporation N120 billion monthly in subsidy to still be selling at the price of N162 per litre – a burden that the Corporation said was too much on its balance sheet.
Kyari, who said NNPC currently absorbs the cost differential which is recorded in its financial books, revealed that while the actual cost of importation and handling charges amount to N234 per litre, the government is selling at N162 per litre.
He spoke on the exact amount the NNPC was subsidising fuel monthly.
“Our current consumption is about 60 million litres per day. We are selling at N162 per litre, and the current market price is N234 – actual market price today.
“The difference between the two multiplied by 60 million times 30 will give you per month.
“I don’t have the numbers now, this is simple arithmetic we can do. It is anywhere between N100 billion to N120 billion per month.
“Today, NNPC is the sole importer of fuel. We are importing at market price, and we are selling at N162. Looking at the current price situation, the market price could have been between N211 to around N234 per litre.
“The meaning of this is that the consumers are not paying for the full value of the PMS (petrol) that we are consuming, and, therefore, the NNPC is bearing that cost.
“That is why early last year, you will recall the full deregulation of PMS, and we have followed this through until September when the price shifted above N145.
“Disputes came up between us and the trade unions and the civil societies leading to an engagement between us and organised labour which prevented the implementation of the actual price of the petroleum product as at that time.
“These engagements continued and the objective of the engagement is actually not to prevent the implementation, but to make sure there is sufficient framework on the ground to ensure that consumers pay the actual price of this product, and that they are not exploited,” Kyari said.
On the one hand are the organised labour and the ordinary Nigerians, who would not accommodate any PMS price increase, on the other hand is a government heavily constrained by finances to continue subsidising petrol.
Way forward
Several opinions have been offered as possible solutions to the present quagmire the country has found itself.
One of the positions canvassed by the NLC to stem the tide of high prices of refined petroleum products is that, while the government fixes the refineries, it should declare a state of emergency in the downstream petroleum sector.
As a follow up to this, the union said the government should enter into contract refining with refineries closer home to Nigeria. This, it said, will ensure that the cost of supplying crude oil is negotiated away from prevailing international market rate so that the landing cost of refined petroleum products is significantly reduced.
On the part of the government, Kyari said the government wants to put some relief such that the potential effects of the fuel price increase are not transferred to the ordinary people. Part of this is to deepen the auto-gas programme.
“With the auto-gas programme, we will be able to deliver alternative fuel for vehicles, including Keke Napep, so that the price per litre equivalent will probably be half of the PMS at its current price,” the GMD said.
The Director-General of Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, also offered his opinion on the matter.
“The increasing burden of petroleum subsidy is an offshoot of the deregulation conundrum which is a major cause for concern,” Yususf said.
He noted that the deregulation of the petroleum downstream sector was inevitable, if the economy must progress, and put an end to the corruption that comes with the subsidy regime.
Yusuf spoke on the way forward “There could be a social pricing window in the interim where petroleum products could be sold at a subsidised price.
“The NNPC stations could be so designated since they exist in all parts of the country. The government will have to provide a limited budget for this.
“The other players in the sector should, thereafter, be allowed to buy and sell according to the dictates of the market. We need to free the sector from the current repressive and suffocating regulatory framework.
“The economy has suffered major setbacks as a result of the over regulation of the sector,” he added.
