-By Fred Ojiegbe
They N5 per litre slash in the price of Premium Motor Spirit (PMS) also known as petrol by the Federal Government, which came into effect on Monday, December 14, 2020, has not gone down well with Oil marketers and Depot owners in Nigeria who have demanded access to foreign exchange from the Central Bank of Nigeria (CBN) and full deregulation of the downstream sector.
It would be recalled that the Minister of State for Petroleum Resources, Timipre Sylva, had in September 2020, stated that the Federal Government had stepped back from fixing the price of petrol and that prices will be determined by market forces and the crude oil prices. Marketers were taken aback at the recent price reduction especially when most marketers have stocked up products at higher costs before the new prices were announced, to ensure that there would be product availability during the Christmas, New Year period and beyond. The marketers believe that the country should put in place a system that allows it sell its crude to raise the needed FOREX and allow operators access some of these foreign exchange through the Central Bank of Nigeria FOREX window to source products at the best possible prices, thereby allowing the forces demand and supply dictate the economics of the sector for a more efficient deregulated market.
Reacting to the development, the Chairman of Major Oil Marketers Association of Nigeria (MOMAN), Mr. Adetunji Oyebanji stated that “Nothing has changed. The Forex issue is still like that. And as you can see, the government has also extended that DSDP (the exchange of crude for refined petroleum products) arrangement. That’s a signal to you that foreign exchange may not be there for us to access.” Also, the Chairman of Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), Mrs. Winifred Akpani, said; “the inability to source FOREX from the official CBN FOREX window by independent marketers is continually hindering the effectiveness of the principles of demand and supply market forces to correct the current inefficiencies in the pricing mechanisms adopted in the deregulation process.” According to Akpani, the inability of marketers to source FOREX creates a situation which can be described as “pseudo subsidy” in the market. “There still exists some form of indirect subsidy within the market and this can be attributed to reasons why price of petrol continues to have an upward trajectory even when international crude oil prices are going downwards’” she added.
Earlier in September, Mele Kyari, the Group Managing Director (GMD) of the NNPC, had assured the marketers that concrete steps were been taken to address their main concerns, especially the issue relating to the availability of FOREX, stressing that the (CBN had already taken the first step of merging all FOREX windows to have a unified exchange rate, though this is yet to see the light of day. “It is really not in our interest to be the sole importer of PMS in the country. We have taken definite steps to exit the situation. This is a definite step taken and the details would be communicated to stakeholders like DAPPMAN, MOMAN, IPMAN and others outside this forum,” Kyari had stated at a forum with marketers. However, three months since the assurance was made, marketers are yet to see any change and are still encountering the same challenge posed by difficulty in accessing FOREX, as such NNPC continues to play the role of sole importer of petrol as only it can access FOREX at the official rate of about N380 or there about, to a dollar, thereby still holding an unfair advantage in terms of access to FOREX, which is critical to securing importation of petroleum products.
With the December 14, 2020 effective reduction of pump price from N168 per litre to N162.44 per litre, the Federal Government has reneged on its decision to remove subsidy and allow market forces to determine the price of petrol. The government’s action, ordering a reduction in price, by fiat, undermines any goal of plugging the Two Trillion Naira annual revenue hole that petrol subsidy had become. It also increases the risk profile of, any investment in the fuel part of the hydrocarbon value chain which had been based on the promise, last April, that “subsidy of gasoline prices was gone forever”. Presently, petrol is still imported. This means that the landing cost is partly determined by the Naira -Dollar exchange, which has, in the past one month, worsened for the Naira. That has meant that even if crude oil prices had not increased, the pump price of petrol would have kept increasing, if subsidy removal was maintained as a result of downward pressure on the local currency. But on top of the foreign exchange crisis, an upward movement of crude oil prices has now crept in, ensuring that market-determine fuel price is moving skywards. “With an artificial cap of pump price of fuel at N162.44, and the government lacking courage to move away from price control, Nigeria is unlikely, any time soon, to adjust to whatever prices are dictated by the market, especially now that crude oil prices are likely to keep trending up, even if modestly. This means that the chronically indebted petro country will open another file in its growing debt profile. It will have to find a way of paying the subsidy it has now introduced by this cap in price. It is not the most optimal way for the country to manage its revenue at this point in time,” an industry stakeholder, who chose not to be mentioned stated.