New Fuel Price and its downstream implications for Nigerians

 New Fuel Price and its downstream implications for Nigerians

Some days ago, the Petroleum Products Marketing Company, PPMC, a subsidiary of the Nigerian National Petroleum Corporation, NNPC, which currently imports almost all of Nigeria’s petrol announced that it has adjusted the ex-depot price of Premium Motor Spirit, also known as petrol, from ₦147.67 to ₦155.17.

According to PREMIUM TIMES, a memo signed on Wednesday, November 11, 2020, by Manager Marketing of PPM Mr Ali Tijani of the PPMC, to the Executive Director, Commercial, EDC, of the PPMC, showed that the landing cost average for PMS has increased from ₦119 in September and October to ₦123 in November, adding that the ex-coastal selling price for the month has also increased to ₦130 in November, from ₦125 in the previous months. It added that the ex-depot price (that is, the price at which the product is sold to marketers at the depots) without collection shot up from ₦138 in September and October to ₦142 in November, as well as, the ex-depot price with collection, which ultimately influences pump price, shot up to ₦155.17. This means that at ₦155.17 per litre, marketers would be dispensing the product to motorists at between ₦167 and ₦175 per litre.

In his reaction, the National Operation Controller, Independent Petroleum Marketers Association of Nigeria, IPMAN, Mr Mike Osatuyi, said the increase in ex-depot price will affect and cause increase in the cost of fuel; noting that the Nigerian Government has deregulated petrol prices; while the Minister of State for Petroleum, Mr Timipre Sylva, in another reaction said deregulation policy is in line with global best practice and will ensure economic growth and development of the country.

In October 2020, the National Vice President, the Independent Petroleum Marketers Association of Nigeria (IPMAN), Alhaji Abubakar Maigandi, said in a statement that the marketers are looking forward to a downward review of the ex-depot price for October, adding that the forecast is based on the drop in crude oil prices as, at then, the Brent Crude and the Bonny light crude were both trading at less than $40 per barrel.

Two months ago, precisely on September 2, 2020, the PPMC, in an internal memo, disclosed that Petrol pump price had increased to ₦151.56 per litre.

The PPMC internal memo signed by the Depot Manager, D.O. Abalaka, reads, ‘’Please be informed that a new product price adjustment has been effected on our payment platform. To this end, the price of premium motor spirit (PMS) is now one hundred and fifty-one naira, fifty-six kobo (₦151.) per litre. This is effective 2nd September 2020.

However, the hike in the price of the petrol by the NNPC and the PPMC is coming against the fact that the price of crude oil in the international market had remained largely unchanged over the last three months.

Specifically, earlier in November, the price of crude oil had dropped to between $35 and $37 per barrel, before rising to $42.97 per litre as at 8am, November 13, 2020. Crude oil prices had hovered around $40 and ₦42 per barrel over the last three months.

An overview of Fuel price from the year 2000 to 2020.

According to BBC reports, fuel prices have greatly increased between 2000 – 2020. As at June 2000, the price of petrol was ₦22 per litre, but on the first of January, 2002, it was increased to ₦26 per litre. On June 23, 2003, the Federal Government increased the price from ₦26 to ₦40 per litre, while the increment on May 29, 2004 was to ₦50 per litre. In August, 2004, the Federal Government increased the price from ₦50 to ₦65 per litre; and by May 27, 2007 Nigerians had to buy fuel for ₦75 per litre, which was reduced to ₦65 per litre in June 2007 after some protests.

On the first of January, 2012, the Federal Government announced a fuel subsidy to increase the price of PMS to ₦141 per litre, which caused another protest tagged ‘#OccupyNigeria’, and thousands of Nigerians march on the street. So the government later reduced the price to ₦97 per litre. Due to a crash in the price of crude oil at the International Market, the former Minister of Petroleum, Mrs. Diezani Allison, on January 28, 2015, announced a reduction in the price of Premium Motor Spirit from ₦97 to ₦87.

In May 2016, the price of petrol increased to ₦145 per litre, and the Minister of State for Petroleum, Mr Ibe Kachikwu explained that the increase was to balance the different prices Nigerians pay for fuel due to fuel scarcity.

Due to the crash in crude oil prices in the international market, pump price of Premium Motor Spirit (PMS) moved from ₦145 to about ₦125 per liter in March 2020. After a month, for the second time in May 2020, the Petroleum Products Pricing Regulatory Agency (PPPRA) announced a new pump price band to between ₦121.50 to ₦123.50 per litre for petrol. The retail price of petrol had also risen from ₦121.50 to ₦123.50 per litre in June to ₦140.80 – ₦143.80 per litre in July and then ₦148 to ₦150 per litre in August.

It would be recalled that in September 2020, the Federal Government declared full deregulation of the downstream oil sector, paving the way for prices to be determined by market forces, especially international crude oil prices. This led to the adjustment of the pump price of petrol to between ₦158 and ₦162 per litre to reflect the increase in global oil prices.

Infographic for the rise in fuel price between January 2000 and November 2020.

Causes of Fuel price instability

According to Arize Peter, the pricing of oil products has always been controlled by the government at all levels in the industry, depending on the international price of crude oil which is set by the Organisation of Petroleum Export Countries (OPEC). This means that domestic prices of oil products are based on international prices of crude oil. The government regulates the transfer prices paid within NNPC and sets product prices at wholesale and retail levels. The NNPC subsidiary Pipelines and Product Marketing Company (PPMC) buys crude oil at prices set by the government; they refine and then sell the refined products to the marketing companies. Retail prices are subsidized by the government and the subsidy could be high or low depending on the international price of oil which is set by the Organisation of Petroleum Exporting Countries (OPEC). It was estimated that the government pays an amount of $2.5 billion U.S. dollars as subsidies, consequently resulting into price instability of oil products.

He added that another cause of price instability of oil products in Nigeria are attributed to widespread smuggling and diversion of products from their approved destinations, holding of products in anticipation of an increase in prices and the refineries producing at less than half of their installed capacities. The rapid growth of population in this country is an enough reason to cause instability in prices of oil products, because the higher the population of Nigeria with low capita income, the higher the unskilled labour and high rate of unemployment.

Downstream Implications of increased Fuel Prices on Nigeria.

Nigerians, recovering gradually from the COVID-induced economic downturn, now have additional burden to contend with as the PPMC increased the ex-depot price of petrol. It is often the case when the cost of fuel is double, as the increase in transport fare will be astronomical, which will in turn affect everything else, such as food items, daily necessities and with time, school fees, house rent, among many others. 

It is common knowledge today that fuel scarcity worsens inflation and poverty in Nigeria, paralyzing social and economic activities, and brings about socio-economic unrest which result in increase in transport fare, sky rocketing of market prices and prices of building materials.

Another implication is the high rate of inflation which leads to increased spending both by government and private individuals. Fuel scarcity creates inflation in both public and private life with a consequent increase in prices of goods and services. 

Excessive corruption and mismanagement is another implication caused by the fuel crisis, which in turn, discourages foreign direct investment. 

Fuel hike slows down the pace of economic development because of its negative impact on the socio-economic life of the people; as well as leads to huge and excessive public expenditure on importation of fuel to augment local production which in itself is an indication of an unhealthy economy resulting in accumulated balance of payments deficit of a country. 

There is no doubt that the recent increase in the price of fuel will start to trim down the purchasing power of the people, especially the poor masses, who have always been at the receiving end of every harsh economic policy introduced by the government.

Cyoh S. argued that an increase of such in the current Nigerian economic context is, without doubt, a process that is either inadvertently or deliberately conceived to take money away from the pockets of all Nigerian income earners, with over 70 percent of Nigerians who live on below ₦360 per day, as the prime victims.

Arize Peter Emeka maintained that electricity is an essential tool which drives industrialization and hence a key factor in national economic growth and development, noting that the generation of electricity is pivotal to the availability of electricity for energy consumption. There are several mediums for the generation of electricity but the bulk of electricity generation in developing countries is through the use of petroleum products or fuel, as Turbines are run on fuel powered generators. This implied the significance of fuel to national development. Thus whatever happens to fuel prices will have an impact on economic growth and development. Afolabi J. also noted that it has been shown in the past that any significant increase in the fuel price often causes economic recession, such as witnessed in 1973 and 1979. 

According to Arize Peter the upward adjustments of petroleum products prices have resulted in inflation, high cost of living, and inequitable distribution of income in Nigeria, reminding that between 1978 and 2007, the various Nigerian regimes increased fuel prices a total of 18 times, an increase, most of which occurred between the 1990 – 2007 period when prices were adjusted, sometimes twice a year.

He noted that one major problem this has caused was the instability of the prices of goods and services in the country. Whenever there is an increase in prices of oil products, it affects transportation, cost of good and other services.

Conclusion

Having established some downstream fuel hike on Nigerians, it is expected that the government should strive to make the products available at all time because of the heavy reliance or dependence on the petroleum products, as well as tapping into other resources in order to diversify the economy. And also properly monitor the distribution channel of the flow of the petroleum products to avoid disruption of distribution or scarcity.

This research story was supported by the US Embassy via the ATUPA fellowship by Civic Hive.

Atinúkẹ́ Ṣeun-Ìgè

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