As the 36 governors meet today to decide on whether or not to increase the pump price of petrol, energy experts, civil society organisations and marketers have expressed concerns over attempts to reverse the deregulation of the downstream petroleum sector.
This is coming as oil price, yesterday, soared to $67 per barrel, a development that could further increase retail price of petrol, although it is positive for the Excess Crude Account and the 2021 budget.
Stakeholders said liberalisation of the downstream sector, including removal of subsidy, was necessary steps in reviving the downstream sector. They also maintained that taking clear decisions on how to implement minimum wage across the 36 states, providing other palliatives to cushion impacts, as well as proper use of subsidy should be critical for the governors.
Following the economic challenges that resulted from the COVID-19 pandemic, Nigerian government had opted for deregulation of the downstream, removing subsidy from petrol, a development which has almost doubled the price, as citizens now have to accept international market forces, especially crude oil price and exchange rate.
The pump price of petrol was initially downward with the near zero crash of oil price at the peak of the pandemic. Afterwards, the price rose from N121.50 to N123.50 per litre in June; N140.80 to N143.80 in July and N148 to N150 in August. In September, pump prices rose further to N158 and N162 per litre.
An attempt to increase the pump price in December last year met deadlock, as labour unions dragged government to standstill. The Nigerian Labour Congress (NLC) and the Trade Union Congress (TUC) were furious over repeated hikes in petrol price, and dragged the Federal Government to a dialogue, where NNPC agreed to slash N5 from N167.44, a development which the Minister of Labour and Employment, Dr. Chris Ngige, said would bring down the price of petrol to N162.44K.
With crude oil price hike as economies reopen, labour returned to its earlier position as the Minister Petroleum Resources Timipre Sylva, and Group Managing Director of NNPC, Mele Kyari hinted of prospects of rise in pump price of petrol in line with the deregulation regime. The development has currently led to another roundtable discussion, where the governors had to intervene.
President of NLC, Ayuba Waba insisted that decisions that affect the larger population should not be considered, stressing that Nigeria is being turned to a commodity country where products are only dumped.
He also noted that, with the eroding purchasing power of an average Nigerian while inflation continues to accelerate, the implications of pump price increase would be far-reaching.
A Professor of Energy Economics, Adeola Adenikinju, advised the governors, who are also struggling to run their state as financial pressure mounts, to back down on temptations that would lead to reintroduction of subsidy. Over N10.7 trillion has been paid on the scheme in the last 10 years.
Adenikinju said: “We should not miss this opportunity. Government should be transparent in using revenues from subsidy removal. The governors should also commit to implementing the minimum wage rates in states.
National President of the Nigerian Association of Road Transport Owners, Yusuf Lawal Othman, said the governors must allow the deregulation policy to mature for long-term gains.
According to him, since government has already removed the subsidy, the governors must consider necessary palliatives to cushion effects of the increase of petroleum products price on the populace.
An energy expert, Michael Faniran, said the governors must make sure they consider the impact of subsidy on the economy, adding that experience has shown that Subsidy regimes in Nigeria have always been fraught with corruption and inefficiency.
“What we should work on at this time is making prices at the pump to be transparent, competitive and efficient. Consumers should not be made to pay for inefficiencies across the value chain,” he said.
Executive Director, Civil Society Legislative Advocacy Centre (CISLAC), Auwal Musa said citizens are the ones paying subsidy to government on its gross inefficiency in managing the downstream sector in Nigeria. He said there was no point in giving the NNPC any advantage, whether comparative or competitive, over other petroleum products marketers in terms of access to foreign exchange, stressing that a level playing field for all necessary.
Insisting that the downstream sector must continue to thrive, Musa said: “CBN should not be giving NNPC forex on an official rate that is not accessible to other independent marketers or provide the same rate for every player in the fuel importation business.
“The reintroduction of the pricing template is a sign of insincerity on the side of the government, especially when there is no definite explanation on what instructs the fixing of some prices like the admin cost paid to PPPRA.” Programme Coordinator for the Nigeria National Resource Charter (NNRC), Tengi George-Ikoli noted that the COVID-19 pandemic had further exposed the weaknesses in Nigeria’s policies to effectively transfer the benefits of resource extraction to Nigerians.
According to her, deregulation of the downstream sector became a necessity and no longer a choice, as Nigeria hemorrhaged much-needed funds to stabilise the economy and increase of Nigeria’s debt to survive.
Gorge-okoli stated that the price of oil continues to rebound, Nigeria must not forget the heavy debt receipts the country has to redeem, adding that the gains from the current price hike are needed to make up the shortfall from OPEC’s production cuts.
“As the GMD stated during the height of COVID-19 pandemic, subsidy only serves the few and not the many. We cannot afford to revert to subsidy when Nigeria still doesn’t have the funds to fully fund its budget and a second strain of covid19 ravages the world. Spending scarce resources on subsidy makes no sense when other sectors of the economy, health sector and other multiplier sectors like agriculture or wealth multipliers such as making investments in Nigeria’s infrastructure are left to further stimulate the Nigerian economy towards recovery and sustainability,” she said.
Oil prices had risen on Wednesday to about $67 per barrel despite an inventory report by Energy Information Administration showing a build in crude stocks and virtually unchanged gasoline inventories. The report pointed to crude oil inventory build of 1.3 million barrels for the week to February 19. The build was much lower than the one the API had estimated a day earlier.