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Is petrol still subsidized?

By Henry Boyo

PETROLEUM marketers  have announced, in their communiqué of  August 29, 2017, that they would commence mass retrenchment, unless government pays their over $2bn outstanding invoices, and also settles interest charges, on delayed payment and related exchange rate differentials.   Nonetheless, government’s present lean revenue expectations may compel the need, to additionally borrow N720bn domestically or $2bn externally and oppressively compound the already crippling deficit of N2.32tn in the N7.4tn 2017 budget.

Evidently, confusion still trails the flip-flops in government’s failed attempts to remove subsidy and deregulate petrol pricing. However, the $2bn outstanding debt as at July, may alarmingly, technically rise beyond $4bn (N1.4tn) before year end, if petrol price remains at N145/litre and fuel subsidy will voraciously consume almost 20 per cent of the 2017 budget! Furthermore, in a report in Punch edition of  August 24, 2017, the Fiscal Responsibility Commission has confirmed that Government illegally withdrew over N359bn from the Excess Crude Account to fund subsidy in 2015


The above title was first published on October 31, 2016; sadly, the question posed still remains, officially unanswered: please read on:

“Petroleum Minister, Dr. Ibe Kachikwu, informed newsmen in Abuja, on December 17, 2015, that the Federal Government would focus on price modulation of petroleum products to ensure efficiency and regular supply of products; price modulation, according to Kachikwu, “has nothing to do with the removal or existence of subsidy.”

The Minister also explained that petrol price would no longer be fixed, as crude oil price would continue to determine what petrol price would be. Kaichukwu dismissed speculations that pump price would return to N97/litre in 2016, but, added however, that a band between the earlier discounted N87 and the current N97/litre might be adopted. Evidently, sadly at this stage, the Minister probably did not fully recognize Naira exchange rate as the critical determinant of domestic price of petrol.

However, on May11, 2016, after almost five months of the social anguish induced by acute fuel shortage, Vice President, Yemi Osibanjo, set a new pump price of N145/litre. Government also expressed optimism that the new price would improve supply, and stimulate competition and eventually drive down pump price. The price, according to Kachikwu, was predicated on a projected exchange rate of about N280=$1; however, barely 2weeks after CBN announced its flexible exchange rate regime, the Naira/Dollar rate consequently rose above N300/$, while crude oil price also rose and stabilized above $40/barrel to quickly erode profit margins, and make the new price unprofitable for third party importers. Invariably, the over N150/$ present gap between official and parallel exchange rates, will ultimately spike the official Naira exchange rate well beyond N300=$1 to make the current petrol price of N145/litre unworkable.

Curiously, in an unsolicited intervention, nine former GMDs, expressed their fears, in an NNPC press release, after a meeting with the Petroleum Minister on September 4, 2016, that the subsisting benchmark of N145/litre was “not congruent with the petroleum downstream liberalization policy, especially when foreign exchange and other price determining components, such as crude oil cost and NPA charges remain uncapped”.

Unfortunately, we do not know if the Ex-GMDs had earlier discussed their observation on the present precarious petrol pricing model with the Hon. Minister. Indeed, prior to the Ex-GMDs’ reaction, oil marketers had similarly suggested, according to a Punch Newspaper report of August 7, 2016, that “the actual or real cost of petrol was N151.87, if all pricing components are adequately captured”.

In consonance with this observation, Mr. Mele Kyari, the NNPC GMD, Crude Oil marketing, also stated on 24th October 2016, at an oil Expo in Lagos, that “it is impossible today to import and sell the product at the current fixed exchange rate”. Consequently, Kyari therefore warned that “the burden would become too heavy if NNPC remains the sole importer of petrol”.

However, in order to douse any public anxiety on supply, NNPC’s Director, Public Affairs, Garba Deen Muhammed, quickly, assured Nigerians, at a press briefing, two days later, that the petrol pump price of N145/litre has not been increased. Muhammed confidently asserted that there couldn’t be petrol shortages with the subsisting, apparent supply glut and very robust stock and long term procurement contract that NNPC has established with suppliers. When asked if NNPC was still subsidizing fuel, the GMD emphatically countered, “No, there is no subsidy”, but however boasted, that “the current availability of PMS was a result of the “diligent application of commonsense with price modulation,” and therefore further assured, that “petrol prices were now being determined by market forces.”

So, the dilemma therefore is that, if GMD Mele Kyari does not publicly disown the   unsustainability of the 145/litre price, and the  nine Ex NNPC GMDs do not also backtrack on their urgent recommendation to increase petrol price, who then, do we believe on the issues of sustainable petrol price, supply and subsidy?

Nevertheless, if NNPC is compelled to remain the sole importer, as suggested by Kyari, and petrol continues to sell below its cost price, then of course, it is inevitable that the corporation’s financial accounts will ultimately look very ugly. Incidentally, Newspaper publications on forex usage have never thrown up NNPC as purchasing forex from commercial banks to fund its huge petrol imports. The critical question therefore is, how does NNPC source forex and what Naira exchange rate, applies when NNPC resorts to in-house supply of dollars for its substantial imports.

Furthermore, how much subsidy is NNPC presently giving away on each dollar allocated for its petrol imports to ‘artificially’ sustain the present N145/litre price; indeed, how much of this subsidy is reflected as unbudgeted, public expenditure, without the required legislative approval, since provision for subsidy is clearly conspicuously absent in the 2016 budget. Conversely, if subsidy is eliminated with NNPC’s price modulation strategy, then we should properly celebrate the Corporation’s ingenuity in hatching this enabling solution to the hydra headed fuel pricing issue.”!

The above piece will be concluded with the following excerpt from an article titled “Fuel Price, The Bone In NNPC’s Throat” which was published in Punch and Vanguard editions of July 25, 2016, see also

“Worse still, in place of relief, if crude oil price fortuitously rises beyond $50/barrel and increases Government revenue, we will, ironically, become apprehensive that such increase will ‘unfortunately’ instigate much higher fuel prices and bring back subsidy, if the price cap on petrol or kerosene remains, or if the Naira exchange rate further depreciates.

“Notably, a plausible resolution to the inflationary and oppressive consequences of rising fuel prices and the avoidance of oppressive subsidy values even when crude prices spiral, will in fact, be a stronger Naira exchange rate.”



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