The cost of Premium Motor Spirit (PMS), commonly known as petrol, may soon witness a surge due to the increase in crude oil prices and the depreciation of the Nigerian currency against the United States dollar. Oil marketers have expressed concerns about the potential hike in the pump price of petrol, citing the sharp rise in crude oil prices and the ongoing forex crisis.
According to industry experts in the downstream oil sector, the cost of crude oil and the exchange rate of the dollar account for a significant portion of the PMS cost, with over 80% attributed to these factors. The global benchmark for oil, Brent crude, reached $94 per barrel, marking the highest figure in 2023. The year began with oil prices at around $82 per barrel, dipping to $70 per barrel in June, but recently climbed above $92 per barrel. Additionally, the naira weakened to N950 per dollar due to worsening forex scarcity.
While the Federal Government and the Nigerian National Petroleum Corporation (NNPC) have maintained that petrol subsidies have been eliminated through the deregulation of the downstream oil sector, industry operators argue that the government is implementing a form of quasi-subsidy. They assert that with the recent surge in crude oil prices, the cost of petrol should increase accordingly. They contend that maintaining the commodity at N617 per liter implies a quiet return of subsidies on PMS.
Industry dealers point out that when petrol prices were raised to N617 per liter in July, crude oil was trading around $82 per barrel, and the exchange rate was not as high as N950 per dollar on the parallel market. The Nigerian Association of Road Transport Owners (NARTO) supports the concerns of the marketers. They argue that the price cap on petrol has made it challenging for marketers to comply with NARTO’s demands for increased transportation costs.
The National Public Relations Officer of the Independent Petroleum Marketers Association of Nigeria, Chief Chinedu Ukadike, explains that the increase in crude oil prices and the exchange rate of the dollar impact petrol prices as PMS is derived from crude oil. He adds that the rise in the cost of petrol is below what it should be considering the appreciation of the dollar and the surge in crude oil prices.
Ukadike emphasizes that Nigeria’s foreign exchange earnings will increase with the rise in oil prices. However, the forex is primarily being used to import refined products, resulting in limited benefits for the country. He suggests that if Nigeria were refining its products, there would be a significant advantage. However, since the country imports with the dollars earned from crude oil sales, the benefits are diminished.
Regarding the potential for further petrol price hikes and increased subsidies, Ukadike confirms that the gap is widening, especially as the exchange rate disparity between the official and parallel markets continues to grow. Many investors who attempted to import products following the removal of petrol subsidies are now facing difficulties due to the inability to recoup their investments. Ukadike urges the government to be transparent and fully apply subsidy removal to encourage healthy competition.
Billy Gillis-Harry, the President of the Petroleum Products Retail Outlets Owners Association of Nigeria, believes that despite the recent increase in crude oil costs, NNPC should be able to manage it in a way that benefits Nigerians in terms of petrol prices. He suggests that since NNPC is the major importer of petroleum products, they should have more funds from the crude oil they sell, which should be reflected in the prices passed on to Nigerians.
Chief John Kekeocha, the National Secretary of the Independent Petroleum Marketers Association of Nigeria, calls on the government to be clear about fuel subsidies rather than setting price limits for oil marketers. He argues that if the government moderates prices after claiming to have removed fuel subsidies, it implies a contradictory stance. Kekeocha asserts that the government needs to openly state its intention to reinstate subsidies if that is the case.
Yusuf Othman, the National President of the Nigerian Association of Road Transport Owners (NARTO), highlights the challenges faced by transporters due to the high cost of operations in the downstream sector. He explains that since marketers cannot increase the pump price of petrol, they are unable to raise transportation costs, making business unsustainable for transporters.
In a related development, the Nigerian National Petroleum Company Limited (NNPCL) announced the appointment of three new Executive Vice Presidents. Oritsemeyiwa Eyesan was appointed as the new Executive Vice President, of Upstream; Olalekan Ogunleye as Executive Vice President, of Gas, Power, and New Energy; and Adedapo Segun as Executive Vice President, of Downstream. The appointments took immediate effect and led to the compulsory retirement of the three former Executive Vice Presidents.
As the Nigerian economy grapples with the rising cost of crude oil and currency depreciation, stakeholders in the downstream oil sector and the government must navigate these challenges to ensure a fair and sustainable pricing structure for petrol and other petroleum products: Impending Price Hike of Petrol Looms as Crude Oil Costs and Currency Depreciation Take Toll
Rising Crude Oil Prices and Exchange Rate Depreciation:
Experts in the downstream oil sector state that crude oil prices and the exchange rate of the Nigerian naira against the US dollar are major contributors to the cost of petrol. Over 80% of the petrol cost is attributed to these factors. Brent crude, the global benchmark for oil, recently reached $94 per barrel, the highest figure in 2023. Additionally, the Nigerian naira has weakened to N950 per dollar due to forex scarcity.
While the government and the Nigerian National Petroleum Corporation (NNPC) assert that petrol subsidies have been eliminated through deregulation, industry operators argue that a quasi-subsidy is still in place. They believe that with the surge in crude oil prices, the cost of petrol should increase accordingly. The current price cap of N617 per liter is seen as a quiet return of subsidies on petrol.
Industry Stakeholders’ Perspectives:
Oil marketers express concerns about the potential petrol price hike. They argue that the current pricing does not reflect the appreciation of the US dollar and the increase in crude oil prices. The Nigerian Association of Road Transport Owners (NARTO) supports these concerns, emphasizing that the price cap makes it difficult for marketers to comply with increased transportation costs.
Challenges Faced by Marketers and Transporters:
The increasing gap between the official and parallel market exchange rates poses challenges for investors who import products after the removal of petrol subsidies. They are struggling to recoup their investments due to the depreciation of the Nigerian currency. Transporters also face difficulties as they cannot raise transportation costs without an increase in the pump price of petrol, making their businesses unsustainable.
Calls for Transparency and Clarity:
Industry stakeholders call on the government to be transparent about fuel subsidies. They suggest that if the government claims to have removed subsidies, it should not moderate prices in a way that contradicts this stance. Stakeholders urge the government to clearly state its intention regarding subsidies to avoid confusion among oil marketers and the public.
Executive Appointments in NNPC:
The Nigerian National Petroleum Company Limited (NNPCL) recently appointed three new Executive Vice Presidents in the areas of upstream, gas, power, and new energy, and downstream. The appointments took effect immediately, leading to the compulsory retirement of the former Executive Vice Presidents.