THE Minister of State for Petroleum, Dr. Ibe Kachikwu, informed newsmen in Abuja, on 17 December, 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 the Minister, 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 go back 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 Hon Minister probably did not fully recognize the Naira exchange rate as a prime determinant of petrol price. However, on 11th May 2016, after almost 5 months of the social anguish induced by acute fuel shortage, the Vice President, Yemi Osibanjo, set a new petrol pump price of N145/litre, after a meeting with critical stakeholders. Government expressed optimism that the new price would lead to improved supply, and stimulates competition to eventually drive down pump prices, as presently allegedly experienced with diesel.
If truth be told, however, in reality the deregulation of diesel price has not spurred competition to bring down prices as claimed by Government, indeed, diesel price often exceeded 200/litre this year, even when crude price hpvered around $40/barrel! The N145/litre new price which may have encouraged modest petrol imports from third parties apart from NNPC, was according to Kachikwu, predicated on a projected exchange rate of about N280=$1; however, barely 2 weeks after Osibanjo set the new price of N145/litre, the CBN announced its flexible exchange rate regime, and the Naira rate consequently weakened above N300/$, while crude oil price generally stabilized above $40/barrel to quickly erode the profit margins of oil marketers, and make the new price impractical for third party importers.
Invariably, the over N150/$ present gap between official and parallel exchange market rates will ultimately spike the official rate well beyond N300=$1 to further make the current price of N145/litre unworkable. Curiously, in an unsolicited intervention, after a meeting with the Petroleum Minister on September 4, 2016, an informal association of 9 former Group Managing Directors, expressed their fears in an NNPC press release that the subsisting pump price 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, and if Kachukwu’s explanations did not change the GMD’s perception on the lack of congruency of N145/litre price. Indeed, prior to the Ex GMDs’ reaction, oil marketers had similarly suggested, according to a Punch Newspaper report of 07/08/2016, that “the actual or real cost of petrol was N151.87, if all pricing components are adequately captured”.
As collaboration with the above observation, on Monday 24th October 2016, Mr. Mele Kyari, the NNPC GMD, Crude Oil marketing, also stated, at an oil Expo in Lagos, that the sale of petrol at N145/litre was no longer sustainable as “it is impossible today to import the products at the current fixed exchange rate”. GMD Kyari therefore warned that the burden would become too heavy if the oil Corporation remains the sole importer of petrol. However, in order to douse public anxiety that Mele Kyari’s statement on petrol supply may have instigated, NNPC’s GMD, 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 present, apparent supply glut and the 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 denied that “No, there is no subsidy”, but however noted that the current availability of PMS was a result of the diligent application of commonsense with price modulation, and additionally also because prices were being determined by market forces.
So, our present dilemma therefore is, that if GMD Mele Kyari does not publicly recant that he was in error for suggesting that the N145/litre price was not sustainable, and the Ex NNPC GMDs do not also backtrack on their urgent recommendation to increase petrol price, who then, are we to believe on this issue of sustainable petrol price, supply and subsidy? Nevertheless, if the NNPC remains 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 books will ultimately look very ugly. Incidentally, Newspaper publications on forex usage have never thrown up NNPC as purchasing forex from commercial banks for its huge petrol imports. The critical questions therefore must be, how does NNPC source its forex and what Naira exchange rate applies when NNPC resorts to in-house supply of dollars for its substantial petrol imports.
Invariably, the obvious follow up question, from the preceding narrative, must also be how much subsidy is NNPC presently giving away on each dollar allocated to its petrol imports to ‘artificially’ sustain the present N145/litre price; furthermore, how much of this subsidy is reflected as unbudgeted, public expenditure without the necessary legislative appropriation, since provision for subsidy was conspicuously absent in the 2016 budget. Conversely, if the internal subsidy on dollar exchange rate for NNPC’s petrol imports is actually adequately compensated for by NNPC’s price modulation strategy which was reechoed as a virtue by Muhammed, the GMD Public Affairs in October 2016, 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 excerpts from an article titled “Fuel price, the bone in NNPC’s throat” published in Punch and Vanguard editions of 25/07/16, also see www.lesleba.com. “Worse still, in place of relief, if crude oil price rises beyond $50/barrel; we will, ironically, become apprehensive that such increased revenue will ‘unfortunately’ instigate much higher fuel prices and bring back subsidy, if the price cap on petrol and kerosene remains. Consequently, if crude prices ‘fortunately’ further rebound, petrol and kerosene price must also be hiked beyond N145/litre to avoid funding subsidy. Notably plausible resolution to the inflationary and oppressive consequences of rising fuel prices and the avoidance of oppressive subsidy values, will infact be a stronger Naira exchange rate.”
SAVE THE NAIRA! SAVE NIGERIANS.
