• New price still off the mark
• Govt makes N3.3b daily for selling petrol at N125
For pegging the pump price of petrol at N125 per litre, the Federal
Government would be shortchanging Nigerians to the tune of N3.3 billion
daily on the 55 million litres of the product consumed everyday in the
country, The Guardian has learnt.
If the sector was deregulated and market forces were allowed to drive
the price based on current realities in which the price of crude oil
averaged $25 per barrel, the expected open market price of the product
should not exceed N84 per litre.
Though the Federal Government had earlier in the week directed the
Petroleum Products Pricing Regulatory Agency (PPPRA) to peg the pump
price of petrol at N125 per litre, down from N145, the directive might
not have been the best option for Nigerians.
The Federal Government has remained the sole importer of petrol
through the Nigerian National Petroleum Corporation (NNPC), which
equally swaps crude oil for the product. The latest landing cost of
petrol published on Monday by the PPPRA, with all cost elements,
including the actual cost of product and freight, lightering expenses as
well as other necessary charges, indicated that it stood at N64.32,
while the expected open market price stood at N83.69 per litre.
Some stakeholders insisted that the price should be lower than the
N125 per litre ordered by the government if the current realities were
allowed to drive the market. They, therefore, called on the government
to totally deregulate the sector.
The stakeholders said the current oil slump presented a good
opportunity for the government to remove petrol subsidy and allow market
realities drive the sector.
Minister of State for Petroleum Resources, Timipre Sylva, who spoke
after the Federal Executive Council meeting last Wednesday in Abuja,
said that President Muhammadu Buhari reduced the pump price of petrol to
enable Nigerians benefit from the crash in global crude oil prices.
The outbreak of coronavirus across the world has forced the
international oil market to a near standstill, leaving crude oil price
to plummet from around $60 per barrel to about $25.
A former president of Nigerian Association for Energy Economics
(NAEE), Prof. Wumi Iledare, said there was need for government to allow
market realities drive the sector.
“Setting the price is wrong. Government needs to take their hand off.
I wish the government would have the will to let the PPPRA take charge
using the template for the petroleum products pricing.”
According to him, the N125 per litre will create producer surplus rather than consumer surplus.
“It is a price floor above the market clearing price at less than $30
per barrel crude! Unfortunately, government looks at N125 as price
ceiling, marketers look at it as price floor. Economics 101 supports the
latter! So consumers are not necessarily better off with this seemingly
price reduction,” Iledare said.
The professor, who noted that consumer surplus would not be optimized, said the situation could only prevent shortage.
To Iledare, there is substantial welfare loss with the price at N125.
According to him, government must take advantage of the current
development to liberalize or restructure the market to readjust itself
going forward in proportion to relate changes in crude oil prices and
exchange rates.
The expert, who said Nigerians deserved to enjoy the current landing
cost, stressed that it should be lower than N100 per litre if the market
operated based on current realities.
Last year alone, Nigeria spent a whopping N3trillion importing about
18 billion litres of petrol, while the nation is struggling with the
poor state of the its refineries and the absence of modular refineries.
Former President of the Nigerian Association of Petroleum
Explorationists (NAPE), who is the Managing Director of Degeconek
Limited, Abiodun Adesanya, had also insisted that the current window
provided opportunity to address the anomaly in the downstream sector.
Predicting that the current slump in oil price could leave massive
loophole in the nation’s economy, Adesanya said: “I never supported
subsidy for petrol. It is good we remove it through this opportunity.”
PricewaterhouseCoopers’s Associate Director, Energy, Utilities and
Resources, Habeeb Jaiyeola, also said that pegging the price was not the
best way to go, advising that the government should fully deregulate
the price.
A former Director General of the West African Institute for Financial
and Economic Management (WAIFEM), Prof. Akpan Ekpo, who noted that the
government could offer citizens lower price than the current pegged
price, insisted that the move was made in a rush.
A professor of Economics and former Chairman of Council of Chartered
Institute of Bankers of Nigeria (CIBN), Segun Ajibola, insisted that the
arithmetic used in the current calculation was biased, particularly
given the current price of oil price at the international market.
“The arithmetic of the pricing of the petroleum products is not
clear. At about $60/barrel, price per litre, it was N145. At about
$30/barrel, price per litre, it is N125. Good as the reduction is, it
cannot be described as a dash,” he stated.
According to him, if the approach is strictly scientific, the price per litre will go down much lower than N125.