The Looming Fuel Price Increase

Business/Energy

Recently, Nigerians, who were already agonising in the atmosphere of unabating insecurity, were greeted with yet another bad news; an imminent fuel price increase. What is more disturbing is the call for them to bear the pains of the increase, as if they ever had any respite from all the years of persistent price rise in petroleum products. Fortunately, towards the end of last week, the Nigerian National Petroleum Corporation (NNPC), through its spokesperson, Kennie Obateru, said there would be no fuel price increase. As good as the news may be, it tells about some lack of coordination between the NNPC and the Ministry; and an embarrassing lack of communication between the GMD and the Minister. Chris Paul reports

Obviously, from the body of the press statement issued by NNPC last week, there will be an eventual hike in the price of fuel. At over $65 per barrel, crude oil price is riding on a three-month high. So, naturally, one should expect the price of fuel to be in the range of N200 to N250 per litre. But government, ‘somehow’, still regulates the price of the product, which would have been a good development if the process was transparent.

Whatever they choose to do and however they elect to do it, NNPC has only succeeded in making Nigerians understand that the days of buying fuel at unregulated price like kerosene or diesel are now here to stay. That reality was underscored in Minister of Petroleum Resources, Timipre Sylva’s statement. The only problem here is that Nigerians may not be as quiet as they have been; buying kerosene and diesel.

As it stands now, NNPC is giving Nigerians respite for the month of February, while they dialogue with other stakeholders to convince them on why Nigerians must swallow the pain of another fuel price increase.

Unfortunately, that dialogue may not be yielding any positive result. The Public Relations Manager of the Independent Petroleum Marketers, Chinedu Ukadike, seems to disagree with his NNPC counterpart. If the marketers are getting the product at between N160 and N165 at private depots, surely, NNPC would not expect the marketers to sell at N162 per litre.

Already, fuel queues are surfacing in different parts of the country. In other words, Nigerians are about to begin the reggae and the blues dance all over again.

So, Sylva is correct. There will be a petrol price hike and it may have actually begun.

Taking a break from the usual cumbersome technical argument, perhaps the social pressure this increase will cause the country and its citizens should be strong enough, an argument, to get the government to ensure in-country refining of the nation’s crude, is accomplished, once and for all; at any cost; just to save Nigerians more avoidable hardship.

Looking at the recent announcement by the Minister of State for Petroleum Resources, Timipre Sylva, of another price hike on fuel, Nigerians who thought the era of fuel price increases is over, now know as hinted in Sylva’s statement that when it comes to paying for your fuel, there is no silver lining anywhere.

In a remark, he made on February 9, 2021, Sylva asked Nigerians to prepare for a higher regime of the pump price of petrol, given the new fortune of crude oil in the international market.

As global crude oil price hovered around $60 per barrel, last week, Sylva said an increase in the cost of petrol has become inevitable. He, however, pleaded with Nigerians to be ready to bear the pains of the new price regime.

The question is what more pains is it that the Nigerian must have to bear under the weight of this imminent fuel price increase?

It is public knowledge and not rocket science, that for every time, government increases the price of fuel, the price of everything else increases disproportionate to the percentage increase of the fuel price.

So, Sylva is telling Nigerians to bear the pains of higher cost of transportation. For those who have children in private schools, the Minister is asking them to bear the pain of paying more for the school fees of their children; and where the cost becomes unaffordable, those Nigerians have to bear the pains of having their children drop out of school.

For Nigerians struggling to manage the N30,000 minimum wage salary, they will have to bear the pains of paying higher rent, they have to find a way to feed their families under the norming sting of increased cost of foodstuffs in the market.

For the many jobless youths, the Minister is pleading with them of enduring the added pains- of the fuel price increase- to their already miserable existence.

Coming in February or any other month, for now, at a period in the year, when money is hard to come by and life is so hard; this proposed fuel price hike will cause untold hardship to over 90per cent of Nigerians.

The consequences of this will include a rise in suicide rate. Some companies may have to close shop and lay off staff, thereby leading to more alarming increase in the already massive field of the unemployed.

The desperate ones among the jobless will have more reasons to join bad gangs to fend for themselves.

That means kidnapping, killing, and general violence, advance fee and internet fraud will be on rise again.

Consequently, the country, at large, will have to bear the pains of worse state of insecurity, sadness and sorrow all over the land.

With the official inauguration of the Nigerian Upstream Cost Optimisation Programme (NUCOP), last week and its efforts to optimize production bottom-line, the federal government also ramped up its plan to achieve the $10 per barrel crude oil production target.

At the NUCOP inauguration in Abuja, Sylva said the Nigerian National Petroleum Corporation (NNPC) can no longer continue to bear the cost of under-recovery or subsidy, adding that while government revenue has improved following the rise in crude oil price, the gains cannot be squandered on subsidy payment.

By his latest claim to subsidy, the Sylva has contradicted the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari, who exclaimed that the era of subsidy payment for imported fuel was gone forever.

In his interview on an AIT program in April, 2020, Kyari stated, categorically, that there is no fuel subsidy anymore in Nigeria; emphasising that “it is zero subsidy forever.”

Elaborating more on his pronouncement, he said henceforth, there will be no resort to either fuel subsidy or under-recovery of any nature; adding that “NNPC will play in the petroleum marketplace, just like another marketer in the space.

But we will be there for the country to sustain the security of supply at market price.”

He also hinted that though the government was not deregulating the petrol sub-sector, but it would still get involved in fixing prices.

On the face value, what this means is that the NNPC will be there to fix fuel price so Nigerians are left to the vagaries of price volatility.

The landing cost of petrol, according to the pricing template of the Petroleum Products Pricing Regulatory Agency (PPPRA), is over N179 per litre, while the expected Open Market Price (OMP) is about N202 per litre.

However, the filling stations are yet to reflect the price, as the product is still being sold for between the N162 and N165 per litre price range.

“Since we are optimising everything, NNPC needs to also think about the optimisation of product cost because as we all know, oil prices are where they are today, $60.

As desirable as this is, this has serious consequences as well on product prices. So, we want to take the pleasure and we should as a country be ready to take the pain. Today the NNPC is taking a big hit from this. We all know that there is no provision in the budget for subsidy,” he said.

Stressing the level of toll, the subsidy has taken on the bottom line of the national oil company, Sylva said “Somewhere down the line, I believe that the NNPC cannot continue to take this blow. There is no way because there is no provision for it. As a country, let us take the benefits of the higher crude oil prices and I hope we will also be ready to take a little pain on the side of higher product prices.”

Of the nine priority areas given to the ministry as its operational mandate, the minister said reduction of crude oil extraction cost remains critical.

Compared to Iran and Saudi Arabia, among other oil-producing nation,

Sylva stated that the cost of oil production in Nigeria is exceptionally high; adding that the development is depriving the country of the prospect of attracting investments and the need to remain globally competitive.

“Average total cost is now below $30/barrel for JV contract and less than $20 for Production Sharing Contracts (PSC).

We need to do more. Engagement should reach a consensus on cost reduction,” he affirmed.

Like Nigerians, who will be reeling under worse pains and misery, oil services companies would have to bear the pain of laying off staff, reducing administrative cost which may involve doing away with other cost, such as community-development friendly funding.

The argument of government is anchored on the ongoing global energy transition.

Thus, according to them, less cost-efficient companies cannot survive today. Fifty dollars per barrel production cost cannot survive.

In admission to some of the cost- impacting challenges, Nigerian companies experience in the course of production, the Minister said, “There are issues of security. Many companies are hiring their own armies and we can’t continue like that. Issues of taxes and others have to be addressed. Our practices must change so that service providers can deliver.

So, we can achieve economic growth and our partners can derive benefits. It’s not CSR but pure business. We must have the best of fiscal environment and policies so that cost of operation can come down and our target is at least $10/barrel.”

Crude has hit the $60 and Sylva reiterated “It comes with a product price increase.

We are trying to keep the country wet. We are engaging with labour. No provision for subsidy in the budget.”

At a time when the country is battling to stem the tide of the insecurity that is threatening to throw the federation into a civil war, this is the wrong time to foist this measure on the people under whatever guise.

Common sense should make the government recognize the point that business can only thrive in peace time.

Rather than throwing up their hands, in surrender, to the problem, the managers of the nation’s petroleum resources are expected to explore and exploit the low-hanging fruits it can leverage on to make petrol products available and affordable for Nigerians.

The time calls on the oil managers to fast track the commissioning of the 650kbpd and other smaller Refineries that could be quickly worked on to come onstream.

The impression given by the Minister, in his recent remarks, is that government is refusing to see fuel, particularly, as not just a business, but a commodity that holds the soul of business operations and citizens daily life in a socio-economic climate that is powered, largely, by one product; fuel.

To that extent, Sylva’s statement would be deemed insensitive and callous considering the hardship they face today.

Every attempt for the government to make Nigerians believe it is helpless, in the face of the increase in the price of petrol products, crumbles on the crucible of the unbridled corruption going on in the nation’s petroleum industry.

Evidently, the Minister is calling on Nigerians to bear the pains, arising from the consequence of the stealing and Product diversion going on in the downstream arm of the industry.

So, through no fault of theirs, Nigerians must bear the pains now brought upon them by the demise of four refineries that would have refined the country’s crude in-country.

A development that would have the country so much money, in hard currency and made the product cheaper and readily available.

Common sense and elementary logic provide the platform; as had been done before under the watch of the late Tam David West, then Petroleum Minister; for NNPC to take its crude to Refineries in exchange for refined products.

That barter arrangement came at little or cost to the country, at that time. Why can that deal not be revived to save Nigerians the needless suffering?

Although, the Direct Sale Direct Purchase (DSDP) appear similar, operationally, it would appear the current version or variant is bleeding the country’s forex reserves ‘mysteriously.’

It is obvious, therefore, that the suffering of Nigerians are anything but over; as the light they imagined at the end of the tunnel appears to have been put out by this recent assertion by the Minister that the days of fuel price increases are finally upon the citizens.