Pains and Gains of Fuel Price Hike

 The latest move towards a total deregulation of petrol pricing and removal of subsidy by the Bola Tinubu administration which has led to another upward price adjustment by the Nigerian National Petroleum Company Limited portends positive and negative impacts on the sustainability of the country’s economy, as well as the survival of the long-suffering citizens, writes Peter Uzoho 

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ast Wednesday, the Nigerian National Petroleum Company Limited (NNPC) ceased to be the exclusive off-taker of petrol from the 650,000 barrels per day Dangote Refinery and as a middleman between the Aliko Dangote-owned refinery and petroleum marketing companies. The NNPC has been the sole importer and supplier of petrol into the country, a responsibility handed to it by Nigeria’s extant laws as the nation’s last resort supplier.

With its withdrawal from the exclusive petrol supplier arrangement in a move towards deregulation and operation according to the dictates of a free market, NNPC has increased its pump prices nationwide. Lagos is now N998 per litre, up from N855, and Abuja is now N1,030, up from N897. 

Before the latest price increase, NNPC was buying from Dangote at an international market price of N898 per litre and selling to marketers at a subsided price of N700 per litre. However, with the new pump price increase, it was revealed that NNPC is now buying from the refinery at N977, also, according to the prevailing international market price. 

President Tinubu made his first attempt at ending the petrol subsidy and introducing total deregulation of the downstream during his inauguration on May 29, 2023, in his famous ‘Subsidy is gone’ announcement’. However, the policy could not be sustained as the government secretly reintroduced subsidy into the system. The development threw NNPC into heavy financial strain and indebtedness to offshore suppliers to the tune of $6.8 billion.

The reversal of subsidy removal policy triggered a petrol supply challenge, with scarcity and long queues at filling stations becoming regular occurrences every month across the country.

With the latest price adjustment, it means that in less than 17 months of the current administration, the price of petrol has risen by over 430 per cent from May 29, 2023, till date.

 The Gainers 

 The greatest beneficiaries in this new petrol marketing regime which is now based on market forces are the oil marketing companies, NNPC and the government.  

The marketers had been calling for an end to any form of meddlesomeness in the pricing of petrol. They cited its disincentive to investment, competition, efficiency, and innovation in the downstream sector as well as its burden on the Nigerian economy.

The oil marketers including members of the Major Energies Marketers Association of Nigeria (MEMAN), Depots and Petroleum Products Marketers Association of Nigeria (DAPPMAN), and the Independent Petroleum Marketers Association of Nigeria (IPMAN), among others are now excited that a new market regime supportive of their business sustainability and growth has come. 

The new regime, it is believed, will also impact positively NNPC’s operations and allow it to make a profit and deliver value to its shareholders, rather than running at losses while bearing financial risks for the government. The company has been more like the fall guy in the subsidy conundrum as it manages to please the government, the marketers, and the public at the expense of its business survival. 

Notwithstanding the pains the latest deregulation and subsidy removal will have on the Nigerian masses, it is also expected to help strengthen the country’s economy by saving some trillions of naira being expended by the government to import petrol and sell at losses. The new pricing regime, according to marketers, analysts, and the like, will help to eliminate arbitrage in the system and discourage the smuggling of products to neighbouring countries where prices are higher. 

Some of the private petroleum products marketers, who confirmed that the government had deregulated petrol pricing, said competition has returned to the downstream sector.

A former Chairman of MEMAN, Mr. Tunji Oyebanji, said removing subsidy was inevitable as the government could no longer bear the burden.

“I believe the price of PMS (Premium Motor Spirit) has finally been deregulated, and subsidy has finally been eliminated. Henceforth, the price of PMS will be determined by market dynamics. This is inevitable as the government could no longer bear the burden of the subsidy.  

“A good measure the government has taken to mitigate the development is the sale of crude oil to local refineries in Naira at a fixed exchange rate. This will protect consumers from the negative impact of the fluctuations in exchange rates,” he said. 

The spokesperson of IPMAN, Chinedu Ukadike, said the new petrol prices have shown that total deregulation of the downstream sector has taken place. 

“It is a price template that shows that the total deregulation of the oil and gas sector and the implementation of the Petroleum Industry Act have taken off,” Ukadike stated.

 With subsidy on petroleum products now removed, he said NNPC would now sell as they buy from Dangote Refinery, adding, “NNPCL is no longer a middleman for oil marketers. Marketers are to buy petrol products from Dangote Refinery. It has become a willing buyer, selling relationship. We are embracing the new NNPCL price template.”

 The Losers  

No doubt, irrespective of the justifications for subsidy removal, the policy is viewed by many as anti-people and a way to further impoverish the citizens. The new petrol price increases will lead to another round of hikes in food prices, transportation, and other services prices, which are core to the survival of the citizens, especially with no corresponding rise in people’s income. 

With the epileptic power supply and the high electricity bills, the question begging for answers is: how then will artisans, commercial bus drivers, and motorcycle operators, who depend on petrol, be able to cope with the current fuel price? 

With the cost of food and transportation already high, how will market women and households survive additional price jumps that will be witnessed in the coming days and weeks? 

What happens to Nigerian workers, with low wages and who are still struggling to start receiving the new N70,000 minimum wage approved by the federal government? 

 Labour Reacts

 Amid this confusion and in its reaction to the latest petrol price increase, organised labour under the auspices of the Nigeria Labour Congress (NLC) has asked the federal government to immediately reverse the hike including the previous increases.

In a statement issued on Wednesday, the President of NLC, Joe Ajaero, said the hike did not produce any good results but had only made the people poorer.

He expressed dismay that the present administration had continued to increase the pump price of petrol without commensurate capacity of Nigerians or mitigatory measures.

NECA, Analysts Condemn Policy 

 According to the Director General of NECA, Mr. Adewale-Smatt Oyerinde, the announced increase in the price of petrol, notwithstanding its justification, has the potential to further erode the purchasing power of Nigerians, while putting more pressure on both organised and unorganised businesses.

Oyerinde said: “There’s no gainsaying that petrol remains the predominant source of energy for many sectors, including transportation and household uses. Thus, this new increase will further distort the cash flow potential of many, leading to likely increase in the general cost of living.”

Also weighing on the matter, the Founder/Chief Executive Officer of Centre for Promotion of Private Enterprises (CPPE), Dr. Muda Yusuf, said that the latest increase in PMS price was regrettably ill-timed and did not reckon with the prevailing difficult economic conditions in the country.

Yusuf stressed the need for social, economic, and political considerations in policy choices of this nature, adding that commercial considerations alone should not completely override them.

According to him, there is always a place for political economy in the interest of the vulnerable segments of society.

He said: “The Nigerian economy is not ripe for full-blown deregulation and market principles on all fronts. The social costs of such policy choices are typically very high.  This is an economy with very weak social safety nets where over 100 million people are wallowing in various variants of poverty.”