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Tinubu Under Pressure to Return Subsidy as Price of PMS expected to Increase to N720

BusinessTinubu Under Pressure to Return Subsidy as Price of PMS expected to Increase to N720

From his inaugural speech on May 29th, 2023, where President Bola Tinubu announced the removal of subsidy on petroleum products, development in the oil and gas market where the landing cost of per litre of petrol has risen above the current pump price as well as the government’s decision to jettison market forces in adjusting petrol prices suggests that subsidy on petrol may gradually be finding its way back into the system. 

Precisely, the landing cost of petrol has risen to N651.75/per litre, far higher than the N617 per litre the Nigerian National Petroleum Company Limited (NNPC) had pegged the product, documents obtained by Nous Central yesterday revealed.

The development has put Tinubu under intense pressure to rethink his decision to remove subsidy on petrol.

A breakdown of the landing cost of petrol showed that while product cost, as of yesterday, was N627.82 per litre, finance cost was N11.61, and operations/administrative cost N12.32, bringing the total landing cost to N651.75 per litre. With the current market price, it means that petrol ought to sell at over N720 per litre.

Just days ago, marketers were pushing to increase a litre cost of petrol at the pump from N617 to N720 on the basis that naira had continued to slide against the dollar. therefore, the current pump price had become unsustainable.

However, sources among marketers said Government is living in denial of the challenge it is facing with regards to the subsidy issue and the near daily depreciation of the naira against the dollar. Maintaining that  no company would spend its resources to import products,  and then turn around to sell it below the landing  price

Notwithstanding the high cost of petrol importation,  and with labour threatening to embark on strike without notice if the government approved another price increase, the president, yesterday, announced that his administration was not contemplating any increase in the price of the product.

The announcement was a glaring signal that the Tinubu government might have effectively jettisoned the market forces, which NNPC had said would be the determining factor in the pricing of petrol following the removal of subsidy on the product on May 29.

NNPC also refuted any plan to raise fuel prices, despite stakeholders’ alarm about the effect of the increasingly volatile FX market.

Special Adviser to the President on Media and Publicity, Ajuri Ngelale, addressed newsmen yesterday at State House, Abuja, after meeting with the president on the issues.

Ngelale said the president assured Nigerians that there would be, “no increase in prices at this time and that Mr. President is convinced based on information before him that we can maintain current pricing without reversing our deregulation policy by swiftly cleaning up existing inefficiencies within the midstream and downstream petroleum sector.”

On its part, NNPC wrote on its Twitter/X Handle: “Dear esteemed customers, we at NNPC Retail value your patronage, and we do not have the intention to increase our PMS pump prices as widely speculated.

“Please buy the best quality products at the most affordable prices at our NNPC retail stations nationwide.”

But Nigeria’s volatile foreign exchange market continued to worsen the effect of the recent petrol subsidy removal by the federal government on the citizenry, with prices expected to rise markedly in the coming weeks.

At the official Investors and Exporters’ (I&E) FX window, the naira, which started off with an opening rate of N785/$1, closed at N774/$1. The volume traded yesterday on the I&E window was $95.79 million, compared to $160.22 million turnover recorded the previous day. This indicated a 40.29 per cent decline in turnover.

The parallel market, which had seen increased volatility in recent times, however, appreciated yesterday by N10 to close at N940/$1, compared to the previous day’s closing rate of N950/$1. With this, the gap between the parallel market and the I & E window yesterday reduced from N206 to N169 to a dollar.

As the exchange rate continues to depreciate, the governors are getting more naira cash, which they are using mount pressure on the forex market.

Nigeria Labour Congress (NLC) had on Monday stated that its members would commence a nationwide strike without any formal notice if the federal government approved another increase in the pump price of petrol without conclusion of ongoing negotiations. The warning came after oil marketers disclosed that the price of petrol might rise to between N680/litre and N720/litre in the coming weeks should the dollar continue to trade around N950 to a dollar at the parallel market. The last time the price of petrol was increased from N520 per litre to N617 per litre, Group Chief Executive Officer of the NNPC, Mele Kyari, had said market forces and the exchange rate were responsible for the increase.

Kyari had said, “What I know is that the market forces will regulate the market; prices will go down sometimes, sometimes it will go up, but there will be stability of supply. I am also assuring Nigerians that this is the best way to go forward so that we can adjust prices.”

Reacting to the president’s statement that there won’t be further petrol price increase at the moment, Chief Executive of Cowry Assets Limited, Mr. Johnson Chukwu, said it “simply means that subsidy is coming back. It simply means that the market forces that are supposed to be deciding the prices of petrol have been suspended.”

Chukwu explained on a national television, “If we are suspending market forces, that means that the pains we have gone through to eliminate subsidy has actually been for nothing. I think what the government needs to do is to address the reasons why we are seeing such jump in petrol prices, which is actually the issue of exchange rate.

“You cannot allow two variables to move at the same time. The appropriate thing would have been if the government was able to handle exchange rate, then we would be dealing with global market movement in the prices of petroleum products, and then we would have been dealing with marginal increment and marginal decrease in the price of petrol.”

Meanwhile, Kenya yesterday reinstated what the country termed small subsidy to stabilise retail fuel prices for the next 30 days. The country’s energy regulator disclosed the reversal of the government policy following public anger over the high cost of living.

But in Nigeria, in their various reactions to the ongoing situation, stakeholders, including marketers and manufacturers, although cautious about calling for a return to a subsidy regime, noted that the subsidy removal policy was not well thought-out, especially considering the handling of the fallout of the decision.

However, Tinubu allayed the fears of Nigerians about possible increase in the price of petrol, saying his administration is not contemplating any such move. Ngelale, who disclosed this to newsmen at State House, Abuja, after meeting with the president, said Tinubu assured Nigerians that nothing like that was being contemplated.

According to Ngelale, “This morning, I have the privilege of sitting down with His Excellency, President Bola Tinubu, as we discussed the current unfolding situation in the country as it relates to fuel supply and demand.

“The official position is that there is no increase in prices at this time and Mr. President is convinced based on information before him that we can maintain current pricing without reversing our deregulation policy by swiftly cleaning up existing inefficiencies within the midstream and downstream Petroleum sector.”

The media adviser also said the president expressed concern about the strike threat issued by NLC, which he described as premature.

Ngelale stated, “The president wishes, first, to state that it is incumbent upon all stakeholders in the country to hold their peace. We have heard very recently from the organised labour movement in the country with respect to their most recent threat.

“We believe that the threat was premature and that there is a need on all sides to ensure that fact finding and diligence are done on what the current state of the downstream and midstream petroleum industry is before any threats or conclusions are arrived at or issued.”

He said the president intended to ensure that no single individual or organisation dominated the sector.

Ngelale said the government would address the inefficiencies in the midstream and downstream petroleum value chain so that price would be stabilised.

He presented a chart to try to prove that the cost of petrol was still cheaper in Nigeria than other West African countries.

Ngelale said, “Mr. President wishes to assure Nigerians following the announcement by the NNPC Limited just yesterday that there will be no increase in the pump price of premium motor spirit anywhere in the country.

“We repeat; the president affirms that there will be no increase in the pump price of premium motor spirit.

“We also wish to affirm that the president is determined to maintain competitive tension within all sub-sectors of the petroleum industry. He is determined to ensure that our policy drawn up as well as policy implemented follow the cue that there will not be any single entity dominating the market.

“The market has been deregulated. It has been liberalised and we are moving forward in that direction without looking back.

“The president also wishes to affirm that there are presently inefficiencies within the midstream and downstream petroleum sub-sectors that once very swiftly addressed and cleaned up will ensure that we can maintain prices where they are without having to resort to a reversal of this administration’s deregulation policy in the petroleum industry.

“I wish at this juncture to also provide a set of graphics, which the president has authorised me to share with Nigerians that otherwise would be confidential. These are graphics supplied to Mr. President by the NNPCL.”

Ngelale explained, in his analysis of the illustrations, “In the graphics, what you will find is the present cost of refined premium motor spirit at the pump in each of the West African nations that neighbour us and I’ll just name some, for example, even as I know, you will be showing your audiences the graphics, which the president has graciously approved for public release today.

“Senegal at pump price today of N1,273 equivalent per litre, Guinea at N1,075 per litre, Côte d’ Ivore at N1,048 per litre equivalent in their currency, Mali N1,113 per litre, Central African Republic N1,414 per litre, Nigeria is presently averaging between N568 and N630 per litre.”

He maintained, “We are presently the cheapest, most affordable purchasing state in the West African sub-region by some distance. There is no country that is below N700 per litre.

“So, this is the backdrop we have seen that at the inception of our deregulation policy as of June 1, as Mr. President took office, we have seen PMS consumption in the country drop immediately from 67 million litres per day consumption, down to 46 million litres per day consumption. The impact is evident.

“What it also does mean, though, is that we are not at the end of the tunnel. There is still a bit of darkness to travel through to get toward the light. And we are pleading with Nigerians to, please, be patient with us.

“And as we promised from the beginning, we will be open with Nigerians, we will be transparent with them. And we are ready to show you exactly what it is that our nation is facing with respect to the illiquidity in the market in terms of foreign exchange, as a result of what is now known to have been a gross mismanagement of the Central Bank of Nigeria over the course of several years preceding this time.”

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