Wednesday, July 08, 2020 / 09:40 AM / by FDC Ltd / Header Image Credit: Edward Elgar
PMS pump price increased by 18% to N143 per litre
The Petroleum Product Pricing Regulatory Agency (PPPRA) has announced an increase in the pump price of petrol by about 18% to N143.80 per litre. This is reflective of the 26% rise in the average price of Brent crude to $40.87pb in June from $32.41pb in May.
Following the removal of petrol subsidies and the gradual shift to a deregulated market, PMS prices will depend on global crude oil prices and movements in the exchange rate.
However, the PPPRA will continue in its price modulation and give monthly price guidance after reviewing prevailing market fundamentals and considering marketers' realistic operating costs.
Based on the average fuel consumption of about 58mn litres, the effect of this price increase is a $1.18bn reduction in aggregate consumption ($278.4bn) and a resultant increase in transport costs. Transport costs account for 6.6% of consumers' expenditure.
The price increase by N22 simply means that the average Nigerian would spend more on petrol and may be forced to adjust spending patterns, with less demand for non-essentials and luxury goods.
The New Electricity Tariff Hike
The cost-reflective tariff hike scheduled for July 2020 has now been postponed for the second time to Q1'2020. This came after a review meeting with the national assembly, the NERC and representatives of electricity distributors.
Also, the World Bank recently approved a $750mn loan to the power sector in the country. The tariff increase is expected to cater for revenue shortfalls in the sector and offset the high cost of electricity generation in the country.
This could be a disincentive to investors, stalling the much needed investment in the sector. This coupled with the increase in the pump price PMS (N143/litre) and food prices will further reduce consumer disposable income. To manufacturers, this will increase their operating cost and ultimately product prices, pointing to a transfer of the cost burden to consumers. Subsequently, this will boost investment in the sector, as the market is now cost-reflective. Eventually, electricity generation and supply could increase and in turn lower prices thereby capping the effect of the initial price hike.
The Gas Pricing Policy
The price of energy products in Nigeria, such as gas has been a subject of controversy for many years, now forcing the Federal Government to review the pricing framework. This is expected to boost activities in the gas industry, increase supply and the use of gas-related products - like cooking gas (making it affordable) and CNG (an alternative to petrol). Also, the government recently flagged off the Ajaokuta-Kaduna-Kano (AKK) gas pipeline project.
The immediate effect would be an increase in the price of gas products like cooking gas, which implies higher cost for households but in the near term as investments gradually pick up in the industry, prices will drop. Also, this policy could address the problem of gas shortages, which remains the major constraint to power generation in the country. Higher gas output could increase power supply, which is beneficial to all economic agents - households, firms and the government.
FIRS Enforces Stamp Duties
The Federal Inland Revenue Service (FIRS) has announced the enforcement of stamp duty on house rent, Certificate of Occupancy (C of O) among other chargeable transactions. This is in line with the revenue generation strategy of the FGN.
The FIRS generated about N66bn from stamp duties between January and May 2020, from N18bn from January to December 2019. At a time of dwindling revenues from oil, the enforcement of stamp duty could boost government revenues. However, this could erode consumers' disposable income and exert pressure on the revenues of companies.