Petrol: Back to Subsidies

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Friday, January 15, 2021  / 12:51 PM / by CSL Research / Header Image Credit: The New York Times


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The recent rise in crude oil prices that has resulted in an increase in the landing cost of petrol to c.N180 per litre which exceeds the current price of between N162-N165 per litre means that the country may have temporarily returned to the subsidy regime. Brent crude price in the international market closed at US$56.42/barrel yesterday. There have been attempts in the past to remove the fuel subsidy but a steep devaluation in the currency and an increase in crude prices in the international market which implies an increase in the landing cost, on many occassions has necessitated the continuation of the subsidy regime, now booked as under-recovery losses in the books of NNPC.


 

In September,  the  Executive Secretary of the Petroleum Products Pricing Regulatory Agency (PPRA), Abdulkadir Saidu, stated that PMS prices would  henceforth be determined by the forces of demand and supply and the international cost of crude oil. The agency said it would no longer release guiding price bands for Premium Motor Spirit (PMS). According to him, the role of the agency would henceforth be to ensure that oil marketers do not profiteer, as petroleum marketers  are now free to source for product and fix their prices.


 

In 2020, a steep decline in global crude prices triggered by the global pandemic completely wiped out the subsidy via significantly lower landing costs, paving the way for a reduction in the pump price of Petrol in mid-March. The PPPRA announced  a reduction in ex-depot price to N113/litre and official pump price to N125/litre. Since then, the PPPRA has gone on to raise fuel pump price to N135-N145/litre in April before implementing a reduction to N121.50 - N123.50/litre in June. An increase to N140.80 – N143.80/litre in July was implemented and was raised again in August to N148 – N150/litre to reflect rising cude prices. In November, the NNPC increased its ex-depot price which led to an increase in the pump price of petrol to between N168 and N170/litre.


 

Following a meeting with the Labour Union leaders on 7 December however, the Minister for Labour and Employment, Dr Chris Ngige, announced that the Federal Government was going to reduce the pump price of petrol from N168 to N162.44 per litre effective 14 December. The Minister, however, noted that the reduction will not impact government's deregulation policy. Petrol is currently being sold at between N162- N165 per litre in many filling stations across the country.


 

We continue to reiterate that the removal of the subsidy on Petrol is a critical free-market reform in our view, and we believe it is beneficial to the economy and government finances. However, we have always expressed concerns that the timing may be inopportune and the government be forced to return to the subsidy regime given the effects of the pandemic and recent hike in electricity tariffs on the already squeezed Nigerian consumer. This is because, another increase in fuel price may be the last straw that would break the camel's back and will be met with severe backlash from the masses particularly as it will be coming immediately after the FG effected a significant increase in electricity tariffs in November.


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Related to Subsidy

  1. A Return to the Subsidy Regime?
  2. Petrol: An End to the Subsidy Regime?
  3. Nigerian Gasoline Price Review to N125 and the Pursuit of Fuel Subsidy Removal
  4. ARDOVA 2019FY: Divestment and Subsidy Gains Provide Facelift for Earnings
  5. NNPC Spends Estimated N33.60 per litre on Petrol Subsidy
  6. 2019 Vice Presidential Debate: Petroleum Subsidy


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