Friday, January 15, 2021 / 12:51 PM / by CSL Research / Header Image Credit: The New York Times
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.
Related to Subsidy
Related News
Signup with Facebook
Signup with Twitter
