Wednesday, May 18, 2016 9:23AM/FBNQuest Research
Last week the FGN announced a new price ceiling for petrol of N145 per litre (l) from N87/l. The inability of petroleum product importers to source fx at the official rate has led to acute fuel scarcity. The Petroleum Products Pricing Regulatory Agency’s template assumed that all transactions for imports were carried out at the official rate.
Given that many independent (smaller) importers had to access the parallel rate, selling at the official pump price was unprofitable. Close to half of national petrol consumption (demand is put by some sources as high as 45 million litres/day) is met by the private sector.
The gap between the official and parallel fx rates is widening as the importers have now been effectively encouraged to tap the parallel market.
On Monday the National Bureau of Statistics (NBS) released its latest report in its premium motor spirit (PMS) price watch series. This shows the average monthly prices for PMS (petrol/gasoline) paid by households across the country. The average was N162.8/litre (l) for the 36 states of the federation and the FCT.
The average pump price recorded by the NBS for April was already significantly higher than the new price ceiling of N145/l. According to the report, only ten states were selling below the new price ceiling. The prices in Lagos State and Abuja were N93/l and N107/l respectively. We should not therefore overstate the inflationary impact of the new proposed price ceiling.
Anecdotal evidence shows that the average pump price for gasoline in West African countries excluding Nigeria is currently above N150/l. Thus, it is not surprising that PMS is being smuggled to neighboring countries.
Inflation data for April was released this week. The impact on general price levels was observed in headline inflation, which rose from 12.8% y/y to 13.7%. The NBS commentary cites that on a month-on-month basis the highest price increases were recorded for electricity, motor cars, fuels and lubricants for passenger transport such as PMS and liquid fuels (kerosene).
The longer term solution involves boosting local refining capacity. Leading the way is the Dangote Group, which is constructing a 650,000bpd refinery in Lagos. It should begin operating in 2018.
Additionally, the NNPC has announced plans to co-locate modular refineries within its existing refineries, which should increase refining capacity by around 200,000bpd.
We hope that the projected timelines are met and investments encouraged by the FGN to ease pressure on the country’s import bill.