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Petrol Price Increase: What Nigerians Should Know

Petrol Price Increase: What Nigerians Should Know
Amid the many shocks Nigerians have had to deal with in
2020, the recent increase in fuel price by the Federal
Government is perhaps the bitterest pill to swallow.
Pipelines and Product Marketing Company (PPMC), a
subsidiary of the Nigerian National Petroleum Corporation,
(NNPC), issued a memo on Wednesday stating that
effective immediately, the price of fuel would increase from
N148 to N151.56k.
This is coming at a time the new electricity tariff regime is
kicking off, having been postponed twice from April 1, 2020
to take full effect September 1, 2020. This, according to the
government, is in the best interest of all.
But how is an increase, any kind of increase, in the interest
of Nigerians?
Recall that over the last couple of months, the government
had increased the pump price from N121.50 to N138.60,
N143.80 and N145 per litre at different times, on the advice
of the Petroleum Product Pricing Regulatory Agency
(PPPRA), after reviewing market fundamentals and
operating costs.
Fuel price had started the year at N145 per litre, and only
crashed down to N125 in March due to the global crisis
which led to a fall in demand, and subsequently a fall in
price. It was at this point that the government effectively
removed fuel subsidy since the landing costs had dropped
below the pump price, and there was no longer need to
subsidise the price for Nigerians.
Before the crash
Prior to the global crash, the government paid the difference
between the Expected Open Market Price (“EOMP”) and the
approved retail price of petrol (known as fuel subsidy), in
order to make the produce available to the populace at an
affordable price, irrespective of the prevailing market
forces.
For instance, where a pump price of N145 had been agreed
on, and the landing cost of fuel is put at N143, the
marketers cannot be able to sell at N145 per litre since they
still have to factor in other costs of operations, and
transporting the fuel to their stations. With the government
bearing a part of the costs in the subsidy plan, the
marketers can sell at the general agreed price, without
running at a loss, while the consumers get to buy the
product less than the actual costs.
With this system, a removal of subsidy would almost
certainly result in an increase in fuel price except in
situations like we saw in March where the landing price had
already dropped below the pump price. We can see an
example of this in the spike in fuel price which took place
immediately former President Goodluck Jonathan removed
fuel subsidy in January 2012.
Overnight, fuel price had gone from N65 to N141. After
several protest marches across the country, the price was
later brought down to N97 in a partial subsidy arrangement
where the government could spend less on subsidy and free
up funds to channel into other sectors of the economy.
This however, was not the case this year, as the
government delayed the removal of subsidy until a time
when the landing costs of fuel had fallen below the pump
price. The result of this was that Nigerians enjoyed a
reduction in fuel price immediately, with the price only
increasing when the global oil market picked up and landing
costs of fuel went up again.
Given the current trends in the global market, a reduced
pump price will only be possible if we return to the years of
subsidy regime, with the attached controversies, smuggling,
fuel scarcity and the resulting long queues at petrol stations.
Thankfully, we are far from the era of queuing long hours to
buy fuel. The President recently directed a nationwide mass
metering programme for electricity consumers in the
country and approved a one year waiver of import levy on
electricity meters to speed up the process and reduce the
cost of the metering for Nigerians.
The government is working with the Electricity Distribution
Companies to ensure increased electricity supply and
improved quality of service. This will protect Nigerians from
arbitrary and estimated billings, while improving living
standard and reducing costs of business operations for
entrepreneurs.
Given that the government spent an estimate of N10trillion
spent on Fuel subsidy between the 2006 and 2018, one can
see that subsidy removal would indeed free up the much-
needed funds to be channeled into critical sectors of the
economy. For instance, the COVID-19 pandemic has
exposed serious gaps in the health sector, and there is no
doubt that some additional funds would do wonders for the
sector.
With the subsidy removed earlier this year, fuel price is now
subject to the market forces of demand and supply which
will allow all market players to operate on fair grounds.
Eventually, competitive pricing will follow this realistic
pricing system, and Nigerians will be better for it.

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