The International Monetary Fund (IMF) has stated that the Nigerian government has resumed the payment of subsidies on the premium motor spirit (PMS), popularly known as petrol, through the backdoor.
Recall that on May 29, 2023, during his swearing-in speech, President Bola Tinubu announced the end of petrol subsidy, leading to a surge in the prices of goods and services across the country.
A few weeks later, the Central Bank of Nigeria (CBN) unified the different exchange rate regimes into one, resulting in the depreciation of the naira against the dollar.
As of yesterday, the exchange rate stood at N1,499/$1 at the official window and N1,515/$1 at the parallel market.
Over the weekend, the IMF issued a statement regarding the conclusion of its Executive Board’s Post Financing Assessment with Nigeria, expressing concerns over the government’s decision to cap fuel prices at retail stations.
The international lender advised the administration of President Tinubu to completely halt the payment of subsidies on petrol to allocate funds for government operations.
However, various prominent Nigerians and regional groups have criticized the IMF for what they perceive as “anti-masses policies,” urging the Nigerian government to explore domestic solutions to improve the economy and enhance the livelihoods of citizens.
In recent days, there have been reports of queues reappearing at petrol stations in major cities across the country. Nevertheless, the Nigerian National Petroleum Company (NNPC) Limited reassured consumers that there is an adequate supply of petrol.
How petrol prices have fared since subsidy removal
Following the removal of petrol subsidy in May 2023, the pump price surged from N185 per litre to N400 per litre, then to N568 per litre at NNPC fueling stations, while some stations now sell above N600 per litre.
Despite government assurances that prices would fluctuate after subsidy removal, the pump price has steadily risen, even as global crude oil prices fluctuate.
The IMF, in its recent statement, noted that the Tinubu administration has “capped retail fuel and electricity prices” to mitigate the impact of rising inflation, partially reversing the fuel subsidy removal.
A Daily Trust investigation in September revealed that despite assurances by President Tinubu that the subsidy had been removed, the federal government paid N169.4 billion as subsidy in August to maintain the pump price at N620 per litre.
A document from the Federal Account Allocation Committee (FAAC) indicated that the Nigerian Liquefied Natural Gas (NLNG) paid $275 million as dividends to Nigeria through NNPC Limited in August 2023. Out of this, NNPC Limited utilized $220 million to cover the PMS subsidy.
Petrol may surpass N1000/litre due to devaluation
The recent devaluation of the naira at the official forex window, with an exchange rate of N1,499/$1, is likely to push the pump price of petrol beyond N1,000 per litre.
A breakdown of the landing cost of petrol before the devaluation showed that the product cost was N627.82 per litre, with additional finance and operational/administrative costs, totaling N651.75 per litre at the previous exchange rate of N900/dollar.
This has prompted independent marketers to adjust pump prices several times between August and December 2023, selling between N660 to N670 per litre. However, NNPC retail outlets have maintained a price of N617 per litre.
Considering the previous situation, petrol should have been priced at over N720 per litre, indicating that someone, likely the government, has been absorbing the price differential.
Therefore, the new exchange rate suggests that prices should exceed N1,000 per litre.
Oil marketers react
Leaders of the Major Oil Marketers Association of Nigeria, Independent Petroleum Marketers Association of Nigeria, and Petroleum Products Retail Outlets Owners Association of Nigeria have called on the federal government to intervene and address the impending crisis.
The National Public Relations Officer of the Independent Petroleum Marketers Association of Nigeria, Chief Chinedu Ukadike, stated that petrol prices are now influenced by forex fluctuations, indicating an imminent hike.
Similarly, the Secretary General of NUPENG, Afolabi Olawale Olufemi, emphasized the loss of confidence in the naira among the populace, urging stakeholders to avoid exploitation.
Abiola Rasaq, a former Economist and Head of Investor Relations at UBA Plc, highlighted the impact of both deregulation and naira weakness on petrol prices, indicating a double burden effect.
NNPC assures no increase in petrol pump price
The Chief Corporate Communications Officer of NNPC Ltd, Olufemi Soneye, confirmed that there are no supply issues and assured that petrol prices would remain stable.
No need for panic buying – Tanker drivers
The Petroleum Tanker Drivers (PTD) union urged Nigerians to avoid panic buying, assuring them of adequate petroleum product distribution across the country. They emphasized the importance of safety and urged against hoarding petrol at home.
