By Adewale Sanyaolu
The recent call by former Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) faulting the N145 petrol price cap has stirred a new wave of controversy among stakeholders and Nigerians in general.
The NNPC GMDs forum, a body comprising former GMDs of NNPC and the incumbent NNPC GMD, Dr. Maikanti Baru, had last week, expressed reservation over the N145 price sealing at which the Pipelines and Products Marketing Company (PPMC), a subsidiary of NNPC, sells petrol to marketers.
Rising from its one-day meeting, which held at the Transcorp Hilton, Abuja, during which it reviewed the status of the Corporation and the nation’s oil and gas industry, the forum observed that the current sealing on price of PMS was not in conformity with the liberalisation policy of the government and current realities in the foreign exchange market.
In a statement issued by the Group General Manager, Public Affairs, NNPC, Garba Deen Muhammad, the forum noted “that the PMS price cap of N145/litre is not congruent with the liberalisation policy especially with the foreign exchange rate and other price determining components such as crude cost, Nigerian Ports Authority (NPA) charges, among others, remaining uncapped.”
In May, the Federal Government through the Petroleum Products Pricing Regulatory Agency (PPPRA) increased the official pump price of petrol from N86 to a band of N135-N145.
The removal of the cap under a liberalised market environment would allow marketers of petroleum products to sell at a break even price based on factors such as the exchange rate and international crude price. With the naira exchange rate going down by over 50 per cent to about N412 since the current petrol price was fixed, approving the recommendation would have meant Nigerians pay more for petrol.
Following the publication of the proposal by the forum of NNPC GMDs, President Muhammadu Buhari, urgently summoned the Minister of State for Petroleum Resources, Mr. Ibe Kachikwu, and Baru to the State House to explain the news making the rounds about another fuel price hike.
Expectedly, the Minister, while addressing State House Correspondents, denied that there was any plan to increase the pump price of petrol.
“Have you seen any memo to that effect?’’ He queried when pressed on the matter by journalists. “There is nothing like that,” he said.
While stating government’s response, the Acting Executive Secretary of PPPRA, Sotonye Iyoyo, said the proposal was the personal opinion of the former state oil chiefs.
“If it was a recommendation, that is what it is – a personal opinion. I’m not aware government is planning any fuel price increase. We are in a liberalised market already,” Iyoyo said.
Marketers had stated that they were struggling to maintain petrol price at N145 per litre because of the stiff competition in the downstream oil sector but stressed that the practice was not sustainable.
But in a dramatic twist, the Executive Secretaries of MOMAN and DAPPMA, Messrs Obafemi Olawore and Olufemi Adewole, stated at the end of an emergency meeting summoned by Kachikwu that marketers were still in favour of the N145 per litre petrol benchmark.
Meanwhile, Abuja Chamber of Commerce and Industry (ACCI) has cautioned against any fuel price hike, adding that such attempt will further worsen the current economic situation.
President of ACCI, Mr. Tony Ejinkeonye, said in a statement while reacting to the call by oil marketers for an increase in the price of fuel from the current N145 a litre to N165.
Some marketers had said Nigerians should prepare for another increase in petrol prices due to the continued scarcity of foreign exchange to finance the importation of the products.
They had stated that N165 is the pump price that will cover the cost of foreign exchange required for fuel importation.
While admitting the fact that it is impossible not to have an increase in the price of petrol owing to the rise in foreign exchange prices, he called on the government to come up with a lasting solution to the crisis.
Ejinkeonye said, “ACCI believes that it’s impossible not to have a price increase with the forex situation as it is, unless we are going back to subsidy of products.
But the Federal Government needs to let Nigerians know where it is heading to on the issue of fuel; government should face reality and not be flip flop on decisions.”
Similarly, the Nigeria Labour Congress (NLC) cautioned the current administration not to contemplate any further increase in the pump price of petroleum products in the country.
The General Secretary of NLC, Dr. Peter Ozo-Eson, had stated that Nigerians would not accept further fuel price increment.
Ozo-Eson had said that it was up to Nigerians to decide whether to allow being subjected to the incessant increase in fuel pump price or not.
Cost of petrol on the economy
Nigeria, the 12th largest crude oil producer in the world, contributes about 3 per cent of the global crude oil production, making it the largest crude oil producer in Africa.
Despite its crude oil reserves and its installed refining capacity of 445,000 barrels per day (bpd), 70 per cent of its domestic petroleum products demands are met through petroleum importation. According to the Nigerian Bureau of Statistics (NBS), Nigeria spent N1.239 trillion on importation of Premium Motor Spirit (PMS), also known as petrol, in 2015.
The NBS, in its Foreign Trade Statistics for the Fourth Quarter of 2015, stated that the amount spent on fuel import in 2015 represented an increase of 3.08 per cent or N37 billion when compared to the N1.202 trillion spent in the importation of fuel in 2014. The 2015 figure also represented a 367.55 per cent increase or N974 billion higher than the 2013 fuel imports figure of N264.85 billion.
Giving a breakdown of the 2015 figures on a quarterly basis, the NBS disclosed that in the first quarter of 2015, the country spent N288.871 billion on the importation of petrol, while in the second quarter, the country spent N389.257 billion. In the third quarter, the NBS said the country spent N250.329 billion, while in the fourth quarter, N310.866 billion was expended in the importation of petrol, which the NBS termed mineral fuel.
On a month-by-month basis, in the months of January to June, the country spent N49.2 billion; N105.973 billion; N133.697 billion; N139.237 billion; N133.793 billion and N116.227 billion respectively on the importation of petrol. For the months of July to December 2015, N134.14 billion, N85.451 billion, N30.737 billion, N68.083 billion, N120.519 billion and N122.263 billion respectively were spent on the importation of petrol.
Achieving lower cost for petrol
In a recent interview with Daily Sun, former Minister of Petroleum Resources, Prof. Tam David-West, said that it was possible for petrol to sell at N40 per litre if some 14 items currently listed in the petrol pricing template as approved by the PPRA were removed.
David-West said some of the 14 items included Petroleum Equalisation Fund (PEF) charges, transporters margin, NPA/NIMASA lithering expenses, admin charges, jetty thru’put charge, storage charge, among other charges, currently contained in the pricing template tend to increase the cost of petrol.
He said that it was shameful that Nigeria was still in-volved in importation of petroleum products despite having four refineries capable of meeting the energy needs of the country.
Beyond the 14 items listed by David-West, stakeholders have consistently canvassed that the nation’s refineries with installed capacity of 445,000bpd be put to good use while all refineries must start operating at least above 70 per cent operating capacities (currently operating at 16 per cent), and new ones built.
And to further drive down the cost of petrol, modular refineries have been identified as one of the ways to achieve self-sufficiency.
Recall that in 2002, 18 License to Establish (LTEs) were issued but only one of them has come on stream with just 1,000bpd capacity. The refinery is operated by Niger Delta Petroleum Resources (NDPR), which produces only automotive gas oil (AGO), popularly called diesel.
‘‘This begs the question – what happened to the remaining 17 LTEs and why could they not achieve the LTOs stage? Were the appropriate conditions not in place? It is necessary for government to provide an investment-friendly legal and regulatory framework as well as an enabling environment to support investments in modular refineries, otherwise banks will be unwilling to sponsor such projects,’’ said Mkpoikana Udoma, a public affairs analyst.
According to Detail Commercial Solicitors, Nigeria’s first commercial solicitor firm to specialise exclusively in non-courtroom practice, the challenges facing the development of modular refineries in Nigeria are not insurmountable.
‘‘Once the appropriate conditions and enabling environment have been implemented, it is firmly believed that there would be significant investments in modular refineries.
Despite the gloomy statistics on oil prices in the international market, Nigeria has the ready market to absorb the supply based on several factors including large population of over 183 million and the consequential energy needs of Nigeria, ranging from transportation to power generation.
All things being equal, an increase in the supply of refined products in Nigeria will put less pressure on the foreign reserves and ultimately boost the Nigerian naira,’’ the firm said