Promise Ating

With the impact of the ravaging coronavirus on global crude oil demand and the attendant slump in prices, it is obvious that the Nigerianeconomy will be one of the worst hit– because it is an economy dependent oncrude oil revenue.

Already, the Federal Government has decided to cut its coat according to its cloth, by slashing the budget by N1.5 trillion and pegging the oil benchmark at $30. It had also taken measures to cushion the likely impact of the expected huge revenue loss on the economy and populace.

Apart from the Central Bank of Nigeria’s interventions, another palliative came through the directive given by President Muhammadu Buhari that the price of Premium Motor Spirit [PMS] should be reduced because the expected open market price of petrol had dropped below the official pump price.

As soon as the directive was given, the Nigerian National Petroleum Corporation, in a statement signed by its Group Managing Director, Mele Kyari, said, ”effective 19th March, 2020, NNPC Ex-Coastal price for PMS has been reviewed downwards from N117.6/litre to N99.44/litre, while Ex-Depot price is reduced from N133.28/litre to N113.28/litre.

“These reductions will therefore translate to N125/litre retail pump price”

Also, a statement issued by the Minister of State for Petroleum Resources, Timipre Sylva, mentioned that government had brought into effect the price modulation policy, that was introduced in 2015, but had not really been put into effect before now.

According to the minister, the Petroleum Products Pricing Regulatory Agency, has been directed to modulate pricing, “in accordance with prevailing market dynamics.”

The decision to reduce petrol price came against the backdrop of rising inflation. The National Bureau of Statistics said inflationrose to 12.3 per cent in January 2020, the highest in 21 months.

Thus, it is expected that the reduction in petrol price will help in curbing rising inflation. Prices of foodstuffs are expected to drop with the N20 reduction in petrol price.  Definitely, the decision will benefit the poor, who have been struggling from day to day to eke out a living.

The slashing of the petrol price is also in the spirit ofthe price modulation policy, which promotes pricing dictated by market realities. By the policy, the PPPRA is expected to issue a monthly guide to the NNPC and marketers on the appropriate pricing regime.

Putting into effect the price modulation policy is a good thing because should the price of petrol dip further, the price could go further down. Conversely, if the global economy becomes healthier and crude oil prices move up, with petrol price also rising, the PPPRA has been mandated by the government to respond appropriately.

This new policy will ensure that the price is reflective of market realities and will ensure that petrol is available in a sustainable way. Many of the downstream players, especially the major marketers, have beenpressurizing the government for this kind of policy to be implemented. Some call it appropriate pricing or deregulation, but the key thing in the argumentis that the product should be priced according to market realities.

Related News

So far so good, the NNPC has tried so much in ensuring uninterrupted petrol supply, but the new policy would sustain what NNPC has been doing so well by enabling the participation of private sector operators to complement the corporation’s efforts.

Gradually, it seems that by bringing the price modulation policy into effect, the government is easing off its stranglehold on the fuel supply business.  Thus, it is expected that the flexible pricing system being implemented now would relieve the Federal Government of the burden of paying huge subsidy and free up funds that could be spent on much-needed infrastructure.

As the crude oil prices continue to weaken, it seems as if the days of $100 per barrel oil is gone and it is high time the government addressed some of the distortions in the economy. For instance, huge investments in infrastructure is far better than expending N1 trillion on fuel subsidy yearly. Furthermore, with a reduced income from oil, it is no longer tenable for the government to continue to pay fuel subsidy against the backdropof huge debts owed by the country.

Also, a market-driven pricing will ensure that investors planning to come into the crude oil refining business in Nigeria are encouraged.

Already, the Dangote refinery located in Lagos, is scheduled for completion by the end of 2020 and expected to become operational by early 2021. Of course, the Dangote refinery will hope to operate under a deregulated system without bottlenecks.

It is expected that when the pricing is right, many investors could also come in to take advantage of the opportunities presented by the huge Nigerian market and the sub-regional market.

The nation’s four refineries undergoing rehabilitation could also benefit from a pricing regime that will enable them to recover cost andmake profit. For over four decades, we have been running the down stream sub-sector with the same template that has failed to deliver the goods and it is high time we changed the policy and strategy.

The Federal Government is supposed to be earning huge revenues from the downstream sub-sector rather than pouring money into a financial black hole. And as the nation’s economy is still recovering, it is      high time the Federal Government removed all encumbrances to its growth.

With the nation consuming about 50 million litres of petrol daily, there is potential for the government to develop a financially healthy downstream sub-sector by taking the right measures and I believe one of the key measures needed to be taken is the one that has just been taken—  ensuring that petroleum products are appropriately priced to attract investments.

It is also heartwarming that the Minister of State for Petroleum Resources, Timpire Sylva, has pledged that the government willcontinue to develop Compressed Natural Gas as an alternative automotive fuel.  The government needs to do a lot of work on the promotion of the product and should also find a way to fully involve the private sector in the development of the market.

The liquefied petroleum gas market, already deregulated,should also be further developed by encouraging the use of LPG by more Nigerians.  Most households in the rural areas still use firewood. So, there needs to be a push towards deepening the use of LPG nationwide.

It is highly commendable that under President Buhari, the Final Investment Decision for the Nigeria Liquefied Natural Gas Limited’s Train7, has been taken. The development, which will increase the output from the LNG plant substantially from 22 million tonnes per annum to 30 million tonnes perannum, is also a giant step in the right direction. The project is a joint ventureowned by the NNPC, 49 per cent, Shell, 25.6 per cent, Total, 15per cent and Eni, 10.4 per cent.

There are also some other LNG projects in the offing. They are the Brass LNG project, which was close to an FID before it was stalled and the Olokola LNG project. These are projects that have the potential to createmore jobs and income for the country. Nigeria’s huge gas reserves of 200 trillion cubic feet, besides oil, have the potential to turn around the economy when properly harnessed.