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Published On: Mon, Jan 19th, 2015

How relevant is FG’s belated reduction of fuel pump price?

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Jonathan and AlisonBy Etuka Sunday

The fact that the Federal Government has slashed the pump price of Premium Motor Spirit (PMS), called petrol is no longer news; what however remained unfolded were the intentions of government to have taken such an impromptu decision especially at this time that the political environment is already tinted.

For some business analysts, the announcement does not come as a shock because it was long anticipated considering the volatility in the oil market in the past few months, which impacted the importation prices of Nigerian petroleum products.

The slight reduction of pump price of fuel from N97 to N87 after much plea from the mass of Nigerians especially the Nigeria Labour Congress (NLC) and the snail movement acceptance from the federal government leaves much to be desired.

Recall, NLC last year, December to be precise, called on the federal government to as a matter of urgency reduce the pump price of petroleum products in line with falling crude prices in the international market as has been done by other importers of refined petroleum products.

The NLC Secretary General, Dr Peter Oso-Eson, in an interactive session with journalists said, “The area that worries us very seriously is that crude prices are falling. In order countries, what that is immediately translating to, is that the price of petroleum products and pump head is coming down. In the United States, in the last one month, the price of a gallon of petrol, has come down from $3 to $2, in response to this price adjustment. In our country, we are not allowed to enjoy that benefit. What government is doing is that in order to shore up its naira revenue, it has gone to devalue excessively, the naira; $13 devaluation in one day, and then a continuous process of depreciation.

“What that does, is that, because we import petroleum products largely, the gains from the falling price of crude which ought to translate to consumers, is prevented by that devaluation; because, by devaluing the cost of the head price, it might even increase.

“We say that that is wrong and the benefits of the falling price of crude, must be translated to Nigerians. Therefore, going forward, we want a situation in which the pump of petrol and other petroleum products should actually be adjusted downwards.”

However, announcing the reduction, the Minister of Petroleum Resources, Mrs Diezani Alision-Madueke said, “with the approval and directive of Mr. President and by virtue of Section 6 clause 1 of the Nigerian Petroleum Act, it is my responsibility as Minister of Petroleum Resources to hereby announce a reduction in the pump price of Petroleum Motor Spirit (Petrol) from the current Ninety Seven Naira (=N=97) per litre pump price down to Eighty Seven Naira (=N87=) per litre pump price, effective from twelve (12) midnight Sunday, 18th of January 2015.”

“Accordingly, I have directed the Petroleum Products Pricing Regulatory Agency (PPPRA) and the Department of Petroleum Resources (DPR) to ensure strict compliance of this price adjustment by all marketing companies.

“It is my hope that all Nigerians will benefit from this adjustment. I thank you and God Bless you all.”

Meanwhile, some political analysts and All Progressive Congress (APC) called the price reduction as a mere show of deceit.

A statement by its National Publicity Secretary, Alhaji Lai Mohammed, yesterday in Lagos said, “When crude oil was selling at 100 dollars per barrel, the landing cost of PMS without subsidy was 125 Naira per litre. Now that the oil price has crash to about 44 dollars per barrel, landing cost without subsidy is about 65 Naira per litre. The same goes for diesel which should not sell for more than 90 Naira per litre.”

“Early this year, Zambia slashed the price of petrol by 23 per cent while Tanzania reduced the pump price of the product by 16%. In the US, which until recently was importing crude oil from Nigeria, the price of fuel has fallen for 113 consecutive days as of Jan. 16.

Therefore, the 10.3% price slash in Nigeria is too meagre too late.”

“With Nigeria depending on importation of petroleum products to meet about 90% of its domestic consumption, the country is relying heavily on term contracts entered into with petroleum product trading companies to meet its domestic demand. It is possible that the petroleum products pricing formulas embedded in these contracts, which generally run for up to 1-1/2 and in some cases 2 years, have not anticipated these low prices.

“Therefore, unless the government moves to renegotiate the contracts now, it may not reap the full benefits of the decline in petroleum prices. But here is the catch: Since the government and its agents have skimmed off huge ‘commissions’ from the firms with which the term contracts were signed, it could not possibly go back and renegotiate those contracts or go into new forward contracts that will reflect the current reduction in crude oil prices.

“It takes a strong willed, determined and transparent leadership to immediately call in the petroleum products contracts for re-negotiation, as this will represent a huge blow on corruption in

the sector since clearly ‘commissions’ would have been paid by petroleum product traders on the existing contracts. This explains the token reduction in fuel price, which the government must have hoped will fool an unsuspecting public, especially a few weeks to elections,” APC said.

Nevertheless, now that the price has been reduced, there is a huge task before the Petroleum Products Pricing Regulatory Agency (PPPRA) and the Department of Petroleum Resources (DPR) to ensure strict compliance of this price adjustment by all marketing companies.

Although chances are that the oil marketers in the country may not easily bow to this new price reduction because they may want to sell off their old stocks which they bought at the former price of N97, therefore, may take a little time for its perfect implementation.

It means, PPPRA and DPR must intensify monitoring as directed by the federal government to avoid the repeat of similar others that failed as a result of weak monitoring.

 

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