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Published On: Mon, Jan 12th, 2015

When will fuel price come down in Nigeria?

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Fuel PumpThe price of fuel has retreated in the last couple of weeks globally, but strangely, in Nigeria, the petroleum sector has not responded to the unfolding international events. Aminu Imam reports that there is no excuse for the Federal Government not to reduce fuel prices in Nigeria.

Agitators who expect the administration of President Goodluck Jonathan to reduce the prices of petroleum products may be disappointed, as recent reports have it that such is not currently being considered.

It was reported in the media last week that the considerations of the federal government is that what should have been a direct benefit to consumers as a fall-out from the crash in the prices of crude oil in the international market has been lost to the devaluation of the Naira.

The Central Bank of Nigeria (CBN) recently devalued the Naira from a long-standing N155 to $1 to N168 to $1, owing to pressures on the currency at the foreign exchange market.

The Petroleum Products Pricing regulatory Agency, (PPPRA), claimed, on Thursday, December 11, 2014, that it was buying products from foreign refineries at the rate of N171.36 to 1.cartoon- fuel2.

PPPRA’s Pricing Template indicated that as at Thursday, its Offshore Nigeria Price stood N78.67 per litre and a Landing cost of N88.90 per litre.

When all distribution margins and other costs are added to the landing cost, Expected Open Market Price got to N104.39 per litre, thus still leaving the federal government with a subsidy of N7.39 kobo.

State officials claimed that the federal government now needed much more Naira to buy the products, which should have cost consumers more but for the reduction in the cost of crude, as well as, subsidy it pays on the products.

Global oil-prices hit a five-and-a-half-year low, at less than US$55 per barrel last week. Brent prices have fallen to about $ 70 per barrel, with industry experts forecasting further fall to as low as $ 50 per barrel in the months ahead.

Products prices across several countries around the globe have been cut by marketers; in countries like the United Kingdom, where the prices have been deregulated. In that country, ASDA, Tesco, Morrisons and Sainsburry have reduced petrol prices by at least 2 per litre, bringing prices around 112. 7 per litre.

Malaysia, India, Indonesia and Sri Lanka also officially cut their petroleum products’ prices, some by as much as 6 per cent.

The federal government while responding to the development in the international crude oil market has cut 2015 subsidy budget to about N 458.68 billion, down from N 971.14 billion in the current Fiscal Year. It has also reviewed downwards its oil price benchmark twice to avoid being caught napping in the crashing oil prices scenario.

Many experts, including non-experts, argue that, since our prices are absorbed from the international market therefore, fluctuations of fuel prices on the world market should naturally affect local pricing. However, in Nigeria it’s always easier said than done.

While local fuel dealers have in the past been quick to raise prices in line with international increases, their fatigue to respond to decreases this time around is worrisome. It could mean the sector is profiteering at the expense of hard-pressed Nigerians.

In South Africa, the Department of Energy recently announced that the price of petrol was to decrease to 11.20 Rands per litre from 12.22 Rands, and that diesel will decrease by 1.05 Rands per litre, while liquefied petroleum gas will also decrease by 2.10 Rands per kilogramme.

To show the extent of saving this translates for the consumers, economists estimate that for an average car with a 50-litre tank, that amounts to R156,50 saved on each full tank. However, converse is the case in Nigeria.

Demand of petroleum products in the country is increasingly high, because the supply of the products is still at the lowest, due to mainly inefficient refineries and the reliance of importation by some few groups.

The worrying point is that fuel is central to our daily lives. We have no substitutes for fuel. One can use charcoal in place of firewood; one can equally use coal for thermal power in place of hydro. We are, however, not that privileged when it comes to petroleum. There are no substitutes.

This, therefore, means that fuel prices affect the whole economy. An increase in fuel prices triggers increases across the economic spectrum.

Prices of bread, transport, electricity and water all respond immediately to any movement in the price of fuel. Costs of agriculture and manufacturing are functions of obtaining fuel prices.

The petroleum sector is closely linked to the security of any nation. If saboteurs are allowed to run the sector, they can easily manipulate the economic situation through artificial shortages and price increases. These may be calculated to trigger increases across the board and encourage shortages and disturbance of peace in any country.

This is why it is important to interrogate this sector.

The Petroleum Industry Bill (PIB), which has still not seen the light of the day, contains special fiscal incentives in place to encourage the establishment of new refineries around the country.

While Government has occasionally intervened in other sectors such as the mobile services sector by way of effective regulation of mobile call charges for Nigerians, the same should apply to this critical sector.

The fact that the players themselves have not responded to the international fall in prices shows that they are bent on profiteering.

Their argument based on the fact that they are cleaning out old stock does not hold water, as we are all aware that no dealers have at any time been holding more than two months stock. There is the need to scrutinise their stockpiles and records to ensure that they were holding that much stock. Not all of them may have even been holding one-month stock.

If prices are retreating at source, why should they remain high locally? There is no value-addition to push up costs.

While not advocating for price controls, what stakeholders are simply saying is that fuel prices are internationally determined and, therefore, any movement on the global stage should be felt locally.

A decrease in fuel prices has many downstream benefits. Food prices should also respond, transport costs will be knocked down, meaning an increase in real disposable incomes for locals.

The pro-deregulation experts’ rationale is often that fewer and simpler regulations will lead to a raised level of competitiveness and as a result, there will be higher productivity, more efficiency and lower prices overall.

No doubt, the Jonathan-led administration wants us to believe in that, but the problem is that when the price was high, we were all paying a certain price, but now that it s declining, nobody talking about bringing down the prices of petroleum products. Why then will the ordinary citizen believe that it will bring availability and price reduction?

Clearly, the establishment of new domestic refineries and the rehabilitation of existing ones are critical to ensuring a successful deregulation programme.

A viable local refining sector will, in the long term, bring down the pump price of petroleum products below the current import parity level.

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