The recent hike in the price of Premium
Motor Spirit, PMS, also known as petrol,
had thrown up a number of disturbing
realities, that, henceforth, Nigerians are
at the mercy of oil marketers, who are
mainly profit-oriented; subjected to
vagaries in the international crude oil
market; and are at risk over low value of
the naira against major international
currencies.
The fact remains that with the gradual
rebound in the price of crude oil in the
international market and the weak
economy of the country, Nigerians are
yet to see the end to the hike in the
price of PMS, as Nigerians should be
prepared to pay between N250 and
N300 for a litre of the commodity.
President Muhammadu Buhari, in his
early days in office had rebuffed calls for
fuel price increase, vowing not to
increase the hardship of the people,
especially with the challenges faced by
the petroleum industry and the
economy in general.
His administration also promised to fix
the refineries and pipeline network,
increase the country’s refining capacity
and secure oil facilities, as there were
the conditions agreed upon with
organised labour and other
stakeholders before any price increment
is effected.
Today, the refineries are still in a
dysfunctional state, pipeline sabotage is
still the order of the day, while the
country still refines less than five per
cent of its local fuel consumption; yet
the Federal Government increased the
price from N87 per litre to between
N135 and N145 per litre, leaving
Nigerians at the mercy of market forces,
in spite of the seeming less-than
competitive market economy, that tilts
more towards oligopoly with the
existence of cartels.
Though what obtains currently does not
qualify for deregulation, it is believed
that the marketers have been given a
leeway in determining the prices within
the price range of N135 and N145 per
litre. It is also expected that the new
price would remain in force till the end
of June, pending further review based
on price of crude oil in the international
market and the value of the naira
against major currencies.
The arguments put forward by the
Federal Government in hiking the price
of PMS appeared tenable. Some of the
arguments were centred on the inability
of oil marketers to access foreign
exchange (forex) at official rate from the
Central Bank of Nigeria, CBN, to import
the product, and the fact that the
government cannot afford to pay
subsidy with the current economic
realities.
Also, the Petroleum Products Pricing
Regulatory Agency, PPPRA, stated that
the new pricing regime would solve the
unending fuel crisis by ensuring
availability of products at all locations of
the country. It also argued that the new
pricing regime would reduce hoarding,
smuggling and diversion substantially,
and also stabilize price at the actual
product price; ensure market stability
and improve fuel situation through
private sector participation.
It added that the new price will create
labour market stability, especially as it
had the potential to create additional
200,000 jobs through new investments
in refineries and retails, while also
preventing potential job losses of nearly
400,000 jobs in existing
investments. However, the Federal
Government has refused to inform
Nigerians of the outcome of the
agreements reached with International
Oil Companies, IOC, to provide foreign
exchange at official rate to some oil
companies to import the commodity.
From recent developments, it appeared
the agreement failed.
The PPPRA claimed the hike in petrol
price became necessary due to the rise
in crude oil price and the prevailing high
cost of importation, stating that due to
the decline in government income there
is neither funding nor appropriation to
cater for subsidy in the 2016 budget.
Though the hike was applauded by the
organised private sector, the burden of
additional increase in the prices would
continue to linger until efforts are made
to strengthen the economy, build more
refineries, fix and secure the pipeline
network, repair existing refineries and
strengthen the value of the country’s
currency.
Until the country changes its policy on
the petroleum industry, ensuring that
the local oil and gas industry is insulated
from the vagaries in the international
market, while ensuring that its oil and
gas resources are utilised for the benefit
of the country with less emphasis on
crude oil export, the good intentions of
government would continue to be met
with distrust and apathy.
Specifically, Professor Adeola Adenikinju,
Director, Centre for Petroleum, Energy
Economics and Law (CPEEL), University of
Ibadan, called on the Federal
Government to delink the economy from
short term commodity volatility, through
the Sovereign Wealth Fund, SWF and oil
price-based fiscal policy; and the
creation of new and efficient
institutions and structure for the sector.
He advocated a full deregulation of the
downstream sector to allow for private
sector participation, the setting up of
regulatory, institutional and legal system
that responds appropriately to
commodity volatility and the
development of institutions to build
state capacity.
He said current emphasis on crude
petroleum exports must stop and
should be replaced with seeing
petroleum as source of energy and
growth enabler, while he called on the
Federal Government to develop a
medium to long term strategies to
anticipate developments in the oil
market.
Adenikinju recommended that the
Federal Government, “Promote vertical
integration within the oil industry in
order to develop a fully integrated
economy that is able to generate jobs
and development; provide special
incentives for marginal field producers;
ensure that we are part of the current
innovation drive in the energy industry;
and promote mergers and acquisitions
by oil and gas companies.”
Ads Under Post PC