Fuel prices may go up soon as the Nigerian National Petroleum Company Limited (NNPC) and fuel marketers clashed on Tuesday over prices of the commodities.
The naira’s recent downward trend against the dollar has reignited the debate, with economists and marketers claiming a resurgence of hidden subsidies.
The naira’s freefall against the dollar, closing on Tuesday at N998/$ at the official window and a staggering N1,225/$ on the black market, prompted the alarm by economists and marketers, The Punch Newspaper reports. Bismarck Rewane, CEO of Financial Derivatives Company, argues that the subsidy wasn’t abolished, but merely reduced, leading to a hidden transfer of wealth from consumers to the government.
He made this known during a live television programme on ChannelsTV on Sunday.
He said, “At the inauguration, it was said that (fuel) subsidy was gone but subsidy was actually reduced.”
Buttressing his position, he explained, “There is the convergence of exchange rates and reducing the windows into one. The consequence of that is that money has been transferred from consumers to the government.
“Subsidies are reversed taxes; if you reduce them, you increase the people’s taxes and reduce their income. What has happened is that government revenue has increased by 44 per cent between May and June (2023). Money has been transferred to the government, but what is the government doing with it?
“The consumers, on the other hand, had a minimum wage, which in dollar terms was $40 in 2002. In 2019, it was about $70, but it has now been reduced to $24.”
Similarly, oil marketers said the subsidy on petrol was increasing considering the crash of the naira against the United States dollar and the cost of crude oil. They added that PMS should sell for N1,200/litre in a free market.
The Independent Petroleum Marketers Association of Nigeria (IPMAN) National Public Relations Officer, Chief Ukadike Chinedu, claims the petrol price should be around N1,200/litre, given the current dollar-diesel-petrol cost dynamic. He believes the government is implementing a “quasi-subsidy” by absorbing half the potential price increase.
He said: “To be pragmatic in this analysis let’s consider the cost of petrol today in the United States. For premium petrol, it is $2.99, while super petrol sells for $3.15 or $3.10 depending on the part of that country where you are making the purchase.
“Now, $3 in Nigeria is over N3,000, because a dollar in the parallel market is over N1,000. You can also see the cost of diesel, that is over N1,000/litre, and it is important to state that petrol is usually higher in price than diesel in a free market.
“So if you consider the cost of diesel, dollar and other international factors, the price of petrol in Nigeria should be around N1,200/litre, but the government is subsidising it, which to an extent is understandable,” he stated.
“I also believe that there will be a reduction in the prices of petroleum products this year when you consider what the government is currently doing. The coming onboard of the Port Harcourt refinery and the supply of crude to Dangote refinery are good developments in the sector.
“Their operations will help stabilise the price of PMS and other petroleum products in Nigeria, because it will definitely cut down the importation of products,” Ukadike added.
Petrol is solely imported into Nigeria by the NNPCL. Presently, the commodity sells for between N617/litre to N660/litre.
Giving his take on the matter, the Chief Executive Officer, Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, who corroborated the stance of marketers, said there was partial subsidy on petrol, but noted that the commodity was subsidised by the government for political, social and economic reasons.
Amidst the accusations, the NNPC has denied the claims of partial subsidy. Chief Corporate Communications Officer, Olufemi Soneye, dismissed the claims as “assumptions” and said that the government no longer subsidises petrol.
He said, “We prioritise our time on substantive matters rather than responding to assumptions.
“At NNPC Ltd, we prioritise national development through energy security and sustainable growth. We reiterate that the Nigerian government does not pay subsidy on fuel; we recover full costs from our imported products.
“As a global energy company, our focus remains on fostering a vibrant and energy-secure Nigeria.”
