New fuel pump price and the changing narratives

Recently, the government announced a new price band of between N135 – N145 per litre of premium motor spirit (PMS) otherwise known as petrol. The new price is a 67 percent increase from the previous pump price of N86.50 per litre. While announcing the new price, Nigeria’s Minister of State for Petroleum Emmanuel Kachikwu, said the decision was to avert an even larger fuel shortage and financial crisis in the near future.

Initially, the belief was that the new policy heralds the full deregulation of the downstream sector but the narratives that followed states otherwise.

According to the official statement by the minister of state for petroleum resources, any Nigerian entity is now free to import the product, subject to existing quality specifications and other guidelines issued by Regulatory Agencies. All oil marketers will be allowed to import PMS on the basis of FOREX procured from secondary sources and accordingly PPPRA template will reflect this in the pricing of the product.

The minister also said that the new policy will lead to improved supply and competition which will eventually drive down pump prices. In addition, it will lead to increased product availability and encourage investments in refineries and other parts of the downstream sector. It will also prevent diversion of petroleum products and set a stable environment for the downstream sector in Nigeria.

The Petroleum Products Pricing Regulatory Agency, (PPPRA) in its own statement said they shall continue to modulate pricing in accordance with prevailing market dynamics thereby ensuring fair value to all citizens.

Vice President Yemi Osinbajo was more emphatic. In his official statement, he said that the new policy was not removal of subsidy on PMS. Osinbajo said that the real issue is not a removal of subsidy because at $40 a barrel there is not much of a subsidy to remove adding that President Buhari “is probably one of the most convinced pro-subsidy advocates”.

According to Osinbajo, major and independent marketers since late last year have brought in little or no fuel because they have been unable to get foreign exchange from the Central Bank of Nigeria (CBN) leaving the Nigerian National Petroleum Corporation (NNPC) the task of covering the 50 percent shortfall in supply by dedicating more export crude for domestic consumption.

The only one option left is to “allow independent marketers and any Nigerian entity to source their own foreign exchange and import fuel. This is therefore not a subsidy removal issue but a foreign exchange problem, in the face of dwindling earnings”.

Going by the Vice President’s official statement, the action is not a removal of subsidy, thus, there is still some sort of subsidy on PMS even if it is not much. However, the detailed price template released by the PPPRA did not state any kind of cost element for subsidy.

While this paper is in support of PMS subsidy removal and full deregulation of the downstream sector, we frown seriously at smuggling in of any kind of subsidy through the back door. This will breed massive corruption, inefficiency and return to the old days.

If the new price regime is not a removal of subsidy, what then is the subsidy component of the new price band? However, if truly the new policy is a removal of subsidy and full deregulation of the downstream, the government should move on with the engagement of all the stakeholders and the citizens for full buy-in. The government needs to get its narratives right and clear the air on the new price regime of PMS.