An imminent increase in fuel prices is looming as the Nigerian National Petroleum Company Limited (NNPC) and fuel marketers entered into a clash on Tuesday regarding the pricing of the commodities.
The recent depreciation of the naira against the dollar has sparked renewed discussions, with economists and marketers asserting the resurgence of concealed subsidies.
The significant decline of the naira against the dollar, culminating in a closing rate of N998/$ at the official window on Tuesday and an alarming N1,225/$ on the black market, has raised concerns among economists and marketers, as reported by The Punch Newspaper. Bismarck Rewane, CEO of Financial Derivatives Company, contends that the subsidy has not been eliminated but rather reduced, resulting in a covert wealth transfer from consumers to the government. He conveyed this perspective during a live television program 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.”
In a parallel vein, oil marketers asserted that the subsidy on petrol was on the rise, taking into account the plummeting value of the naira against the United States dollar and the escalating cost of crude oil. They contended that Premium Motor Spirit (PMS) should be priced at N1,200 per litre in an unrestricted market.
Chief Ukadike Chinedu, the National Public Relations Officer of the Independent Petroleum Marketers Association of Nigeria (IPMAN), argued that the current dynamics of dollar-diesel-petrol costs indicate a petrol price of approximately N1,200 per litre. He opined that the government is implementing a form of “quasi-subsidy” by absorbing half of the potential price hike.
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 exclusively brought into Nigeria by the NNPCL and is presently retailed at prices ranging between N617 per litre to N660 per litre.
Offering his perspective on the issue, Dr. Muda Yusuf, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, supported the position of marketers, stating that there is a partial subsidy on petrol. However, he acknowledged that the government subsidizes the commodity for political, social, and economic reasons.
Contrary to the accusations, the NNPC has refuted claims of any partial subsidy. The Chief Corporate Communications Officer, Olufemi Soneye, dismissed the assertions as mere “assumptions” and affirmed that the government no longer subsidizes 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.”