- It is unsustainable; but then, we must expedite local refining of petrol
Although it underlies the dilemma of a leading oil producer which nonetheless imports fuel for its domestic needs, it is perhaps not the kind of news that Nigerians expected to hear – at least not at this time. We refer to the latest fuel price template released by the Petroleum Products and Prices Regulatory Agency (PPPRA) showing a subsidy of between N12.62 and N12.88 on a litre of petrol.
As released by the PPPRA, the expected open market price for petrol for independent and major oil marketers is now N99.38 per litre; whereas for the Nigerian National Petroleum Corporation (NNPC) retail outlets, it is N98.62. Officially, petrol price remains N86.50 and N86, respectively, for the two categories of marketers.
In the context of the modest recovery in global oil prices, the latest being the $46 price per barrel announced last week, the situation should not be hard to understand. Of course, the development comes as a two-edged sword – on the one hand, it means more accruals into the federation account; on the other it translates to potentially higher domestic fuel prices for the import-dependent Nigerian economy.
Although the Minister of State for Petroleum, Ibe Kachikwu, has stated that the current prices would remain, albeit temporarily, the prognosis is as grim as it is difficult to gloss over. At an estimated average daily consumption level of 40 million litres per day, the differential –subsidy – comes to a daily average of N500 million or a whopping N1.8 trillion in a year ; that is assuming that oil prices remain at the current level – a most unlikely proposition. Should oil prices go up – as Nigerians pray it does– the figure will certainly go higher. Even if we grant that a quarter of this figure will be refined locally, it comes to a mere slice off the hefty sum that may have to be paid to the club of marketers should the Federal Government insist on the current retail price.
The choice we face in the circumstance is one between tapping on the already shrunk treasury to finance the outlay, not minding that a substantial part of the current federal budget is debt-financed; or, allowing a cost reflective pricing regime to rule – in effect, making the fuel consumer pay the real cost price. Whereas the former comes with the prospect of further solidifying the current practice of making the NNPC sole importer of fuel and with it the attendant cycle of shortages, smuggling and associated sharp practices; a market reflective price on the other hand not only raises the prospects of getting other players on board, but ensures that this is done without recourse to the treasury.
By now, the choice ought to be clear. Even if the Federal Government wanted the subsidy to continue, it is doubtful that we can afford to continue to shell out nearly a trillion naira annually on it. Equally pertinent is whether it makes any further sense to continue to burden the treasury with the corruption-infested subsidy regime.
We understand that at a time of shrinking consumers’ real incomes; when factories are drawing shutters on their operations, a time when the economy is contracting rather than expanding, and when power supply has been on the dip, the call to pay potentially higher prices for fuel – even in the interim – will be unpopular. Yet, the choice is one that the nation will have to make at this time if only to correct the bad choices of the past and if it is truly desirous of getting more funds for development.
Quite fortuitously, petrol currently sells far above the recommended retail price in most parts of the federation – with perhaps the exception of Lagos and Abuja. Even with noticeable improvement in supply across the federation, there are yet no signs that the marketers will adhere to the regulated price.
The way forward, in our view, is to throw the sector open to competition; as it is, Nigerians will certainly loathe a throwback to the era of paying marketers who have shown complete disdain for fair play. We see the current phase as offering the best chance to prepare Nigerians for the imminent transition to the long-expected liberalisation of the sector, with the government however paying serious attention to local refining of fuel because that should be the ultimate goal. Continued importation of petrol by Nigeria, a leading crude producer, is in itself not sustainable. It is injurious to our economy.
