Fuel price hike: Further increase expected in coming days

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. PRESIDENT BUHARI ATTENDS APC NEC MEETINGPRESIDENT BUHARI 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.”