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Nigeria: 5th embargo on petrol price fundamentals

An embargo by the Federal Government on fuel price hike will dig deeper hole of about N210 billion in its purse through subsidy in June. ADEOLA YUSUF reports

 

The Federal Government, on Friday, announced another embargo on the price of premium motor spirit (PMS) also known as petrol, in June, a move that will make it continue payment of subsidy on the product for the month.

 

This announcement, which is the fifth in the series of embargo on price, is expectedly exciting to millions of Nigeria.

 

Beyond this, however, is a burden of subsidy that would be paid through money accruable to the same set of jubilant Nigerians. Latest data from the Nigeria Governors’ Forum (NGF) put the monthly subsidy payment at N210 billion.

 

The governors’ stand

 

The 36 Nigerian state governors have okayed N385 per litre price for petrol. It was reported that the product was presently being sold between N162 and N165 per litre nationwide.

 

Rising under the auspices of the Nigerian Governors’ Forum (NGF), the governors, on Wednesday, May 19, 2021, at a virtual meeting, considered the report of a committee headed by Kaduna State Governor, Mallam Nasir el- Rufai, and accepted its recommendation that backs full deregulation of petrol and suggests that the pump price of the product should hover around N385 per litre.

 

The committee also recommended that the Federal Government should buy 113 buses to cushion the effects of the price increase.

 

The buses will be distributed among the states. El-Rufai’s six-man committee, according to a report by Lagos-based newspaper, was set up early this year by the National Economic Council (NEC) headed by Vice President, Yemi Osinbajo, to look into the dwindling revenue of states and make recommendations to the council.

 

Apart from el-Rufai, Governors Godwin Obaseki of Edo State, Kayode Fayemi of Ekiti State and David Umahi of Ebonyi State are also members of the committee. Other members of the committee are the Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele and the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari.

 

The four governors, who are members of the committee, presented its report to their colleagues, who endorsed it. The report is subject to final approval by NEC, which also met on Thursday. However, in a communiqué released after the meeting, the governors disclosed that el-Rufai gave a briefing on the appropriate pricing of petrol in Nigeria, where      he called for full deregulation.

 

According to the communiqué, the Kaduna State governor further revealed that between N70 billion and N210 billion was spent monthly to subsidise petrol price at N162 per litre.

 

The committee identified Lagos, Oyo, Ogun, Rivers and Abuja as the top consumers of petrol. Presenting the report to his colleagues, el-Rufai reportedly said the increase in the price of petrol to N385 per litre would help stem the increasing smuggling of the product to neighbouring countries. According to him, if petrol sells at N385 per litre, FAAC would gain between N1.3 trillion and N2.3 trillion per annum.

 

The committee also recommended that the Federal Government should sell the three refineries after rehabilitation.

 

The report revealed that Nigeria lost billions of dollars due to COVID-19, adding that there was already cash crunch in the states. NNPC had said that it would remit zero allocation to FAAC due to the huge cost of subsidising petrol. Some of the governors at the meeting opposed the recommendations, insisting that they would create more hardship for Nigerians.

 

Contributing to the report, a South West governor said that it would be very difficult to convince Nigerians and labour to accept the report. But other governors insisted that the earlier there was full deregulation, the better for the country as it remains an evil day postponed.

 

The committee recommended that the Federal Government should buy and distribute over 113 buses to states and major cities as palliative to the proposed increase in the price of petrol.

 

Cash crunch for governors

 

The Nigerian National Petroleum Corporation (NNPC) had insisted that there won’t be cash remittances to the governors due to subsidy burden it has to carry on monthly basis.

The Corporation also clarified that the revenue projection contained in the letter to the Accountant General of the Fed-  eration being cited in the media pertained only to the federation revenue stream being managed by the Corporation and not a reflection of the overall financial performance of NNPC.

 

A press release by the Corporation’s spokesman, Dr. Kennie Obateru, stated that the clarification became necessary in the light of media reports insinuating that the Corporation was in financial straits. NNPC maintains that it was conscious of its role and was doing everything possible to shore up revenue and support the federation at all times.

 

“The shortfall will be remedied by the Corporation as it relates only to the federation revenue stream being managed by NNPC and does not reflect the overall financial performance of the Corporation. NNPC remains in positive financial trajectory for the period in question,” it stated.

 

The Corporation pledged to continue to pursue and observe its cost optimisation process with a view to maximising remittances to the Federation Account. It would be recalled that NNPC, in a letter to the Accountant General of the Federation, entitled: Re: Impact of Hike in Crude Oil Prices on the Deregulated Downstream Sector:

 

Projected Remittance to the Federation Account for April to June 2021, which was inappropriately shared by unscrupulous persons, had projected that it would deduct the sum of N112 billion from oil and gas proceeds for the month of April 2021 to ensure continuous supply of petroleum products to the country and guarantee energy security.

 

This has fueled reports of impending revenue shortfalls with dire consequences for the various tiers of government. NNPC, however, assured that it would continue to meet its financial obligations to the federation.

 

The embargo

 

“Once again, it has become necessary to assure Nigerians that despite the huge burden of under-recovery, the Federal  Government is not in a hurry to increase the price of premium motor spirit (petrol) to reflect current market realities,” a statement personally signed by the Minister of State for Petroleum Resources, Timipre Sylva, read.

 

The current price of petrol, the statement continued, “will be retained in the month of June until the on-going engagement with organised labour is concluded.

 

“This clarification becomes necessary in the light of recent reports regarding the resolution of the Nigeria Governors’ Forum to increase the pump price of petrol. “In this regard, I would like to strongly urge petroleum products marketers not to engage in any activity that could jeopardise the seamless supply and distribution system in place.

 

“I also urge members of the public to avoid panic buying because the Nigerian National Petroleum Corporation (NNPC) has enough stock of petroleum products to keep the nation wet,” Sylva added.

 

Some months before

This is not the first time an embargo is placed on petrol price. Nigeria actually, among others, embargoed petrol price hike, frozen cost at N162/litre on March 26, 2021.

 

Through NNPC, the country had said it would maintain its current ex-depot price of petrol until the conclusion of on-going engagement with the organised labour and other stakeholders.

Addressing newsmen in Abuja in March, Obateru said the Corporation, at the moment, was bearing the burden of importing refined petroleum products as the supplier of last resort to guarantee energy security for the nation.

 

Shedding more light on the recent interview granted by Kyari at the State House, Obateru stated that NNPC had no intention to preempt on-going engagement with labour by unilaterally increasing the ex-depot price of petrol, even though the Corporation is bearing the burden of price differentials between the landing cost and pump price of petrol. He said as a proactive organisation,

 

NNPC had made arrangements for robust stock of petroleum products in all its strategic depots across the country to keep the nation well supplied at all times. He advised petroleum product marketers not to engage in arbitrary price increase or hoarding of petrol so as not to disrupt the market.

 

He also urged motorists not to engage in panic buying, stressing that NNPC was committed to ensuring energy security for the country as the supplier of last resort.

 

He assured marketers and all other relevant stakeholders in the downstream sector of sustainable collaboration for the public interest. The announcement for an embargo in May came directly

 

from Kyari. Kyari actually flaunted 20 billion litres petrol reserves, insisting that Nigerians should go about their normal businesses without panic buying. NNPC says it will not increase the ex- depot price of petrol in May.

 

This was the fourth consecutive month that the Corporation had suspended increase in price of the product. Ex-depot price is the price marketers buy products from depot owners; it determines the pump price at filling stations across the country.

Kyari disclosed this at the end of a closed door meeting with Petroleum Transport Drivers (PTD), National Association of Road Transporters Owners (NARTO) and oil marketers in Abuja.

According to the NNPC helmsman, “we want to inform oil marketing companies that NNPC will not increase the pump price of PMS in May. I am giving the assurance and I ask Nigerians to go about their normal businesses. We have over 20 billion litres of petrol in our custody.”

 

He stated further: “Many of you are aware of this and with the assurance with tanker drivers and NUPENG, there is no need for panic buying of the product. Petrol will be available in all the depots in the country, including NNPC dispatched depot across the country, so nobody should panic in buying the product.” On the strike by PTD, the GMD said the strike was associated with NARTO’s inability to increase their compensation, which was not resolved last week.

 

“We have given commitment to both NARTO and PTD that we will resolve the issue within a week and come back to the table to have a total closure on the issue.

 

“We also have a robust engagement with our oil marketing partners in respect of increase in the volume of product that is check in the Nigerian market. “We have agreed to work jointly with all the security agencies to contain any possible infractions seen in our borders.

 

“We will work as a team to curtail this fraudulent practice with the help of the security agencies.”

 

He explained that the meeting also discussed issues on payment by Petroleum Equalisation Fund (PEF) to oil marketing companies, saying that all stakeholders agreed in making PMS available to marketers.

 

Last line

 

While the news about embargo on petrol price increase is a good one, it would amount to a Greek gift if nothing is immediately done to make Nigeria’s refineries work and make the country truly self sufficient in its petrol consumption need.

 

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