Half-hearted and too little
The reduction in the pump price was widely expected in the country, months before the government took the step. The move is a welcome development, though belated, because all other major oil exporting and importing countries have reduced pump price of the product to take account of the continuing fall in the price of crude […]
The reduction in the pump price was widely expected in the country, months before the government took the step. The move is a welcome development, though belated, because all other major oil exporting and importing countries have reduced pump price of the product to take account of the continuing fall in the price of crude oil. The level of reduction is however infinitesimal. A cut of just above 10 per cent is insignificant, given that the price of crude oil is down by as much and 60 per cent.
The fall in pump price is the lowest among oil producing nations in similar situation. Criticisms have trailed the government’s announcement, largely because it is seen as not being commensurate with the global fall in crude oil prices. Furthermore, in countries such as the United States and the United Kingdom, the pump price fell months ago, almost in tandem with the slump in crude oil prices. There have also been suggestions that the reduction is cynical tokenism on the part of government in a desperate bid to curry favour of the voters, going forward to next month’s elections. To buttress this view, it was pointed out that the prices of other petroleum products such as diesel, kerosene, and aviation fuel, were not affected by the announcement.
Indeed, there is no justification for singling out the pump price of petrol only for reduction, because of the fact that kerosene, which is use in households all over the country, including in rural communities, is harder to obtain and more expensive as consequence. Kerosene is freely sold at N120 a litre but can hardly be bought at the “subsidized” price of N50.
Although most filling stations, especially those located in the cities where monitoring is not much of a challenge, have complied with the N87 directive, the haphazard implementation seems to indicate that the government’s action was a spur-of-the-moment decision taken without consultation with other players. This serious lapse meant that immediate compliance, which was to take effect within hours, would be difficult because retail outlets with huge stocks procured at the old rate would either have to incur loss or sell at the old rate until they take delivery of new stocks.
The pump price announcement has once again brought the contentious subsidy issue to the fore. The government claims that it still provides subsidy of N2.84 per litre of petrol, despite calculations by industry experts indicating otherwise. Going by this claim, the federal government would still pay over N100 million per day as “subsidy” to contractors. Paradoxically under the current administration, the government proposes to pay over N55 billion in subsidy, despite the 60 per cent fall in crude oil price. If the naira continues to fall against the dollar, this amount could be much higher.
Data released by the Petroleum Products Pricing and Regulatory Agency (PPRA) showed that when petrol was at N97 per litre, this amount was inclusive of N0.90k subsidy per litre. Now that the price has fallen to N87, subsidy has risen to N2.84. According to the figures, the landing price of imported refined product was now N74.35, while the ex-depot price was N77.66; the expected open market price was put at N89.84 per litre and the regulated price is N87. These figures don’t add up, because the assumed subsidy would be wiped off if the many middlemen that infest the contracts route in the supply chain are eliminated.
The passage of the much-debated and long-awaited Petroleum Industry Bill, considered to be the panacea in sanitising the sector, should be fast-tracked and passed into law to ensure more transparency and accountability in the industry, and to allow for a more objective and practical pricing structure.