Why Fuel price may go up to N180 per litre soon

A new development, yesterday, has confirmed that fuel price may go up – to at least N180 per litre.

Minister of State for Petroleum Resources Dr. Ibe Kachikwu, who dropped the hint in Abuja, said N145 per litre could no longer be sustained.

In a presentation he made to a joint committee on Petroluem (Downstream) of the Senate and the House of Representatives, the Minister put the landing cost of petrol at N171 per litre.

According to him, the Federal Government, through the Nigerian National Petroleum Corporation (NNPC), has been bearing the cost of N26 per litre, representing the difference between N171 and N145 per litre.

Independent marketers, Kachikwu said, would not be able to import Premium Motor Spirit (PMS) at the current foreign exchange rate. They were able to sell for N145 per litre when the exchange rate was N285 per dollar. The naira exchanges for N365 to dollar.

Kachikwu said the NNPC had incurred a cumulative loss of N85.5 billion importing petrol and selling at the current retail price of N145 per litre within three months.

He said N145 per litre was fixed in the first quarter of 2016 when crude oil was selling for $49. With crude price rising to $67 a barrel ($68 yesterday), the pump price is no longer sustainable, he claimed.

Kachikwu said the landing cost of PMS, which was N133.28 per litre in 2016, is now N171 per litre.

This forced independent marketers to stop importing petrol.

The NNPC has been the sole importer since October.

“We now have to go back and find solution to this problem to ease supply gaps and ensure availability of the product at all times,” the Minister said.

Kachikwu, however, proffered three alternative solutions to pump price increase:

1. getting the Central Bank of Nigeria (CBN) to introduce a modulated foreign exchange rate specifically for importers of the product;
2. giving the marketers significant tax adjustments to enable them absorb the high cost
3. a plural pricing system whereby the NNPC would continue to sell at N145 through its numerous outlets while the marketers are allowed to fix their own price.

The Minister identified causes of the last fuel scarcity to include diversion of products, logistic constraints, bottleneck associated with clearance, bad road network, insufficient product reserves, smuggling through land borders, supply gaps and enforcement challenges.

Marketers stopped importing fuel in October, 2017, as a result of their inability to access foreign exchange from the CBN, leaving only the NNPC to import the product. This has left a wide gap between demand and supply, Kachikwu said.

He said the price of petrol rises when the price of crude oil goes up in the international market, stressing that in such instances, Nigeria spends more to import refined products.

To address the situation, the Minister canvassed the opening up of production lines, specifically the refineries, which he said would address supply gaps that usually lead to incessant scarcity.

He said: “Rising prices in international market affecting domestic prices. What the country needs is to have the refineries working. It’s a shame that after 40 years, Nigeria cannot produce its domestic consumption.

“It would take 18 months to address problems of scarcity, price stability and other issues relating to supply of petroleum products

The pipelines should be concessioned to allow private participation.

“There is huge infrastructure deficit in the system because the NNPC ought to be distributing products through their pipes but most of the pipes are damaged. This has necessitated the use of trucks to distribute the product across the country.

“Most importantly, fixing the refineries should be the lasting solution.

To discuss and address the issues, we have to seek approval from the President,” the Minister said.

NNPC Group Managing Director Dr. Maikanti Baru said the last scarcity was caused by rumours of price increase in the media that led marketers into hoarding the product in anticipation of higher prices.

Said he: “So there was a frenzy in movement of products to the hinterland and diversion of products going to the hinterland in anticipation of increase in price.

“The NNPC, or the Petroleum Products Pricing and Regulatory Authority (PPPRA) had no mandate to increase pump price.”

The GMD said the strike by PENGASAN in December was partly responsible for the scarcity, adding that the issues raised by the association for going on strike had nothing to do with the NNPC.

According to him, the strike triggered panic buying by members of the public, leading to scarcity of the product. He added that although PENGASAN called off the strike on December 18, the damage had already been done.

Baru identified other factors responsible for the last scarcity to be the higher price at which petrol is sold in neighbouring African countries, citing Cameroun where he said petrol sells for N300-N400 per litre.

Stating that the NNPC had enough product to bridge supply gaps, Baru insisted the corporation had sufficient stock to go round even without importation.

The GMD alleged that about 4500 distribution trucks failed to return to depot to complete their distribution formalities during the scarcity period, meaning that the trucks were diverted.

“There was no supply gap because we have Direct Sale Direct Purchase (DSDP) agreement with 10 consortia involved. Three of them rejected their cargoes, which were reallocated to others”.

The GMD also hinted that the refineries in Kaduna and Port Harcourt were being reactivated and restreamed and that they have been producing three million litres daily.

Baru also cited disagreements among the various private operators in the sector as part of the problems that threw up the scarcity, adding that the marketers were busy trading allegations of sharp practices.

Said he: “For instance, IPMAN said MOMAN and DAPPMA were charging over N133.28/litre, but when we asked them to provide evidence of over charging, they could not provide any. If proven, NNPC would have withdrawn the licences of the errant bodies.”

The Executive Secretary of the Department of Petroleum Resources (DPR), Mordecai Baba Ladan, told the committee that at the onset of scarcity, the DPR rolled out its machinery across the country, with a directive from the minister that defaulters be dealt with.

“Almost every marketer/filling station across the country are defaulters. And if all defaulting filing stations were to be shut down, there may not be any one left.

“They hoard, sell above official price and also divert products. But we have stepped up our monitoring process now that the NNPC is the sole importer but the corporation cannot do it alone.”

Virtually all the independent marketers that attended the hearing alleged multiple charges by the Nigerian Ports Authority (NPA), NIMASA and some state governments charging 3 kobo per litre wharf landing fee.

The Executive Secretary of MOMAN, Mr. Obafemi Olawore, said the N800 billion owed marketers by the Federal Government has made it difficult for them to obtain credit from the banks to import petrol.

He urged the government to give key players major roles in importation, adding that shutting down errant filling stations would not solve the scarcity problem but rather aggravate it.

Olawore called for total deregulation of the sector to allow more participants from the private sector.

Curiously, however, the chairman of the joint committee, Senator Kabiru Marafa, who had vowed to grill the Minister and the GMD over secret subsidy payment by the government.

Briefing reporters at the National Assembly yesterday, Marafa had raised questions on who pays the difference of the N26 in the landing cost of N171 against the pump price of N145.

The lawmaker said there were indications that a subsidy of N26 was being paid on every litre of petrol sold and wondered who had been paying the subsidy.

Marafa said, “If there is subsidy payment, then who approved it and how much has been paid out as subsidy so far. If you want to provide subsidy, it should come through the National Assembly but we have not received any request for subsidy payment from the Executive arm”.