Some experts on Saturday explained why Nigerians are not experiencing a reduction in the pump price of fuel despite the downturn in the global price market for crude oil.
The landing cost of Premium Motor Spirit (PMS) on Tuesday dropped from N115.52 it reflected on Friday to N96.85 but oil and gas experts say the government may not reduce fuel price in Nigeria.
The landing cost of petroleum products since the emergence of the coronavirus in China in December 2019 has been unstable.
According to data on the Petroleum Products Pricing Regulatory Agency site, the landing cost of PMS as of November 29, 2019, dropped from N150.11 per litre to N147.07 on December 2.
Oil prices crashed last week after the Organisation of Petroleum Exporting Countries (OPEC) and its allies could not reach a deal on the 1.5 million barrels per day oil production cuts it had earlier approved.
This was as a result of Russia’s refusal to tighten supply to counter the effects of the coronavirus outbreak on oil prices and the global economy
The crash became worse after Saudi Arabia reacted aggressively, with its plans to unilaterally increase oil output and also slash the price it sells crude into foreign markets on Saturday.
Oil price has since then been fluctuating. It saw its worst day for nearly 30 years as it dropped to $34.36 per barrel on Tuesday. Brent crude futures on Wednesday climbed by eight per cent to $37.49 per barrel as at the time of filing this report.
Since the epidemic hit the international market, the product pricing template on the PPPRA site has been heading downwards.
The PPRA is the agency of the Nigerian government saddled with the responsibility of determining the prices of petroleum products and also to monitor and regulate the supply and distribution in the country.
Despite the change in landing cost, the approved retail price band remained N135 – N145, the same as when the oil sold for $57 per barrel in the international market.
An oil and gas expert, Toyin Akinosho, said even though there has been a reduction in the landing cost of oil, “the government might want to plough back what it had lost.”
“It is a tight budget they are dealing with because that also means that less money for them to fund the projects. So I am putting myself in their shoes. I am not so sure whether they want to quickly call for the cancellation of subsidy.
“It is an opportunity to say petrol stations should just sell at the price they purchase. That way, you are not making any political statement, you are just basically saying that if this how much you buy and you want to put a little bit of profit, we are not going to stop you because we are in a control price situation now which makes the government lose money.
“But then, the economy is extremely tight, which is the reason why the government is claiming that prices have to be low and NNPC will be under-recovering, you know can be due to poor accountability which is what we complained about,” he said.
He said the federal government should take advantage of the looming crisis “and make a little profit”
The spokesperson for the PPPRA, Kimchi Apollo, did not pick calls or respond to a text message sent to him from the reporter.
The senior economist, SPM Professionals, Paul Alaje, told PREMIUM TIMES this is the best time the federal government can remove oil subsidy “because the removal will not come with an increase in pump price”.
He said PMS can still be cheaper and the subsidy removed going by his organisation’s calculations.
“Buying PMS at N145 has been largely subsidised, this is the best opportunity the government has to remove subsidy because in the real sense all the addition that subsidy fills has completely been removed.
“Government can have a physical adjustment and take money meant for the subsidy to support the foreign reserve so that our exchange rate will be balanced.”
He advised that if the amount of PMS must remain at N145 per litre, the federal government should publicly announce that it has to remove subsidy on oil.
“If they want to subsidise, the price of PMS can go as low as 80-85 naira per litre but if it must remain the same N145, the government must make an announcement it longer pays for a subsidy so the money for subsidy should now fill the shortfall of our revenue that we must have lost to the effect of coronavirus on the global oil that makes economic sense.
“If we say we have lost money and we are still paying subsidy, then something is wrong somewhere, the calculation will not add up,” he said.
Also, an expert in resource governance, Dauda Garba, said even though the oil prices fell, other associated expenses are likely to experience a hike because of the coronavirus outbreak.
He cited the closure of industries as part of what may affect the cost of the freight of crude, given that with time shipping companies will also be affected.
He also said refineries will be affected by way of a shutdown.
“Generally, the companies that will manage to function during the crisis might decide to raise prices based on the cost of doing business and available money to pay for goods and services,” he said. “If that happens, the situation has the potential to erode whatever may be seen as gain from fallen crude price.”
“The present situation is still evolving and foggy, and as such too early to precipitate the likelihood of a reduction in petroleum products because of a reduction in the landing cost of the prices of products,” he said.