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Concerns Over Speculations Of New Fuel Price Hike

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The current debate on the need to further increase the pump price of petroleum product initiated by the one-day meeting of present Group Managing Director (GMD) of Nigerian National Petroleum Corporation (NNPC) with the former GMDs of the Corporation goes to prove the sensitive place of fuel in this economy.

The meeting which was attended by Dr. Maikanti Kacalla Baru, GMD, NNPC alongside the immediate past GMD and the current Minister of State for Petroleum Resources, Dr. Emmanuel Ibe Kachikwu as well as ten other former GMDs of the Corporation did a strategic review of the state of the nation’s oil & gas industry and proffered solutions to move the industry forward.

According to a press statement issued by the Garba Deen Muhammed, Group General Manager, Group Public Affairs Division, NNPC, these oil &gas management gurus expressed serious concerns on the current situation of the industry.

Among their concern is the declining production level and its attendant consequences on the environment and the nation’s revenue. According to the report, the past and present bosses of NNPC further agreed that if the current situation remains unchecked, it could lead to the crippling of the Corporation and the nation’s Oil & Gas Sector, the mainstay of the Nigerian economy.

They then bold went ahead to proffer their heartfelt solution to the challenges one of which is the need to remove the price cap of N145 per litre place on premium motor spirit (PMS) commonly known as petrol.

According to Garba’s press statement, “The former GMDs commended NNPC for resolving the fuel supply crisis and urged the Corporation to emplace measures that will ensure sustenance of seamless supply of petroleum products nationwide. They however noted that the PMS price cap of N145/litre is not congruent with the liberalization policy especially with the Foreign Exchange rate and other price determining components such as crude cost, Nigerian Ports Authority (NPA) charges etc remaining uncapped.”

The call for the removal of the price came which is coming on the heel of a similar demand by petroleum product marketers across the country who blame the government FOREX policy for the request for price hike, though realistic but may have came at a wrong time. The situation is however compounded by the fact that the government had only last Wednesday declared that the country is in a Recession.

No wonder the proposed PMS Price hike has taken the central stage of economic debate since it was published on Sunday September 4, 2016.

Speaking on the how the nation got to this situation, a renowned Petroleum Economist and President, Nigerian Association for Energy Economics, (NAEE), Professor Wumi Iledarem, told Leadership Newspaper that concept of fixing a price of N145 per litre introduced by government in May this years was actually suppose to be a price filling not the price floor. He noted that petroleum marketers refuse to allow the system work itself out but merrily took the product’s price from N87 per litre to N145, stressing that the action then was uncalled for as it was not the intension of government then for PMS to be sold at the floor price from the beginning.

According to him, “Because the marketers converted price filling to price floor that is why now they want it to go up.” He explained that, “If they had gradually increased it from N87 per litre to may be N100 they would have not be having problems now, but they went for the wrong one in other for them to make profit during the time.”

Professor Wumi noted that at the time the marketers hike the price of PMS to N145 per litre the breakeven price of the product using the Exchange Rate of Dollar then was below N125 per litre.

For the fact that they went to 145 per litre that is why they are in trouble now, he submitted.

Explaining the details of what transpired then, Prof. Wumi said, “If you remember at that particular time, the Exchange rate was N285 to US$1 but now there is no place to get Dollar for N285 and that is why the marketers are struggling because they went too high at the exchange rate of N285.

It should not have been more than N120 per litre at that particular time and by now they would have the opportunity to get the price towards N145. But instead, they went for the jugular at that particular time. And as we know, they cannot on their own increase the price of petrol because the act that set up the Petroleum Products Pricing Regulatory Agency (PPPRA) as the price regulator is still there.”

Speaking in a similar turn, the Head of Energy Research, Ecobank Capital, Mr. Dolapo Oni, explained that the current template was adopted when the Dollar was about N315 in the parallel market and the Naira had not been floated then. He submitted that the best solution will be to take the last plunge and just remove cap on prices. It is probably the best in this market. Let competition regulate prices.

Meanwhile, some experts in the oil & gas industry believe that Nigeria needs a more holistic approach to the challenges facing the industry. Mr. Emeka Eni, the immediate past President of the Nigerian Gas Association told Leadership Newspaper that the way out is a holistic approach.

According to him, what is more important at this point is how to stabilise the nation’s economy from its point of strength which he said is the oil & gas industry. He noted that except the country’s leaders muster the political will to address the critical issues facing the industry it will continue to draft in the circle of crisis.

Marketers Set For New Fuel Hike As Nigerians Kick

In May this year,  as a measure to solve the intractable fuel crises, the present administration announced it has reviewed upward the price of petrol from N86.50 to N145 per liter.

Ibe Kachikwu, the minister of state for petroleum resources giving reasons for the action said it was the only way out of the exorbitant prices of N150 to N250 marketers were selling at the heat of scarcity.

Kachikwu further said that government had articulated many social protection programmes in the 2016 budget to cushion the effect the hike may have on the people.

“In order to increase and stabilise the supply of the product,  any Nigerian entity is now free to import the product, subject to existing quality specifications and other guidelines issued by Regulatory Agencies.

Oil marketers will be allowed to import PMS on the basis of FOREX procured from secondary sources and accordingly PPPRA template will reflect this in the pricing of the product.

Pursuant to this, PPPRA has informed me that it will be announcing a new price band effective today, 11th May, 2016 and that the new price for PMS will not be above N145 per litre” Kachikwu promised Nigerians.

But barely four months after the assurance, former Group Managing Directors of the NNPC, last weekend, called for an upward review of the price of  petrol, stating that the present price cap of N145 per litre is not in line with current economic realities.

 Marketers React

While the executive secretary of Major Oil Marketers Association of Nigeria (MOMAN) Femi Olawore said they have not been contacted on the new suggestion in a text message response to Leadership enquiry, the national president of the Independent Petroleum Marketers Association of Nigeria (IPMAN), Elder Chinedu Okoronkwo said a review is the only way to engender competition in the system.

In a telephone interview with our correspondent, Okoronkwo declared, “when government announced the cap, I argued that it is not healthy and will not produce the required result.

Investors have not shown much interest in the downstream sector because of price protection of petrol. Deregulation is the only answer to this, even at N145 per litre you find out that there is indirect subsidy”,  he said.

According to him, If the suggestion of the former NNPC GMDs is taken, investment will begin to flow into the sector and the issues of Modular refineries will encouraged.

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