Economic Mismanagement
OpenLife Nigeria reports that arising from policy somersaults, Petrol price may rise again to as much as N900 per litre as Naira nears N1,000 in exchange to the United Sates of America Dollar.
This is happening following the unofficial re introduction of subsidy into the petroleum opaque game.
Bola Tinubu had, on May 29, announced the end of the subsidy regime during his inaugural address.
But going by analytical projections, the federal government may spend about N1.68tn as subsidy on Premium Motor Spirit, popularly called petrol, from September to December this year.
Clearly, PMS dealers stated on Thursday that the pump price of petrol should be between N890 to N900/litre based on the fall of the naira against the United States dollar and the surge in the price of crude in the international market.
Petrol currently sells at between N598 and N617/litre depending on the location of purchase, fuelling suspicion that the commodity is being subsidised by government.
The government subsidises PMS through the Nigerian National Petroleum Company Limited. NNPCL is the sole importer of PMS. Other marketers stopped PMS imports due to their inability to access foreign exchange.
The removal of subsidy led to an increase in the pump price of petrol from about N198/litre in May to the current rate of N617/litre. But the fall of the naira coupled with the rise in crude oil price have continued to mount pressure on the cost of PMS.
Dealers in the downstream oil sector explained that the cost of crude oil and the exchange rate of the naira-dollar accounted for over 80 per cent of the cost of PMS.
Brent crude, the global benchmark for oil, rose to about $95/barrel on Thursday. It had peaked to $97/barrel the preceding day, which was the highest figure in 2023.
Oil had started the year at about $82/barrel, dipped to $70/barrel in June, but traded above $94/barrel in the past week.
OpenLife Nigeria reported earlier that the federal government paid N169.4bn subsidy in August, 2023.
Quoting a Federal Account Allocation Committee document, the report said the Nigerian Liquefied Natural Gas paid $275m as dividends to Nigeria via NNPCL.
NNPCL, according to the report, used $220m (N169.4bn at N770/$) out of the $275m to pay for the PMS subsidy in the review month.
“I told you earlier that there is no way that the government will sustain the price of petrol at N617/litre without paying subsidy on it, going by the continued fall of the naira,” the National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria, Chief Chinedu Ukadike, said in an interview with journalists.
He added, “The dollar is almost N990 at the parallel market currently, and you can see the effect of this on the pump price of diesel. Diesel is close to N1,000/litre, so the retail price of PMS should be around N890 to N900/litre.
“Therefore, it is better the government assists the masses by paying subsidy. From our records, in the United States, the super product or petrol is sold around $3.9, which is close to about N3,000/litre.
“The premium product is sold at about $2.89, which is over N2,000/litre. And if you check in other African countries you will find out that the product is being sold at between N1,200 and N1,500. But going by the forex rate in Nigeria, it should be around N900/litre.”
By subtracting the ex-depot cost of N600/litre from the projected unsubsidised rate of N890/litre, that the government may have been spending about N290/litre as subsidy currently.
In July, data from the Nigerian Midstream and Downstream Petroleum Regulatory Authority showed that between June 1 to June 28, 2023, which was described as the post-deregulation period, the total petrol consumption across the country was 1.36 billion litres, while the average daily consumption was put at 48.43 million litres.
With an average daily consumption of 48.43 million litres and an estimated subsidy of N290/litre, the government could be incurring N14.04bn as subsidy daily, while this could rise to N421.3bn monthly.
This could rise to as high as N1.68tn for the months of September, October, November and December 2023, should the naira continues its fall against the dollar and crude price maintains its upward surge.
Meanwhile, Nigerians continue to lament the high cost of living amid low income, calling on the government to take drastic measures to halt the pains.
As the cost of living soars, the financial crisis is already taking a toll on employees’ mental health and well-being, thereby affecting productivity at the workplace.
Majority are lamenting that their monthly take-home pay is a far cry from the current high cost of living, a development that may have prompted government to be flirting with the idea of wages increase.
Since Bola Tinubu removed fuel subsidy with no measures to cushion the effect on the citizens, the negative effects on households have skyrocketed.
Already, with the current inflation figures of about 25.8 per cent for August against a minimum wage of 30,000 as well as zero safety and welfare programmes, incomes have become insufficient to keep many households running.
The situation is already hurting Nigeria’s poverty and production index.
In the last one year, the nation has witnessed perpetual rising inflation, commodity price instability, reduced industry capacity utilisation and dwindling purchasing power of Nigerians, all of which have further dragged many enterprises out of existence and Nigerians below the poverty lines.
The Director-General of the Nigeria Employers’ Consultative Association (NECA), Adewale-Smatt Oyerinde, recently lamented the rising agitation of the masses, owing to the rising cost of living,
compounded by the increasing cost of Premium Motor Spirit (PMS) and the threat of increment in electricity tariff, among others.
Suggesting immediate short-term considerations, the NECA chief said it is imperative for the government to quickly take deliberate actions to mitigate the persistent rise in inflation to address the fast-accelerating cost of living in the country.
Such policy actions, Oyerinde said, may include price stability mechanisms, periodic feedback on the progress of the ongoing work at the refineries, reversal of the Value Added Tax (VAT) on AGO, and suspension of the planned upward review of electricity tariff.
About Author
