Conflict Erupts Between NNPCL and Marketers on Subsidy, Fuel Operators Set Petrol Price at N1,200 per Litre
On Tuesday, a renewed clash emerged between the Nigerian National Petroleum Company Limited and fuel marketers, represented by the Independent Petroleum Marketers Association of Nigeria, regarding the removal of petrol subsidies. This dispute unfolded amidst the devaluation of the naira against the United States dollar in both the official Investors and exporters Window and the parallel market.
At the official market, the local currency concluded at 998/dollar, while it traded at 1,225/dollar in the black market on Tuesday. With the naira’s decline, economists and oil marketers asserted that the subsidy on Premium Motor Spirit (PMS or petrol) had been increasing.
However, the NNPC swiftly countered these claims, insisting that it was recuperating its entire importation cost for petrol, contradicting the perspectives of critics.
During a live television program on ChannelsTV on Sunday, the Chief Executive Officer of Financial Derivatives Company, Bismarck Rewane, explained that the fuel subsidy was not removed but reduced. Similarly, oil marketers conveyed on Tuesday that the subsidy on petrol was escalating due to the weakening naira against the United States dollar and the rising cost of crude oil. They argued that in a free market, PMS should sell for N1,200/liter.
Currently, petrol, exclusively imported by the NNPCL, is sold for between N617/liter to N660/liter, depending on the location of purchase in Nigeria. Dr. Muda Yusuf, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise, acknowledged partial subsidy on petrol but emphasized that the government subsidized the commodity for political, social, and economic reasons.
Contrary to these assertions, the Chief Corporate Communications Officer of NNPCL, Olufemi Soneye, dismissed economists’ and marketers’ positions as assumptions, insisting that the Federal Government had ceased subsidizing petrol. President Bola Tinubu, in his inaugural speech on May 29, 2023, declared the removal of subsidy on petrol, a move effectively implemented by NNPCL the following day.
Before Tinubu’s declaration, the pump price of petrol was below N190/liter but surged to over N500/liter after the President’s statement and further increased to over N600/liter a few weeks later. In response to queries about NNPCL subsidizing petrol, Soneye emphasized the company’s focus on substantive matters over responding to assumptions.
“At NNPC Ltd, we prioritize national development through energy security and sustainable growth. We reiterate that the Nigerian government does not pay subsidies on fuel; we recover full costs from our imported products.
“As a global energy company, our focus remains on fostering a vibrant and energy-secure Nigeria.”
Bismarck Rewane, during a live television program on Sunday evening, clarified that the subsidy on petrol was not completely removed but rather reduced. He emphasized the impact of this subsidy reduction on salary earners in Nigeria.
He stated, “During the inauguration, it was announced that the (fuel) subsidy was eliminated, but in reality, the subsidy was merely reduced.” Supporting his argument, he elaborated, “This reduction involves the convergence of exchange rates and the consolidation of multiple windows into one. The result of this is a transfer of funds from consumers to the government.”
“Subsidies are reversed taxes; if you reduce them, you increase the people’s taxes and reduce their income. What has happened is that government revenue has increased by 44 percent between May and June (2023). Money has been transferred to the government but what is the government doing with it?
“The consumers, on the other hand, had a minimum wage, which in dollar terms was $40 in 2002. In 2019, it was about $70, but it has now been reduced to $24.”
Chief Ukadike Chinedu, the National Public Relations Officer of the Independent Petroleum Marketers Association of Nigeria, expressed that the subsidy on petrol was increasing. According to him, the projected cost of the commodity in a free market should be approximately N1,200/liter.
“To be pragmatic in this analysis let’s consider the cost of petrol today in the United States. For Premium petrol, it is $2.99, while super petrol sells for $3.15 or $3.10 depending on the part of the country where you are making the purchase.
“Now, $3 in Nigeria is over N3,000, because a dollar in the parallel market is over N1,000. You can also see the cost of diesel, which is over N1,000/liter, and it is important to state that petrol is usually higher in price than diesel in a free market.
“So if you consider the cost of diesel, dollar, and other international factors, the price of petrol in Nigeria should be around N1,200/liter, but the government is subsidizing it, which to an extent is understandable,” he stated.
Ukadike emphasized that he had previously clarified that the government was adopting a quasi-subsidy approach, wherein “instead of completely removing the subsidy by 100 percent, the Federal Government opts to eliminate approximately 50 percent of it.”
Despite this, the IPMAN official conveyed optimism once more, anticipating a reduction in the cost of refined petroleum products when the Port Harcourt and Dangote refineries commence production.
“I also believe that there will be a reduction in the prices of petroleum products this year when you consider what the government is currently doing. The coming onboard of the Port Harcourt refinery and the supply of crude to the Dangote refinery are good developments in the sector.
“Their operations will help stabilize the price of PMS and other petroleum products in Nigeria because it will definitely cut down the importation of products,” Ukadike stated.
The Chief Executive Officer of the Centre for the Promotion of Private Enterprise stated that the retention of the subsidy was partial, attributing it to the economic, social, and political implications associated with such a decision.
Yusuf said, “To protect the citizens from further hardship is the reason why the government seems to have applied the brakes on subsidy removal. We are all witnesses to the pain and hardship that citizens are going through.
“So when you are adopting some of these policies, especially these liberal economic policies, it comes to a point where you have to moderate your position for social reasons.
“Just as the World Bank said, if we want to leave the price fully to market forces and liberal economic policies, the fuel price will be above N800/liter. Can any government that is sensitive to the feelings of its citizens allow that to happen?
“Even if economically that is the way to go, there must always be a human face to economics. So what the government has done is to moderate the reform, and that is why I think the government has insisted that the NNPC should still hold the price at the current level.”
Yusuf pointed out that the government needs to strike a balance between the benefits and the potential adverse effects of subsidy removal. He emphasized that eliminating the subsidy by 100 percent could exacerbate economic hardships.
“All of us who were saying that they should remove the subsidy, we can see that they have partially removed it now, but look at the consequences. Economically it will sound good, but socially and politically it is very costly.
“So those in government need to balance all those considerations. They need to balance economic, political, and social considerations. That is why we find ourselves in a situation where we have partial subsidies, both in petrol and electricity,” he stated.
The Federal Government maintained its stance, asserting that the cost of Premium Motor Spirit (PMS) should not fall below N750/liter in the absence of subsidy.
Furthermore, on the first day of official trading in the Investors and Exporters Window on Tuesday, the naira concluded at N988.46 per US dollar.
The naira witnessed an 8.97% decline, closing at N988.46/$ on the initial day of official trading in the Investors and Exporters Window, marking a notable drop from its closing rate of N907.11/$ on the last trading day of 2023, as reported by data from the FMDQ Securities Exchange. This downturn continues the troubling trend for the naira, making it one of the poorest-performing currencies throughout 2023.
According to Bloomberg, 2023 was a challenging year for the naira, with the national currency experiencing a significant 55% depreciation as of Thursday, December 28, 2023. Kyle Chapman, an FX markets analyst at London-based Ballinger & Co, identified the naira as the third worst-performing global currency in 2023.
This poor performance was attributed to a backlog of unsettled forwards, unfulfilled commitments of dollar inflows, and a two-decade high in inflation.
Chapman said, “The naira’s downward momentum is likely to continue through much of 2024, and its ultimate trajectory will depend on whether the CBN’s rhetoric transforms into concrete policy moves that drive up the flow of US dollars into Nigeria and shore up trust in the official market.
“If the CBN’s promised measures materialize and Tinubu’s government enacts structural changes to increase oil production or to drive foreign investment, there is plenty of opportunity for the naira to lift from its record lows. But a quick fix is unlikely, and further depreciation will come to counteract supply and demand imbalances.”
In its December Nigeria Development Update, the World Bank highlighted that the naira experienced a 41% depreciation against the US dollar in the official market and a 30% depreciation in the parallel market. The report emphasized that an increased volume of activity is essential for the naira to achieve stability in the official market.
It said, “Further monetary policy tightening is expected to help underpin the value of the naira. However, there is also a need to increase FX supply in the market. Facilitating FX flows, especially from all exports, through the NAFEM can help provide additional volumes in the official window that can help provide stability.
“In addition, clarity on the CBN’s net reserve position, and on the CBN’s continued progress in clearing the FX backlog, would also strengthen market confidence.”
On Tuesday, the Nigerian National Petroleum Company Limited (NNPCL) reported a total of 112 cases of crude oil theft in the Niger Delta within one week, spanning from December 23, 2023, to December 29, 2023. During this period, the company identified 42 illegal refineries in various locations across the oil-rich region.
The documented locations of these incidents included Konsho and Tebidaba in Bayelsa State, Obokofia in Imo State, as well as Ogidigben, Mereje, and Obodo Omadina in Delta State. The NNPCL revealed these findings through an official documentary posted on its social media handle, indicating that illegal refineries in Umuire, Abia State, and Upata in Rivers State were also located and dismantled.
In addition to the discovery of illegal activities, the oil firm disclosed that 14 instances of illegal connections were uncovered in different parts of the Niger Delta. Moreover, a tunnel covering an illegal connection was found in Owaza, Abia State. The report also highlighted the detection of 10 cases of vandalism during the same week.
In the two-minute and 44-second documentary, the Nigerian National Petroleum Company Limited (NNPCL) reported that “Illegal storage sites were discovered in Ebocha and Ton Kiri in Rivers State where oil pits were found.”
“In Ogbia, Bayelsa State, sacks of crude oil were discovered. More illegal storage sites were uncovered in Urhonigbe, in Edo State; Ekuku-Agbor and Bomadi in Delta State.”
The company reported that 22 wooden boats transporting stolen crude oil were found in Okrika and Tombia in Rivers State, as well as Emereje in Delta State. Additionally, during an operation, 11 vehicle arrests related to oil theft were made in Delta State. Out of these incidents, eight occurred in deep water, 46 in the eastern region, 32 in the central region, and 26 in the western region.
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The company reported that 22 wooden boats transporting stolen crude oil were found in Okrika and Tombia in Rivers State, as well as Emereje in Delta State. Additionally, during an operation, 11 vehicle arrests related to oil theft were made in Delta State. Out of these incidents, eight occurred in deep water, 46 in the eastern region, 32 in the central region, and 26 in the western region.
Nigeria faces significant financial losses amounting to billions of naira due to oil theft, making it challenging to meet the production quota sanctioned for the country by the Organization of the Petroleum Exporting Countries (OPEC). The persistent activities of oil thieves contribute to this ongoing challenge in the nation’s oil industry.
