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Experts pick holes in pump pricing of petrol, proffer solutions

Experts give their views as Nigerians grapple with the effects of an increase in petrol pump price.

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The recent sharp increase in the pump price of petrol has been greeted with shock and condemnations from  Nigerians, as it is coming at a time the global price of crude oil dropped or been static at best. 

This is also happening at a time, where Nigerians are grappling with the devastating impact of the coronavirus pandemic on the economy, leading to a significant drop in the income of Nigerians.

This price increment is the resultant effect of subsidy removal, and full deregulation of the downstream oil sector by the Federal Government, which has been on the policy agenda of past governments, starting with Olusegun Obasanjo’s administration to the present administration of Muhammadu Buhari. This is further exacerbated by the fact that, the country imports over 90% of its refined petroleum product, athe refineries have not been working optimally. 

While announcing the implementation of the full deregulation of the downstream oil sector, with the removal of the existing cap on fuel prices, the Petroleum Products Pricing Regulatory Agency (PPPRA), noted that henceforth the pump price would be fully determined by market forces.

In response to some comments and innuendos, the Minister of State for Petroleum, Timipre Sylva, said the deregulation policy, was to ensure economic growth and development of the country. He insisted that it was unrealistic for government to continue to subsidize petrol, as it had no economic value.

Sylva explained that subsidy was benefitting mostly the richrather than the poor and ordinary Nigerians. He said the policy is in line with the global best practiceas the government will continue to play its traditional role of regulation, to ensure that this strategic commodity is not priced arbitrarily by private oil marketing firms.

The importance and critical nature of petrol seems to be what is driving the condemnation and protests amongst many Nigerians. This is because the demand for petrol is not price elasticwhich means, an increase in the price of petrol, does not necessarily produce a decrease in demand, due to the importance of the product in driving different sectors of the economy.

One of the most critical issues that is generating intense debate on the deregulation policy of the downstream oil sector, visavis the sharp increase in the pump price of petrol is, why the increase?  

Especially, when you consider that there has not been any major increase in the global price of crude oil, which is the main component in determining the pump price of petrol. In fact, the price of crude oil has been on a decline recently.   

Recall that, Pipelines and Product Marketing Company (PPMC), a subsidiary of NNPC, in an internal memo, to oil marketers and stakeholders, increased the ex-depot price of fuel from N138. 62 per litre to N151.56 per litre. Some analysts have suggested that the increase could be attributed to the high exchange rate, following the devaluation of the naira against the dollar, and rising costs in the value chain. But the very critical question is, is the devaluation of the naira enough to drive such increase?

The Managing Director of 11 Plc (formerly Mobil Oil Plc), Adetunji Oyebanji, who also doubles as the Chairman of the Major Oil Marketers Association of Nigeria (MOMAN, had about a fortnight ago, said the retail pump price of petrol should be around N155 per litre 

In his analysis of the development, Professor Adeola Adenikinju, Director, Centre for Petroleum Energy Economics and LawUniversity of Ibadan said, The major drivers of PMS price in a deregulated environment are the price of crude oil and the exchange rate. However, in many countries, governments also levy indirect taxes on petroleum products, to fund government road and other developmental projects, because of their inelastic demand.

“In Nigeria, NNPC gets the exchange rate at the official rate of about N386/$1. At that exchange rate, and given the current crude oil price of about $42.60 per barrel for Bonny Light, the current pump price of PMS of around N151.56 per litre is not justified by this analyst’s calculations, even if other cost components like distribution and marketing margins are included, except if BDC exchange rate or other charges are included.

He expressed his support for the liberalization of the petroleum downstream sector, that will encompass opening up the sector to all players, not just NNPC. He said we need real competition in the market place, as that is the only way to bring effective competition and allow retail price to reflect marginal opportunity costs of PMS.

Going further he said, We found ourselves in an embarrassing position as a major oil exporting country, that is also a major importer of refined products. A substantial part of what constitutes the costs of refined products now, including taxes in importing countries, shipping, finance costs, ports charges, lightering charges etc., are all avoidable costs, if we have a thriving and efficient domestic refinery sector.

“There is currently some opaqueness in the activities of the NNPC in the current subsidy system. The government is losing out on how much the NNPC transfers to the federation accounts for handling the government share of crude oil. NNPC is charging the government and Nigerians, not just the under-recovery amount, but also nebulous charges like costs of pipeline repairs, and estimates of crude oil losses.’’ 

On his own part, an Oil and Gas Expert, Olumide Ibikunle, disclosed that the global crude oil prices are majorly linked to the price of the final product, which are refined products like petrol, diesel, kerosene, and then foreign exchange. However, he admitted that there are other elements in the pricing template.  

He said, You need to realize thatthere are other elements of the pricing template. I just mentioned 2 of the most important ones, which are the exchange rate and the crude oil prices. There are other items like international shipping cost, which is also a key part of itlithering costs; freight costs, also depending on the availability of tankers for instance, if tankers are not available in the international market to ship refined productsthe cost of moving refined products also increases. 

He said that at best, what we have is partial deregulation, as government is trying to guard against the volatility of the global crude oil priceswhich changes on a daily basis. He pointed out that, it is not good to have prices of petrol fluctuate every day at the retail stations. Hence, the introduction of price modulation mechanism by government, to manage those volatilities. 

Olumide also said, These products are ordered in advance. I don’t need PMS today and place the order today. I place the order 2 or 3 months in advance. You must realize the dynamics at that time versus what it is now, might be different. so that consideration is also something that fits into the price consideration,and we must also factor that in.”

“So, if prices are N160 today, perhaps it is reflective of the $46 or $45 per barrel, that we saw 2 months ago. Hence, what you see in October or November, will be reflective of what you see in September,he concluded. 

It does seem the recent increase is driven mostly by the exchange rate, but inability to get our refineries working at optimal capacity, government taxes, and the inefficiencies in the system, which is superintended by the Federal Government. 

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ENERGY

FG to meet with State Governors over electricity, fuel prices

The State Governors and the FG are set to meet in order to discuss the issues of electricity and fuel pricing in the country.

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The  Federal Government has disclosed that it will meet with State Governors and the Nigerian National Petroleum Corporation (NNPC) on Thursday to find solutions to issues of fuel and electricity pricing in Nigeria.

This was disclosed by the Minister of Labour, Chris Ngige, in a meeting with newsmen in Abuja after the FG met with organised labour.

The Minister added that the ongoing meetings with organised labour had been peaceful so far and stated that the issue about PMS prices was a work in progress that would also involve the Governors at the NEC meeting.

As for the issue of the price of PMS, it is a work in progress. The governors are to discuss this on Thursday at the National Economic Council and hopefully there will be a way out of the situation,” he said.

Mr Ngige said that organised labour also handled negotiations on the topic of electricity price tariffs and would continue negotiations on the topic.

Meanwhile, the NLC President, Mr Ayuba Wabba, said that Labour was still not in full agreement with the report on PMS pricing.

“This means that we import 100 per cent of all the PMS used in the country, whereas we have refineries” he said.

“The reports were presented and we pointed out areas that we are not comfortable with and also made some suggestions which will form the basis of decisions on the matter,” he added.

What you should know 

Nigerian National Petroleum Corporation (NNPC) last week assured organised labour and Nigerians that there was no plan to increase the price of Premium Motor Spirit (PMS), otherwise known as petrol, in the month of February.

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ENERGY

FCCPC to begin electricity billing enforcement

The Federal Competition and Consumer Protection Commission says it will commence enforcement of the NERC billing cap order.

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The Federal Competition and Consumer Protection Commission (FCCPC) announced that it will launch a billing capping order enforcement of the Nigerian Electricity Regulatory Commission (NERC) to protect Nigerian consumers.

This was disclosed by Mr Babatunde Irukera, the Executive Vice Chairman of the commission in an interview with NAN on Sunday in Abuja. He disclosed that the scheme was necessitated by multiple customer complaints on billing.

“There are certain industries that require special treatment, one of them is electricity,”he said.

He added that the Commission plans to implement stronger enforcement in 2021 and has commenced talks with the NERC for it.

“Secondly, we want to plan a more strategic approach to intervening in the complaints.

“And so through the year, periodically, we take some of our teams to locations where we have seen that there are a lot of complaints and spend some time there ensuring that DisCos address complaints to make sure that issues that people are dissatisfied with are resolved.

“That is a very important one for that sector this year,” Irukera said.

What you should know 

  • Recall it was reported that the Nigerian Electricity Regulatory Commission (NERC) announced that 62.63% of electric customers in Nigeria were under the estimated billing package as at September 2020.
  • The Federal Government also revealed that electricity consumers who paid for meters under the Meter Asset Provider (MAP) scheme, will have a refund of their money.
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ENERGY

World Bank to boost Nigeria’s power distribution with $500 million

World Bank has approved $500 million to support DisCos in Nigeria.

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The World Bank has approved $500 million to support Nigeria in improving electricity distribution in the country.

This was disclosed by the global financial institution firm via a statement seen by Themoneymetrics on Friday.

In the statement, Shubham Chaudhuri, World Bank’s Country Director, explained that the project will help boost electricity access by improving the performance of the Electricity Distribution Companies (DisCos) through a large-scale metering program desired by Nigerians for a long time.

Also, financial support would be provided to private distribution companies only on achievement of results in terms of access connections, improved financial management and network expansion.

Chaudhuri said, “Improving access and reliability of power is key to reduce poverty and unlocking economic growth in the aftermath of the global COVID-19 pandemic.

“The operation will help improve the financial viability of the DISCOs and increase revenues for the whole Nigerian power sector, which is critical to save scarce fiscal resources and create jobs by increasing the productivity of private and public enterprises.”

He added that the Nigeria Distribution Sector Recovery Program (DISREP) will help improve service quality, as well as the financial and technical performance of distribution companies by providing financing based on performance and reduction of losses.

What it means

The World Bank initiative will ensure that the DisCos make necessary investments to rehabilitate networks, install electric meters for more accurate customer billing and to improve quality of service for those already connected to the grid.

It will also help strengthen the financial and technical management of DISCOs to improve the transparency and accountability of the distribution sector.

The program will reduce the CO2 emissions of the Nigerian power sector by reducing technical losses, increasing energy efficiency, replacing diesel and biomass with grid-electricity, and investing more in on- and off-grid renewable energy.

What they are saying 

Nataliya Kulichenko, Task team leader for the project, said,

“The program will only be eligible to those DISCOs that transparently declare their performance reports to public with actual flow of funds based on strict verification of achieved performance targets by an independent third party. The program would also make meters available at affordable prices to all consumers in Nigeria, a long pending demand of Nigerians.”

What you should know

  • About 85 million Nigerians don’t have access to grid electricity. This represents 43% of the country’s population and makes Nigeria the country with the largest energy access deficit in the world.
  • According to World Bank, the lack of reliable power is a significant constraint for citizens and businesses, resulting on annual economic losses estimated at $26.2 billion (₦10.1 trillion), which is equivalent to about 2% of GDP.
  • According to the 2020 World Bank Doing Business report, Nigeria ranks 171 out of 190 countries in getting electricity and electricity access is seen as one of the major constraints for the private sector.
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