Legal Nigeria

PMS pricing: Stakeholders lament government’s indecision

Pays N155b subsidy on 2.9b litres of petrol in Feb., March

Despite not being captured in the 2021 budget, an average of N155 billion is being paid by the Federal Government to subsidise 2.9 billion litres of Premium Motor Spirit (PMS) for February and March.nullnull

Stakeholders in the energy sector, who had raised the alarm on implications of the move, especially the implementation of the 2021 budget and on the country’s struggling economy said projected benefits from the supposedly deregulated downstream sector of the petroleum industry faces a further threat, amidst back and forth on the Petroleum Industry Bill.

Petroleum Products Pricing Regulatory Agency (PPPRA) had last week revealed that the expected pump price of petrol had climbed to N212.6 per litre going by market realities. 

As the government holds the price at N162 per litre, which was last reviewed in November last year, about N50 is now being paid on the average of 50 million litres of petrol consumed in the country daily. nullnull

Exact figure of daily consumption used to determine subsidy has been difficult for the Ministry of Petroleum Resources to determine. After the Federal Government shut the borders to address smuggling, the Minister of Petroleum Resources, Timipre Sylva had said the daily consumption dropped from 60 million to 52 million, but the Department of Petroleum Resources countered that revelation, saying the figure stands at about 38.9 million litres per day. The Guardian, therefore, adopted an average daily consumption of 50 million.

If the Minister’s figures are anything to go by, Nigeria is expected to consume 2.9 billion of petrol for the 59 days in February and March. This brings the total monthly subsidy to about N77.5 billion and N155 billion for the month of February and March.

Latest template by PPPRA had shown that the ex-depot price stands at N206.42 per liter, as the landing cost for petrol per liter is N189.61. nullnull

Industry players have however raised concerns that the government has once again jeopardised efforts to deregulate the downstream sector of the petroleum industry, thereby endangering the budget implementation and hindering the growth of the Excess Crude Account.

Following the economic challenges that resulted from the COVID-19 pandemic, the Nigerian government had opted for full deregulation of the downstream, removing subsidy from petrol, a development which has increased the price, forcing citizens to accept international market forces, especially crude oil price and exchange rate.

With crude oil prices going up as economies reopen, labour had returned to its earlier position after Minister of State for Petroleum Resources, Timipre Sylva and the Group Managing Director of Nigerian National Petroleum Corporation (NNPC) Mele Kyari hinted of a price increase in late January.

President of NLC, Ayuba Waba had told The Guardian that decisions that affect the larger population would not be tolerated, stressing that Nigeria is being turned into a commodity country where products are only dumped.
The pump has since turned dramatic as the government leverage the state oil company to keep the price under control for fear of backlash. 

With the free fall of the naira against major currencies and a rapidly growing inflation, labour’s agitation comes amidst the inability of the government to fully implement an N30, 000 minimum wage as unemployment figures hit the roof.  

PricewaterhouseCoopers’s Associate Director, Energy, Utilities, and Resources, Habeeb Jaiyeola, insisted that since the subsidy is not covered under the current appropriation, and given the current economic situation, the government must urgently arrive at a decision that would be most beneficial for the economy.

He also said the growth of the downstream sector remains endangered if the government continues to prevaricate and pay the subsidy.

“Subsidy cannot support a fully deregulated downstream sector and with continuous payment of subsidy, which we all know, will be significant in terms of government budgets, it will obviously not allow the government to invest,” Jaiyeola said. 

Jaiyeola said there was a need for holistic stakeholders engagement to ensure that people understand the prevailing economic situation.

Mineral/energy resource economist and former president of the Nigerian Association for Energy Economists (NAEE), Wunmi Iledare, says with the real subsidy not budgeted or approved by the National Assembly, the payment has been an under-recovery by NNPC, adding that that may continue until PIB 2020 becomes an Act.

“Unfortunately, with the double speaking you hear, here and there, deregulation is on the line with respect to PIB 2020. So, of course, the government has the power to sustain anything during its term and pass on the consequences to the next administration. That has always been the case,” Iledare said.

The professor said the power to deregulate the sector remained in the hands of the Minister of Petroleum, designated today as the Executive President of the Federal Republic of Nigeria. 

Full deregulation of the downstream petroleum sector is critical for the Nigerian economy, Michael Faniran told The Guardian, warning that the economy, which is just recovering from the recession, may sink further. 

“I will rather than the country subsidizes production and not consumption. The poor are actually subsidizing the lifestyle of the rich and the middle class,” Faniran said.

According to him, deregulation is needed to promote competition in the downstream sector and encourage investment in the sector, adding that the pump price would eventually come down when competition sets in and many marketers are able to import the product into the country, unlike the current practice where NNPC remained the sole importer.

Faniran equally urged the Federal Government to take advantage of the ongoing legislative process on the Petroleum Industry Bill (PIB) to ensure deregulation and liberalization receive legal backing and sustainability.
Program Coordinator – Nigeria Natural Resource Charter, Tengi George-Ikoli noted that being heavily indebted and relying on the oil sector to fund debt obligations, while income from oil production is limited by OPEC restrictions, subsidy payment would worsen prevailing situation. 

“The economy has not fully recovered from the effects of Covid-19 and it is unlikely to fully recover for some years. The Government’s stated deregulation policy in March 2020 was in recognition of Nigeria’s inability to sustain the subsidy payments to the ‘few’. Nigeria’s fiscals have only worsened given the effects of the pandemic, fall in oil prices and our increased debt in that period. If subsidy remains, the government has inadvertently reversed its deregulation policy and taken Nigeria a number of steps back,” she said.
MEANWHILE, the Department of Petroleum Resources (DPR), yesterday, sealed some fuel pumps that were under dispensing Premium Motor Spirit as the agency pledged to ensure compliance with the approved pump price band.

Zonal Operations Controller, DPR, Lagos, Ayorinde Cardoso, in a release by the agency’s spokesperson, Paul Osun said seven petrol stations inspected in Lagos were selling fuel to customers between N162 to N165 per litre, which was the approved price band.

The inspection was conducted around Ikoyi, Victoria Island and Lekki areas of the state.

“This surveillance visit is part of our regular function and we are coming out today to check product availability and product quality because we heard some information about water ingress in some of the tanks.

“We’re going out to check that. Also, we are looking at consumer protection so that they are not short-changed by under- dispensing.

“We have gone round to about seven stations and they are all selling within the approved pump price band,” he said.

Cardoso said the DPR sealed three fuel pumps that were under dispensing in one of the petrol stations, pending when they were rectified and re-evaluated by the regulatory agency.

According to him, though the agency has not discovered any incident of hoarding of petroleum products in the zone, its officials will continue to intensify surveillance on petrol stations.

Source: Guardian Newspaper