Nigeria Returns to Subsidy Regime as Petrol Sells Below Landing Cost
President Muhammadu Buhari

Nigeria Returns to Subsidy Regime as Petrol Sells Below Landing Cost

An indication emerged that Nigeria has returned to subsidy regime as pump price of petroleum motor spirit sells below estimated landing cost.

CSL Stockbrokers Limited in a note this morning said the recent rise in crude oil prices has resulted in an increase in the landing cost of petrol to about N180 per litre.

However, the firm said this exceeds the current price of between N162-N165 per litre.

According to CSL Stockbrokers, the development means that Nigeria may have temporarily returned to the subsidy regime.

Market data showed that Brent crude price in the international market closed at US$56.42 per barrel on Thursday having maintain uptrend for most part of 2021.

Analysts recognise that there have been attempts in the past to remove the fuel subsidy.

 But, steep currency devaluation and an increase in crude prices in the international market which implies an increase in the landing cost, on many occasions have necessitated the continuation of the subsidy regime.

This was booked as under-recovery losses in the books of Nigerian National Petroleum Corporation, a state-owned enterprise.

In September, 2020 the Executive Secretary of the Petroleum Products Pricing Regulatory Agency (PPRA), Abdulkadir Saidu, had said PMS prices would henceforth be determined by the forces of demand and supply and the international cost of crude oil.

The agency said it would no longer release guiding price bands for Premium Motor Spirit (PMS).

According to him, the role of the agency would henceforth be to ensure that oil marketers do not profiteer, as petroleum marketers are now free to source for product and fix their prices.

In 2020, a steep decline in global crude prices triggered by the global pandemic completely wiped out the subsidy via significantly lower landing costs, paving the way for a reduction in the pump price of Petrol in mid-March.

Then, the PPPRA announced reduction in ex-depot price to N113/litre and official pump price to N125/litre.

CSL Stockbrokers recalled that since then, the PPPRA has gone on to raise fuel pump price to N135-N145/litre in April before implementing a reduction to N121.50 – N123.50/litre in June.

An increase to N140.80 – N143.80/litre in July was implemented and was raised again in August to N148 – N150/litre to reflect rising crude prices.

In November, the Nigerian National Petroleum Corporation however increased its ex-depot price which led to an increase in the pump price of petrol to between N168 and N170/litre.

Following a meeting with the Labour Union leaders on 7 December, the Minister for Labour and Employment, Dr Chris Ngige, announced that the Federal Government was going to reduce the pump price of petrol from N168 to N162.44 per litre effective 14 December.

The Minister, however, noted that the reduction will not impact government’s deregulation policy.

Petrol is currently being sold at between N162- N165 per litre in many filling stations across the country.

“We continue to reiterate that the removal of the subsidy on Petrol is a critical free-market reform in our view, and we believe it is beneficial to the economy and government finances.

“However, we have always expressed concerns that the timing may be inopportune and the government be forced to return to subsidy regime given the effects of the pandemic and recent hike in electricity tariffs on the already squeezed Nigerian consumer.

“This is because, another increase in fuel price may be the last straw that would break the camel’s back and will be met with severe backlash from the masses.

“Particularly as it will be coming immediately after the FG effected a significant increase in electricity tariffs in November”, CSL Stockbrokers explained.

Read Also: “Upward Price Review of PMS Signposts Sustain Deregulation”

Nigeria Returns to Subsidy Regime as Petrol Sells Below Landing Cost