Fuel Subsidy Removal: what will determine price of petrol in Nigeria?
Since 1977, when fuel subsidy was fully introduced following a hike in the price of petroleum in the global market around 1970, Nigerians have become accustomed to buying refined petroleum products, particularly Premium Motor Spirit (PMS), at a subsidized price.
Over the years, the scheme has attracted criticisms, with many politicians and financial analysts claiming that it is both fraudulent and unsustainable, and only serves the interest of the rich more than the poor it was intended for.
President Bola Tinubu’s comment during his inaugural address on May 29, 2023, reaffirming what the 2023 budget had already provided for, caused panic as petrol prices increased by over 100% and queues returned to fuel stations for two days. The subsidy is expected to end by the end of June 2023, but pump prices at different locations, from Lagos to Umuahia and Port Harcourt, have remained around ₦500, with an uncertain fear that prices could even go up.
How price of petrol will be Determined
Created in August 2021 in accordance with the Petroleum Industry Act 2021, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) was tasked with providing a legal, governance, regulatory, and fiscal framework for the Nigerian Petroleum Industry, as well as the development of host communities. It merged three defunct regulatory agencies: the Petroleum Products Pricing Regulatory Agency (PPPRA), the Petroleum Equalization Fund {Management} Board (PEFMB), and the Midstream and Downstream Divisions of the Department of Petroleum Resources (DPR). The NMDPRA inherited the responsibility of overseeing Nigeria’s entire petroleum sector, including the fixing of petrol prices, from the PPPRA.
With the removal of fuel subsidies, it could be said that the Nigerian petrol sector has been fully deregulated, a process that began over two decades ago with the introduction of the Oil and Gas Reforms Committee (OGRC) during the administration of Umaru Musa Yar’Adua. Petrol prices will now be determined by market forces.
“As far as we are concerned in the NMDPRA, this is not like before when the PPPRA fixed the price; in a deregulated market, it is the market forces that dictate the price,” said Farouk Ahmed, Chief Executive of NMDPRA, on June 2, 2023, in Abuja.
The price of crude oil fluctuates due to global market forces, including supply and demand, and the cost of importing petrol to Nigeria is often affected by market volatility. Over the years, the Nigerian government has paid a stipulated amount for the price of imported petrol per litre.
In March 2023, Mele Kyari stated that the landing cost of petrol was ₦312, with the federal government subsidising over ₦200 per litre.
“Today, by law and the provisions of the Appropriation Act, there is a subsidy on the supply of petroleum products, particularly PMS imports into our country. In current data terms, three days ago, the landing cost was around ₦315/litre,” said Kyari.
He added, “Our customers are here; we are transferring to each of them at ₦113/litre. That means there is a difference of close to ₦202 for every litre of PMS we import into this country. In computation, ₦202 multiplied by 66.5 million litres, multiplied by 30 will give you over ₦400 billion of subsidy every month.”
On June 16, 2023, the House of Representatives voted against the motion to suspend the alleged import license granted to Dangote Refinery to become the country’s sole importer of petrol. Whether other importers are granted license to import petrol into the country, it remains uncertain at what price petroleum the importers will set their prices, which should be affordable for Nigerians. It is expected that prices will continue to fluctuate in relation to the global oil price. However, it is believed that Dangote Refinery, which is expected to release its first refined petroleum product by the end of June, will help reduce the cost of petrol.
