The Federal Government of Nigeria under the leadership of President Bola Ahmed Tinubu is at a loss on how it will explain to Nigerians why the pump price of the premium motor spirit (PMS) commonly referred to as fuel has refused to rise beyond the alleged fixed prices nationwide amidst inflation, price of other goods and foreign exchange scarcity
By Lukmon Ojerinde
At the inaugural speech of President Bola Ahmed Tinubu on May 29, 2023, he had announced the removal of fuel subsidy. Same day scarcity of the premium motor spirit (PMS) hit the entire nation as its pump price fluctuated between N800 and N1,200.
Few days after, the Nigerian National Petroleum Company Limited (NNPCL), came to the rescue and pegged the commodity’s price at N570 and N670 depending on the part of the country.
As the President Tinubu administration rolled out its naira floating policy and harmonisation of the exchange rate, the dollar scarcity was to hit the FOREX market, forcing the escalation of dollar exchange to naira to as much as N2,000 to one dollar as at the last count.
Consequently, as an import dependent country, prices of imported goods skyrocketed. Inflation rose to as high as 28.92 percent, while food inflation rose to 33.93 percent.
It is common knowledge that even as insecurity heightened under Tinubu administration, farmers have deserted their farms, a situation that has forced the prices of food items to soar beyond the reach of the common man. Importers have drastically reduced their business turnover as dollar scarcity bites. Yet, in a dismal economic atmosphere where the prices of everything in the country have risen beyond control measures, the alleged unregulated pump price of the PMS has remained constant despite crude oil price fluctuations in the international market.
In retrospect, during the Obasanjo presidency, any little rise in the crude price would compel the government to increase the pump price of fuel. Surprisingly, in the past nine months of Tinubu government, fuel price had not been affected in spite of the inflation in the country. What is the Tinubu government’s magic that has kept fuel price constant? Where is the demand and supply push or pull that determine prices in economic parlance? Does it mean that the dollar exchange rate does not affect fuel import? Is Tinubu government in anyway subsidizing fuel without budget?
These posers keep agitating the minds of financial analysts who do not want to believe that there is normalcy in the PMS marketing. Last year, Atiku Abubakar, a former Vice President and the People’s Democratic Party’s (PDP) presidential candidate in the 2023 general election, had accused the current administration of subsidizing fuel through the back door. But the spokespersons to the Federal Government had refuted the allegation, claiming that there was nothing of such.
However, in recent times, despite the NNPCL’s claim that Nigeria had enough fuel reserve to meet demand, as well as claiming that fuel consumption had reduced to 50 percent since subsidy was removed, the current inexplicable fuel scarcity that is biting hard across the country has fueled the suspicion that the stable fuel price is being manipulated. A credible source alleged that fuel subsidy may still be going on but hidden from Nigerians. The source hinted that since NNPCL pays for refined fuel with crude oil, it could be that it may still be allegedly subsidizing fuel with crude oil since there is no budget for subsidy for the years 2023 and 2024.
In confirmation of the alleged secret subsidy payment by Tinubu government, the Managing Director of Pinnacle Oil and Gas Limited, Robert Dickerman, has revealed that a whopping N1 trillion is paid as subsidy by the Federal Government without budgetary allocation.
Speaking at the just concluded Nigeria International Energy Summit (NIES) held in Abuja last week, Dickerson said, “Nigeria has a long history of allocating resources to oil and gas production at the expense of most other economic and social programs. To balance this, there has been a long-standing policy to mitigate consumer costs via palliatives such as fuel and food subsidies.
“But one of the net effects of oil money is underinvestment in local production, manufacturing and other value-added activities that could generate foreign currency through exports. There has also been a large under investment in the maintenance and upgrade of existing infrastructure including electricity, roads, health care, water, waste, education and financial infrastructure such as consumer credit.
“As a result, we have a huge negative trade deficit, except for crude oil and LNG, and our banks are not sufficiently capitalized to support significant new capital programs.
“With legacy monetary policymaking currency exchange difficult, we desperately need Foreign Investment. This is a reality. So the best policy during this time of crisis is a national policy to transform our economy/regulations/laws to accommodate and encourage FDI.
“Foreign investors, foreign lenders and government-run DFIs have been very clear about what they want to see: Conservative fiscal policy, tackling corruption, enabling competitive markets, and enforcement of fairness in markets through policy, regulation and the ability to enforce contracts. Keeping that context in mind, I want to point out that there is still a massive subsidy in PMS, albeit in the FX portion of PMS Price, not the global price in dollars.
“The consequences of this subsidy are: The cost of gasoline in Nigeria is the lowest in Africa by far, which encourages smuggling out, further depriving Nigeria of value. Smuggling causes Nigeria to subsidize neighboring countries even while our economy struggles. The cost is hurting the entire budget, Federal and State, as critical programs cannot be funded to pay this subsidy. It is currently calculated to be about 1 trillion Naira/month.
“Also, with this subsidy in place, ceasing subsidy payments would result in no petrol supply, if there are no refineries producing gasoline. All supplies come from the international market which will only sell at market prices.
There is no competition in bulk supply, as only the national champion owned by the government can import. Wholesale and retail prices are set based on their subsidized cost and they determine who gets supply. Without a competitive market, foreign investors are discouraged from investing in this sector in Nigeria.
“The solution to this problem seems obvious, even acknowledging the daily struggles most citizens and companies have today with reduced purchasing power, high inflation, high-interest costs and high unemployment that exists today. Short-term palliatives have never resolved long-term issues in any nation at any time in history. We need long-term solutions.”
