Forex Pushes Fuel Subsidy To Close To A Trillion Monthly

Despite government denials, Nigeria is currently shouldering a subsidy of approximately N907.5 billion monthly on premium motor spirit (PMS), also known as petrol, due to the depreciation of the naira, which has inflated the actual cost of a liter of fuel to N1,202.7.

Following President Bola Tinubu’s announcement of deregulation in the downstream segment of the petroleum industry, over 90 licensed petroleum product importers have been unable to bring in any products for nearly nine months due to unresolved price differentials.

The Nigerian Association of Road Transport Owners (NARTO), responsible for distributing petroleum products across the country, has revealed plans to halt operations, demanding double the existing transportation allowance amid rising fuel costs.

The price of diesel has surged to about N1,400 per liter, leading to a significant increase in transportation costs, such as the route from Lagos to Abuja, which now costs N1.4 million compared to N600,000 the previous year.

The delayed resumption of the Port-Harcourt Refinery coupled with government price controls, despite deregulation, may pose challenges for refineries like Dangote Refinery, relying on imported crude oil for processing.

Based on crude oil prices and exchange rates, the landing price of petrol per liter in Nigeria is estimated at N1,202.7, resulting in a subsidy of approximately N585.5 per liter, totaling N907.5 billion monthly, given the country’s reduced daily consumption.

Petrol prices in neighboring West African countries range from N2,000 to N1,400 per liter, highlighting the disparity and potential economic impact on Nigeria’s downstream petroleum industry.

The International Monetary Fund (IMF) has urged Nigeria to remove subsidies on petrol and electricity, echoing concerns raised by stakeholders and media reports regarding ongoing subsidy payments.

Tinubu’s announcement of market deregulation upon assuming office in May 2023 was swiftly followed by price increases by the Nigerian National Petroleum Corporation (NNPC), despite initial assurances of unchanged pump prices.

Fluctuations in international crude oil prices, coupled with a depreciating naira, have led to significant cost escalations, exacerbating subsidy burdens on the government and impacting consumer prices.

The Nigerian National Petroleum Company Limited (NNPCL) has become the sole importer of petroleum products, incurring under-recovery expenses not covered by budgetary allocations, thus affecting market competitiveness.

Independent Petroleum Marketers Association of Nigeria (IPMAN) President, Abubakar Shettima, has highlighted the need for a level playing field in accessing foreign exchange to enable private importation of petroleum products.

Despite the issuance of licenses to over 90 marketing companies, NNPC remains the primary importer, raising concerns about fair competition and market access for licensed importers.

Othman Yusuf, President of NARTO, has warned of impending suspensions of petroleum product transportation operations due to unfavorable operating conditions, including skyrocketing diesel prices and inflated operating costs.

Rising costs of essential items like tires, batteries, and spare parts, compounded by deteriorating road conditions, have further strained the viability of transporting petroleum products across the country.

The cost of transporting fuel from Lagos to Abuja has surged, with diesel expenses alone surpassing previous transportation allowances, making operations financially unsustainable for transporters.

The dire situation faced by NARTO members underscores broader challenges within Nigeria’s downstream petroleum sector, necessitating urgent government intervention to address systemic issues.

Market uncertainties, exacerbated by fluctuating global oil prices and currency devaluation, continue to disrupt Nigeria’s petroleum industry, impacting both consumers and industry stakeholders.

Calls for subsidy removal by international organizations like the IMF highlight the urgency of structural reforms within Nigeria’s energy sector to ensure long-term sustainability and economic viability.

Despite government assurances of market deregulation, persistent subsidy payments and price controls undermine efforts to foster a competitive and transparent petroleum market in Nigeria.

The reliance on imported crude oil for processing highlights the vulnerability of Nigeria’s energy infrastructure to external market fluctuations and underscores the need for domestic refining capacity.

Inadequate budgetary allocations and reliance on state-owned entities like NNPC for petroleum imports underscore the need for broader fiscal reforms to promote private sector participation and market efficiency.

Challenges faced by independent petroleum marketers in accessing foreign exchange and competing with state-owned entities raise concerns about market distortions and fair competition within Nigeria’s petroleum industry.

The impending suspension of petroleum product transportation operations underscores the urgent need for government intervention to address systemic challenges and ensure the viability of Nigeria’s downstream petroleum sector.

Addressing the root causes of subsidy payments, market distortions, and infrastructure deficiencies within Nigeria’s petroleum industry requires comprehensive policy reforms and sustained government commitment to promote transparency, competition, and economic resilience.