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Petroleum price normalisation at work


SIR: Before the twin policies of fuel subsidy removal and exchange rates unification by President Tibunu’s administration, the official price of petrol (PMS) was about N192, diesel (AGO) N850, kerosene (DPK) N1,100, aviation fuel (Jet-A1) N700, and cooking gas (LPG)/kilogram about N750.

After implementation of the said policies, the price of petrol went to slightly above N600 and remained there for quite some time despite immediate “consequences” of the policy of the exchange rate unification in the foreign exchange market, which led to the free fall in the value of the naira from the official rate of N414 to above N1,900 in the parallel market.

Within the same period, the prices of diesel increased from about N850 to about N1, 700; kerosene from N1,100 to about N1, 450; aviation fuel from N700 to about N1,500; and cooking gas from about N750 to about N1,200.

Those who know the parameters in the market know too very well that there was no magic whatsoever that could have retained the price of petrol (PMS) unchanged as we had it unless subsidies were paid whether officially or otherwise.

Experts in the oil and gas industry will agree with me that had petrol price been truly cost-reflective without any form of subsidy after its acclaimed removal, its price would have since been competing with those of diesel and kerosene. Subsidies were removed in all the by-products of crude oil by the previous governments, but attempts at petrol subsidy removal by various governments at various times were largely resisted.

However, the present scarcity of petrol is a process of its actual cost-reflective pricing free from any form of subsidy by the government ahead of the entry of Dangote refinery into the industry. Dangote refinery will very soon start supplying petrol to the market.

The entry of Dangote refinery may not bring the cost of fuel below N600 as some people expect because the price we have been paying for the product was not cost-reflective if one puts exchange rate into consideration.

It is apt to state that with Dangote refinery, the cost of diesel and aviation fuel reduced because there were no subsidies on them, the consumers paid cost-reflective prices on them. Petrol is a different story. The price of petrol may not go back to pre-May 2023 because cost-reflective price has not been charged for the product.

The reduction of the price of diesel from about N1700 to about N1,100 occasioned by improvement in the value of naira against the dollar and the recent entry of Dangote refinery into the market is a huge relief to the economy.

Almost 98% of our heavy duty trucks which move all kinds of goods to various destinations for our consumption use diesel as fuel.

Most of our local industries use diesel for their operations, while most of our private cars use petrol. If the price of diesel stays at its present level or goes lower, we will likely see its impact on the prices of goods!

Few days to the end of president Obasanjo’s administration in 2007 , 51% stakes of our moribund Kaduna and Port Harcourt refineries were privatized to a business consortium led by Aliko Dangote with the aims of resuscitating them for local refining, but soon after the late President Yar’Adua took over, he revoked the transaction.

It is interesting to note that Dangote was granted private refinery licence by the Buhari administration, which he built from scratch.

The Federal Government under President Buhari bought 20% stakes through NNPL. It is worth noting that, 20% of whatever will be generated by the refinery will go to the Nigerian government.

Our optimism about the refinery is that it is that it will have positive impact on the Nigerian economy by reducing our dollar demand for refined products importation, and increase dollar supply from the export of its excess refined products. If that happens, it will strengthen the naira against the dollar which hopefully will benefit the economy.

The refinery’s 650,000 barrel production capacity is about 120million litres, which is more than our about 50 million litres local demand daily.

It is expected to meet 100 per cent of our consumption requirement when fully operational. It is projected to save Nigeria up to $10billion in foreign exchange and generate another $10billion in exports. It will save Nigeria about $9bn a year from importing petroleum products.

SOURCE: The Nation Nigeria