Naira depreciation erodes gains of subsidy removal | FG urged to promote gas as alternative to petrol
The torrential fall of the Naira which has turned the petroleum supply chain into a quagmire is fast eroding the projected gains after the federal government finally removed the petrol subsidy regime.
Oil marketers and government officials also appear not to be on the same page when it comes to the actual landing cost of Petroleum Motor Spirit and the impact that Nigeria’s fluctuating currency has had on the importation of the product.
Presently, it has been calculated that landing cost of Premium Motor Spirit, PMS also called petrol has averaged N1,009 a litre going by prevailing rate of N1,500 per dollar, from N720 per litre recorded in October 2023.
Though, this cannot independent be confirmed by our Correspondent as President of Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN), Billy Gillis-Harry, said such figures may still be disputed because there are other associated costs like insurance, port charges and cost of hiring vessels.
It has also been reported that the country is paying about N907.5 billion subsidy on petrol monthly as the country’s foreign exchange crisis pushed the actual cost of litre of fuel to N1,203, signalling a return of subsidy regime.
However, an inside source at the Nigerian National Petroleum Company Limited, NNPCL, denied the insinuation.
The source said such reports are falsehood and should be disregarded as subsidy has gone.
“I think we should take a look at the provisions of the Petroleum Industry Act, PIA, which gives the NNPCL the responsibility to ensure energy security at any time. Though it operates as a limited liability company that pays dividend to shareholders, nonetheless the PIA vests that responsibility to the Company to provide buffer and secure the country’s energy demands and perhaps that is what is erroneously being interpreted as return of Subsidy.
The group CEO of the Nigerian National Petroleum Company (NNPC) Limited, Mele Kyari, had said at the birth of NNPCL that the country was spending over N400 billion monthly on petrol subsidy, but investigations into Nigeria’s petrol pricing dynamics have revealed a significant surge in the landing cost of petrol, attributed to the escalating exchange rate.
In his views, the chief executive officer, CEO, of the Center For The Promotion Of Private Enterprises, CPPE, Dr. Muda Yusuf, said, “Evidently, the currency depreciation has partially eroded the subsidy savings.”
According to Yusuf, this is because the cost of fuel importation has increased, when converted to naira, adding.
Besides, the mounting inflationary pressures has inherently increased the subsidy because the pump price had remained fixed while the landing cost has been on the increase.”
This he said is understandable in the light of the current hardships being experienced by the citizens.
“The government is unlikely to go back to full subsidy. Doing so, would amount to a complete reversal of a major pillar of the current reforms. Besides the government do not have the fiscal space to ensure full restoration of subsidy.
“The objective of the reform is actually to exit completely from fuel subsidy regime. But this will take some time as the economic fundamentals are still weak.” he advised.
Just recently the International Monetary Fund (IMF) claimed that the Nigerian government has, through the backdoor, resumed the payment of subsidies on petrol.
In May 29, 2023, President Bola Tinubu announced an end to petrol subsidy, which caused a hike in the prices of goods and services in the country.
Following that announcement, the Central Bank of Nigeria (CBN) collapsed the different exchange rate regimes into one, with the value of the naira to the dollar weakening.
The IMF recently issued a statement on the conclusion of its Executive Board’s Post Financing Assessment with Nigeria, during which it expressed concerns that the government had capped the prices of fuel at retail stations.
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