At the current petrol pricing template, the pump price of petrol will sell anywhere between N478 and N590 per litre, based on the effective dollar rate the Central Bank of Nigeria (CBN) settles upon following the directive by the new president to reform currency rates, BusinessDay analysis shows.
The Nigerian National Petroleum Company Limited met with oil marketers to agree on indicative pricing on Tuesday. Mele Kyari, its group chief executive officer, met President Bola Tinubu at the Presidential Villa shortly after he resumed work. The results of these engagements have yet to be made public.
Using the CBN naira-dollar rate of N467/$1, the pump price of petrol could rise to N390 per litre if the government no longer pays subsidy. When the rate allowed for airlines to repatriate funds, which stand at N600/$1, is used, BusinessDay’s calculations show that the effective pump price would be N478 per litre in Lagos.
At the black market rate of N750/$, the picture changes. The product cost rises to N503.91 per litre. Other costs including traders’ margin, freight, NPA port charges, NIMASA, financing costs, jetty storage, and wholesale margin bring the landing cost to N565.34.
When retailers margin, dealers margin and transport cost are added, it brings the price in Lagos to N590.34. The price could average around N600 when it is transported across Nigeria.
The major components that constitute petrol landing cost in Nigeria include product cost, traders and insurance margin, shipping, charges by government agencies, financing and banking charges and storage charges. These come to about N358.24 per litre as landing charges. Another N25 is added based on retailer margins (N15), dealer’s margin (N5) and Transport cost at (N5). This brings the total costs to N383.24.
However, pump price would vary based on station and location and, with the government’s subsidised transport charges, could average at N385 per litre using the official exchange rate. This pump increases to N478 litre using the N600/$1 rate and N600 using N750/$1 as the parallel market rate.
BusinessDay reached this conclusion by analysing the Nigerian government’s current pricing template based on current oil prices and marketers’ surveys on what prices would be at different oil price and dollar rate scenarios.
The current panic buying is contributing to worsening the problem as it gives unscrupulous marketers the avenue to exploit consumers. This is why NNPC Ltd, the marketers’ group and the regulator are calling for calm.
The oil regulator said in a statement that it is working with the NNPC and other key stakeholders to guarantee a smooth transition, avoid supply disruptions, and ensure that consumers are not short-changed in any form.
“Contrary to speculations and concerns, the announcement is in line with the Petroleum Industry Act (2021) which provides for total deregulation of the petroleum downstream sector to drive investment and growth,” the statement said.
The Nigerian Midstream and Downstream Petroleum Regulatory Authority assures that there is an ample supply of petrol to meet demand as it has taken necessary steps to ensure distribution channels remain uninterrupted and fuel is readily available at all filling stations across the country.
A joint statement issued by the Major Oil Marketers Association of Nigeria (MOMAN) and the Depot and Petroleum Marketers Association of Nigeria (DAPPMAN), on Tuesday, called for calm.
“In light of the assurance given by the Nigerian National Petroleum Company Limited (NNPCL) and the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), we wish to reiterate that there is no cause for alarm,” they said.
“We strongly urge Nigerians to avoid panic buying or stockpiling of petrol. This behaviour not only creates artificial scarcity but also poses a significant safety hazard.”
According to the oil marketers, the NNPCL has assured Nigerians of adequate fuel supply and the NMDPRA is working closely with stakeholders to ensure a seamless transition.
“They are ensuring distribution channels remain uninterrupted, thereby making fuel readily available at all filling stations across the country,” it read. “The decision to phase out this fuel subsidy regime is not merely a fiscal reform; it is a significant stride toward social justice.”
“We understand the concerns regarding potential price increases. However, we expect marketers to maintain reasonable pricing, as NNPCL remains the sole supplier of the product currently,” the Joint statement read.
The oil marketers said they anticipate minimal changes regarding distribution costs, considering the cost of the product constitutes 80 percent of the pump price and pledged to manage these distribution costs diligently to minimize the impact on the pump price in collaboration with the Nigerian Association of Road Transport Owners and other crucial stakeholders,
Some analysts say phased removal is the best option. “My recommendation is that the process should be done in phases,” said Ayodele Oni, energy lawyer and partner at Lagos-based Bloomfield law firm.
Oni said the refineries in the country should be functional and operational to the extent that they can meet the demands of the country. This would certainly reduce the importation of refined products into the country and the associated costs such as haulage, insurance, ship-to-ship transfer costs, etc
Refineries
Since Tinubu’s inaugural speech, labour unions have been kicking against subsidy removal. At a press briefing in Abuja on Tuesday, Festus Osifo and Nuhu Toro, president and general secretary of Trade Union Congress of Nigeria, said they expect the President to be wise with the issue at hand.
“We dare say that this is a very delicate issue that touches on the lives, if not very survival, of particularly the working people, hence ought to have been treated with the utmost caution, and should have been preceded by robust dialogue and consultation with, the representatives of the working people, including professionals, market people, students and the poor masses,” they said in a statement.
The labour leader said they were concerned that Tinubu was not specific in how the plan will work and that Nigerian workers and indeed masses must not be made to suffer the inefficiency of successive governments, adding that they are ready to dialogue with the President.
“We are also worried that in his speech President Tinubu failed to delve into or reveal his plans on how to tackle and address the issue of poor and unchecked deterioration in industrial relations, particularly in the education, health and judiciary sectors, often resulting in prolonged strike and Industrial actions and their attendant adverse effects on society and the economy.”
However, analysts say subsidy actually benefits the rich at the exclusion of the poor.
“Fuel subsidy only rewards the elites, middle class, and rich in Nigeria. If you go to rural areas, you will hardly buy fuel at the regulated pump price. The fuel subsidy that is supposed to help the poor actually helps in intensifying their poverty and misery. So, fuel subsidy is only for the rich and has to go,” said Bongo Adi, a professor of Economics at Lagos Business School.
Labour leaders have also called for fixing the refineries before subsidy is removed but in the current situation, local refining would only save freight and port charges as crude constitutes over 86 percent of the cost.
Tinubu meets Kyari, Emefiele, others
Tinubu on Tuesday met behind closed doors with Godwin Emefiele, governor of CBN, NNPC boss, Kyari, in an apparent effort to address the fallout of fuel subsidy removal.
The meeting was his first official assignment in the Presidential Villa. The President arrived the meeting at about 2:32pm, and was received by Vice President Kashim Shettima, at the foya of the President’s office, accompanied by Tijjani Umar, permanent secretary, State House.
Others include Femi Gbajabiamila, speaker of House of Representatives, Wale Edun, Dele Akake and James Faleke.
Fuel subsidy, a burden on poor Nigerians – Shettima
Shettima described Nigeria’s huge subsidy spendings as a burden placed on poor Nigerians.
Shettima, speaking with State House Journalists on his first day in office at the Presidential Villa, said: “You and I benefit 90 percent from the fuel subsidy, while the poor, 40 percent of Nigerians, benefit very little. And we know the consequences of unveiling a masquerade.”
He said: “The truth of the matter is that it is either we get rid of subsidy or the fuel subsidy gets rid of the Nigerian nation.
“We will get fierce opposition from those benefitting from the oil subsidy scam. But where there is a will, there is a way. Be rest assured that our President is a man of strong will and conviction. In the fullness of time, you will appreciate his noble intentions for the nation. The issue of fuel subsidy will be frontally addressed. The earlier we do so, the better.”
Also speaking on the issue of multiple exchange rates, he said the Tinubu administration would collapse the multiple exchange into one.
He said: “So these are two big elephants in the room and as the days go by, we will be unveiling our agenda. He is going to unveil his agenda because as I have always said, there can never be two captains in a ship. He is the president and commander-in-chief of the armed forces.
“I’m the vice president. Your relevance is directly proportional to the level of your loyalty to the president. This is a gentleman that I have known for well over a decade; that I have interacted closely with. Be rest assured that we are going to work harmoniously as a team, as a family for the greater good of our nation.”
Read also: Fuel subsidy crisis: Tonye Cole urges Tinubu to discuss more with labour
FG owes NNPC N2.8trn, says Kyari
Also speaking on the subsidy issue, Kyari told journalists that the federal government owed the NNPC N2.8 trillion for money expended on fuel subsidy.
He revealed that the federal government “no longer have the money to pay the agency money spent on subsidy” adding that government has not paid NNPCL for subsidy for about two years.
Kyari also affirmed that the subsidy is no longer sustainable as it has made it impossible for the company to funds to fund its operations.
Kyari said the petrol queues that have resurfaced are understandable as marketers would like to understand the meaning of the president’s pronouncement that “subsidy is gone.”
He urged Nigerians to avoid panic buying, adding that the NNPCL has enough stock. “What you are seeing is normal because consumers will like to rush to the filing stations to fill their tanks, while the marketers will want to take advantage of the situation. The combined the two is what you are seeing play out.”
The NNPCL boss assured that government will initiate measures to cushion the effects of the removal of subsidy.
