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Fuel Price Hike And Market Fundamentals 

With the recent slump in global crude, oil price shock and the pandemic outbreak of COVID-19, induce economic lockdown impact on the masses. The Nigerian Government has gifted her citizenry increase in PMS (Petrol Motor Spirit) Price from N145 to N151.56/litre, but in reality fuel is been sold majorly between N161 to N170/litre in filling stations across the nation.

This news didn’t come as a surprise to many analyst and economist going by the prevailing circumstance around crude and primary commodities price falls and depression triggered by world economy uncertainties. Even with the trajectory eyes on the storm of recession hovering over us. The news also came on the heels of the fraudulent and cosmetics monthly PMS Price fixing regime and deregulation of the oil sector by Petroleum Products Pricing Regulatory Agency (PPPRA) in the last three months.

Let rewind back to March, 2020 when the Federal Government, through the PPPRA, announced a new fuel price regime. First, was the reduction price regime from N145 to N125/litre that came into effect on March 19, 2020. Followed is government’s approval of adjustment of N121.50 to N123.50 per litre PMS. Then, followed again, was the N141.80 to N143.80 per litre of petrol, adjustment in June, 2020.

Secondly, then came the Executive Secretary of Petroleum Products Pricing Regulatory Agency (PPPRA), Abdulkadir Saidu, who said “Going forward, pricing of the PMS will reflect market fundamentals in a circular dated Wednesday, July 1, 2020, to oil marketers, with PMS pump price increase from N143.80 to N145 /litre, Saidu noted that the essence of “the price band was to ensure price efficiency that would be beneficial to both consumers and oil marketers. PPPRA will continue to monitor price trends and advise monthly guiding price for all petroleum products, based on prevailing market realities and other pricing fundamentals,” he stated.

Saidu further explained that the recent plunge in oil price occasioned by the outbreak of COVID-19 and slowing global oil demand had a direct bearing on the EOMP of petrol, pushing it to a level below the pump price cap of N145/litre. He however concludes that “Nigerians should be ready to pay high or low prices for petrol following the price liberalization scheme currently in place and what we have in place is a market reflective pricing system”
Earlier in the year also on May 15, 2020, a statement credited to the Minister of State for Petroleum Resources, Timipre Sylva, who said deregulation was approved on March 19 this year. Adding that “But as you all know, PMS (Premium Motor Spirit) and other petroleum products are very strategic commodities, so you cannot allow the prices of these commodities to be determined wholly by the marketers,” he stated.

Sylva further said that “deregulation meant that the government would no longer continue to be the main supplier of petroleum products, but would encourage the private sector to take over the role of supplier of the products”. Officially, as we all know since 2017, the NNPC is the monopoly sole importer of petrol into the country after private oil marketers stopped importing due to crude price fluctuations globally, while the PPPRA retains the unjust price template.

Thirdly, then came, the bombshell, provocative and dooms day statement by the Minister of State for Petroleum Resources, Timipre Sylva which rightly observed by saying, fuel subsidy “benefiting in large part are the rich, rather than the poor and ordinary Nigerians.” The government decided to rid itself of the burden by the removal of the subsidy on petrol pump price was abundantly and categorically clear in affirmatively this month of September, 2020 with PMS Price from N145 to N151/litre.

He, however, noted that efforts were being made to develop alternative fuels to the PMS by deepening the utilization of Liquefied Petroleum Gas/Compressed Natural Gas as auto gas in Nigeria. From, aforementioned, it stands to reason that here is the glaringly contradiction, that would be creating controversy and confusion, soon the “market fundamentals”.

The purview and crux of this piece is to x-ray the genuity and ingenuity of market fundamentals that the government as so much put it hopes on to drive the pump price of PMS in Nigeria. “Accordingly, price will naturally be adjusted to reflect a true picture of market fundamentals at any particular period, high or low” The question is how true the above statement, we knowing fully well that the so called market fundamentals is hinge on supply and demand, hancour on the invisible hand of market forces, embellish in profit maximization drive of global capitalism.
In as much as government decide to bite the bullet so as to put in place a more transparent pricing model, stimulate investment growth in the sector and encourage resumption of product imports by oil marketing companies. Regrettably, with the shambles and rots in the downstream sector of Nigeria’s oil and gas industry, government throwing the sector up into the risky and uncertainty space and manipulative tendency of market fundamentals live us with concern. One great pitfall of market fundamentals is it poor scientific outlook and dangers it will pose to our economy.

The petroleum products marketers in this realm would be market fundamentalist. To this end we are confronted with the following questions: Will the market fundamentalist not exploit consumers with arbitrary pricing and round tripling of PMS? Would the market fundamentalist not create artificial scarcity of PMS? Will the market fundamentalist not put pressure on the naira? Will the market fundamentalist not join forces with forex speculator to sabotage, distort and deflect our foreign reserve? How would the uncertainty challenges of accessing foreign exchange be address?

The way forward, if the government is serious about the deregulation of the sector, is not surrendering PMS Price to market fundamentals that are predicated on free market capitalist economy principles not devoid of rooted sharp practices and market manipulation. Secondly, repositioning the sector is to attract the much-needed investments in functioning refineries and pipelines transport construction in the country with incentives for investors in that sectors. Thirdly, the government should also avoid creating a situation where the market fundamentalist in the PMS importation become a nightmare to CBN tired less and painstainking efforts to keep the naira stability jeopardized by the market fundamentalist cowboys. Lastly, we expect healthy competition among marketers that would enhance value for consumers without monopolistic structure that market fundamentals normally bring on, to kill vibrant and competitive market, a cyclical feature of free market economy. In conclusion, we must say here that market fundamentalist are primitive accumulator and maximum profit minded.

By: Adefolarin A. Olamilekan
Political Economist & Development Researcher
Email: Adefolari77@Gmail.Com
Tel: 08073814436.

You can follow Daily Watch Press publications or drop your comment below and reach the writer through the above address.

Hon. Minister of Information And Culture, Alhaji Lai Mohammed On Recent Increase In Petrol And Electricity Prices

The Minister of Information and Culture, Alhaji Lai Mohammed in Press Conference today, address the recent issues surrounding the the hike in the price of fuel and electricity tariff. The Adress was as follows:

ON: FUEL PRICES

As you are aware, the long-drawn fuel subsidy regime ended in March, 2020, when the Petroleum Products Pricing Regulatory Agency (PPPRA) announced that it had begun fuel price modulation, in accordance with prevailing market dynamics, and would respond appropriately to any further oil market development.

Recall that the price of fuel then dropped from 145 to 125 Naira per litre, and then to between 121.50 and 123.50 Naira per litre in May. With the low price of crude oil then,
the cost of petrol, which is a derivative of crude oil, fell, and the lower pump price was passed on to the consumers to enjoy. With the price of crude inching up, the price of petrol locally is also bound to increase, hence the latest price of 162 Naira per litre. If, perchance, the price of crude drops again, the price of petrol will also drop, and the benefits will also be passed on to the consumers.

The angry reactions that have greeted the latest prices of Premium Motor Spirit (PMS) are therefore, unnecessary and totally mischievous.

Gentlemen, the truth of the matter is that subsidizing fuel is no longer feasible, especially under the prevailing economic conditions in the country. The government can no longer afford fuel subsidy, as revenues and foreign exchange earnings have fallen by almost 60%, due to the downturn in the fortunes of the oil sector. Yet, the government has had to sustain expenditures, especially on salaries and capital projects. Even though we have acted to mitigate the effect of the economic slowdown by adopting an Economic Sustainability Plan, we have also had to take some difficult decisions to stop unsustainable practices that were weighing the economy down.

One of such difficult decisions, which we took at the beginning of the Covid-19 pandemic in March – when oil prices collapsed at the height of the global lockdown – was the deregulation of the prices of PMS. As I said earlier, the benefit of lower prices at that time was passed to consumers. Everyone welcomed the lower fuel price then. Again, the effect of deregulation is that PMS prices will change with changes in global oil prices. This means quite regrettably that as oil prices recover, there will be some increases in PMS prices. This is what has happened now.

Government can no longer afford to subsidize petrol prices, because of its many negative consequences. These include a return to the costly subsidy regime. With 60% less revenues today, we cannot afford the cost. The second danger is the potential return of fuel queues – which has, thankfully, become a thing of the past under this Administration. The days in which Nigerians queue for hours and days just to buy petrol, often at very high prices, are gone for good. Of course, there is also no provision for fuel subsidy in the revised 2020 budget, because we just cannot afford it.

Gentlemen, the cost of fuel subsidy is too high and unsustainable. From 2006 to 2019, fuel subsidy gulped 10.413 Trillion Naira. That is an average of 743.8 billion Naira per annum. According to figures provided by the NNPC, the breakdown of the 14-year subsidy
is as follows:

  • In 2006 Subsidy was 257bn
  • In 2007 Subsidy was 272bn
  • In 2008 Subsidy was 631bn
  • In 2009 469bn
  • In 2010 667bn
  • In 2011 2.105tn
  • In 2012 1.355tn
  • In 2013 1.316tn
  • In 2014 1.217tn
  • In 2015 654bn
  • In 2016 Figure Not Available
  • In 2017 Subsidy was 144.3bn
  • In 2018 730.86bn
  • And in 2019 Subsidy was 595bn
  1. The Federal Government is not unmindful of the pains associated with higher fuel prices at this time. That is why we will continue to seek ways to cushion the pains, especially for the most vulnerable Nigerians. The government is providing cheaper and more efficient fuel in form of auto gas. Also, Government, through the PPPRA, will ensure that marketers do not exploit citizens through arbitrarily hike in pump prices. And that is why the PPPRA announced the range of prices that must not be exceeded by marketers.
  2. In spite of the recent increase in the price of fuel to 162 Naira per litre, petrol prices in Nigeria remain the lowest in the West/Central African sub-regions. Below is a comparative analysis of petrol prices in the sub-regions (Naira equivalent per litre);
  • Nigeria – 162 Naira per litre
  • Ghana – 332 Naira per litre
  • Benin – 359 Naira per litre
  • Togo – 300 Naira per litre
  • Niger – 346 Naira per litre
  • Chad – 366 Naira per litre
  • Cameroon – 449 Naira per litre
  • Burkina Faso – 433 Naira per Litre
  • Mali – 476 Naira per litre
  • Liberia – 257 Naira per litre
  • Sierra Leone – 281 Naira per litre
  • Guinea – 363 Naira per litre
  • Senegal – 549 Naira per litre
  1. Outside the sub-region, petrol sells for 211 Naira per litre in Egypt and 168 Naira per litre in Saudi Arabia. You can now see that even with the removal of subsidy, fuel price in Nigeria remains among the cheapest in Africa.

ON: ELECTRICITY TARIFF

  1. Another issue we want to address here today is the recent service-based electricity tariff adjustment by the Distribution Companies, or
    DISCOS. The truth of the matter is that due to the problems with the largely-privatized electricity industry, the government has been
    supporting the industry. To keep the industry going, the government has so far spent almost 1.7 trillion Naira, especially by way of supplementing tariffs shortfalls. The government does not have the resources to continue along this path. To borrow just to subsidize generation and distribution, which are both privatized, will be grossly irresponsible.
  2. But in order to protect the large majority of Nigerians who cannot afford to pay cost-reflective tariffs from increases, the industry regulator, NERC, has approved that tariff adjustments had to be made but only on the basis of guaranteed improvement in service. Under this new arrangement, only customers with guaranteed minimum of 12 hours of electricity can have their tariffs adjusted. Those who get less than 12 hours supply will experience no increase. This is the largest group of customers.
  3. Government has also noted the complaints about arbitrary estimated billing. Accordingly, a mass metering programme is being undertaken to provide meters for over 5 million Nigerians, largely driven by preferred procurement from local manufacturers, and creating thousands of jobs in the process. NERC will also strictly enforce the capping regulation to ensure that unmetered customers are not charged beyond the metered customers in their neighbourhood. In other words, there will be no more estimated billings.
  4. The government is also taking steps to connect those Nigerians who are not even connected to electricity at all. As you are aware, under its Economic Sustainability Plan, the government is providing solar power to 5 million Nigerian households in the next 12 months. This alone will
    produce 250,000 jobs and impact up to 25 million beneficiaries through the installation, thus ensuring that more Nigerians will have access to electricity via a reliable and sustainable solar system.
  5. Gentlemen, please note that despite the recent service-based tariff review, the cost of electricity in Nigeria is still cheaper or compares favourably with that of many countries in Africa.

COST IN NAIRA PER KWH IN SOME AFRICAN COUNTRIES.

  • Nigeria 49.75
  • Senegal 71.17
  • Guinea 41.36
  • Sierra Leone 106.02
  • Liberia 206.01
  • Niger 59.28
  • Mali 88.23
  • Burkina Faso 85.09
  • Togo 79.88

ON: CONCLUSION

  1. Gentlemen, the timing of these two necessary adjustments, in the petroleum and power sectors, has raised some concerns among Nigerians. This is a mere coincidence. First, the deregulation of PMS prices was announced on 18 March 2020, and the price modulation that
    took place at the beginning of this month was just part of the on-going monthly adjustments to global crude oil prices.
  2. Also, the review of service-based electricity tariffs was scheduled to start at the beginning of July 2020 but was put on hold so that further studies and proper arrangements can be made. Like Mr. President said today, at the opening of the Ministerial Retreat, this government is not insensitive to the current economic difficulties our people are going through and the very tough economic situation we face as a nation. We certainly will not inflict hardship on our people.
    But we are convinced that if we stay focused on our plans, brighter and more prosperous days will come soon.
  3. The opportunistic opposition and their allies are playing dirty politics with the issue of petrol pricing and electricity tariff. Please note that these naysayers did not complain when the price
    adjustment led to lower petrol prices on at least two occasions since March. Nigerians must therefore, renounce those who have latched onto the issue of petrol pricing and electricity tariff review to throw the country into chaos.
  4. I thank you all for your kind attention Show quoted text.

President Buhari Will Ends Nigeria’s Fuel Importation – Timipre Sylva

President Muhammadu Buhari is committed to putting an end to the importation of refined petroleum products into Nigeria, said the Minister of State for Petroleum Resources, Chief Timipre Sylva.

Sylva said the government is working to reverse Nigeria’s status as a net importer of Premium Motor Spirit, popularly called petrol, and as such had been supporting the establishment of modular refineries to boost indigenous PMS production.

The minister stated this after inspecting the Azikel Hydro-Skimming Refinery, the first hydro-skimming private modular refinery being built by businessman, Azibapu Eruani in Yenagoa, Bayelsa State.

The refinery, which is about 75 per cent completion, has the capacity to process or refine 12,000 barrels of crude per day.

He said this via a statement issued in Abuja on Wednesday by the spokesperson for the company, Austin Ebipade, Sylva said the modular refinery would facilitate the Federal Government’s objectives towards attaining self-sufficiency in the production of refined products.

Nigeria currently imports refined petroleum products such as petrol, diesel, aviation fuel and liquified petroleum gas.

According to the minister, the Azikel refinery was important to Nigerians and the country’s search for economic prosperity.

He was quoted in the statement as saying, “The Azikel Refinery is set to actualise the ‘export’ of refined products from Bayelsa State to other states in the Nigerian federation.

“It comes with a daily production of 1.5 million litres of petrol, one million litres of diesel, 500,000 litres of kerosene and aviation fuel.

“It will thereby reverse the stigma on Nigeria, the world’s fifth largest producer of crude oil being a net importer of refined products.”

Sylva commended the Nigerian Content Development Monitoring Board for the development of the project, as well as the participation of the Nigeria National Petroleum Corporation and Nigerian Agip Oil Company.

Others include Total Nigeria and Shell Petroleum Development Company of Nigeria for the supply of feedstock for the Azikel refinery.

Eruani, who is the President, Azikel Petroleum Refinery, pledged to work assiduously towards actualising the government’s objective of industrialising the nation.

Nigerian Content Intervention Funds Increased To $350 Million By NCDMB

The Minister of State For Petroleum Resources And The Chairman Nigerian Content Development Monitoring Board (NCDMB)
Governing Council Declared $350 Million Increase.

Mr Julius Bokoru, the Special Assistant On Media And Public Affairs to Timipre Sylva, Honourable Minister Of State For Petroleum Resources. In a statement issued yesterday said:

“The Governing Council of the Nigerian Content Development and Monitoring Board (NCDMB) has approved the expansion of the Nigerian Content Intervention Fund from US$200 million to US$350 million.

The enlargement of the Fund by US$150 million was part of the decisions taken at the recent NCDMB Governing Council meeting, which held virtually on June 16, 2020. The meeting was chaired by the Minister of State for Petroleum Resources, Chief Timipre Sylva, who is the Chairman of the Council.

The Council approved that US$100 million from the additional funds would be deployed to boost the five existing loan products of the NCI Fund, which include manufacturing, asset acquisition, contract finance, loan refinancing and community contractor financing.”

The spokesman further said:

“Similarly, the Council also approved that US$20 million and US$30 million respectively should be deployed to two newly developed loan product types – the Intervention Fund for Women in Oil & Gas and PETAN Products, which include Working Capital loans and Capacity Building loans for PETAN member companies.

The NCI Fund was instituted in 2017 as a US$200 million Fund managed by the Bank of Industry (BoI) engaged to facilitate on-lending to qualified stakeholders in the Nigerian Oil and Gas industry on five loan product types. The NCI Fund is a portion of the Nigerian Content Development Fund (NCDF), aggregated from the one percent deduction from the value of contracts executed in the upstream sector of the oil and gas industry. About 94 percent of the NCI Funds has been disbursed to 27 beneficiaries as at May 2020. NCDMB has received new applications from 100 companies for nearly triple the size of the original fund.”

“Guidelines for the NCI Fund provide that beneficiaries of the Manufacturing Loan and Asset acquisition Loan can access a maximum of US$10million respectively. Also, beneficiaries of Contract finance Loan can access US$5million while beneficiaries of the Loan Re-financing package can access US$10million, with beneficiaries of the Community Contractor Finance Scheme limited to N20million.
The maximum tenure for all loan types is 5 years and applicants cannot have two different loans running simultaneously.

At the onset of the Fund, the applicable interest rate for the various loan types was pegged at eight (8) percent, except the Community Contractor Finance Scheme, which was five (5) percent.
However in April 2020 as part of NCDMB’s response to mitigate economic impact of the coronavirus pandemic, Council approved reduction of the interest rate from eight (8) to six (6) percent per annum for all four of the loan products. The Board also extended the moratorium for all loan products.” He concluded.

NCDMB Replied Allegations on Timipre Sylva Demanding $20 MILLION FROM BOSS

The NCDMB described the report of Sylva demanding $20 Million from local content Boss as spurious.

Barr. Naboth Onyesoh, the Manager Corporate Communications of the Nigerian Content Development & Monitoring Board, in response to Sylva demands $20 Million From ‘Local Content Board’ Boss to fund Bayelsa Re-Run Elections. Said:

“The attention of the Management of the Nigerian Content Development & Monitoring Board (NCDMB) has been drawn to a spurious and malicious story published by an online medium- POINTBLANK NEWS, titled: ”Sylva demands $20 Million From ‘Local Content Board’ Boss to fund Bayelsa Re-Run Elections.”

Ordinarily the Board would have ignored this fake news, especially one planted in a notorious online publication.”

Bar. Onyesoh continued that:

“However, we are constrained to react because sponsors of the wicked tissues of lies are intent on tarnishing the good image of the Board and strong reputation of the Executive Secretary, Engr. Simbi Wabote and that of the Honourable Minister of State for Petroleum Resources, Chief Timipre Sylva and portray the Board as partisan.

We verily believe that this outright fabrication was sponsored by those angling to contest for the senatorial elections in Bayelsa West Senatorial District, who are in the habit of concocting wild allegations to distract the NCDMB and lure us into local politics.”

“For the avoidance of doubt and to set the records straight, NCDMB wishes to state categorically as follows:

1) There is no iota of truth in that story. It is completely mendacious and a figment of the imagination of those behind it

2) From inception in 2010 till date, NCDMB has never been pressurized or required to sponsor anything that has partisan colouration

3) The current Minister of State for Petroleum Resources, Chief Timipre Sylva has never demanded nor suggested to the Board and its leadership to fund any political activity in Bayelsa or any part of the country, however described

4) As a federal agency, NCDMB is focussed on its statutory mandate as enshrined in the Nigerian Oil and Gas Industry Content Development (NOGICD) Act

5) The Nigerian Content Development Fund (NCDF) was instituted for funding capacity development in oil and gas activities and cannot be applied for any other purpose except that expressly stated in the NOGICD Act

6) It is preposterous to allege that the Minister is demanding $20m from NCDMB to fund elections, whereas all funds belonging to the Federal Government are in the custody of the Central Bank of Nigeria and NCDMB’s funds cannot be withdrawn except for legitimate purposes consistent with its mandate. Thus it is absurd and unreasonable to contemplate or imagine that the Board can withdraw any money from the NCDF except for any of the purposes it was instituted under the Act

7) The status of NCDMB finances are in the public domain and can be verified by anyone or group that is so interested; and that is why the Executive Secretary has consistently announced the balance sheet and utilization of NCDF at every oil and gas fora

8) Contrary to the wicked suggestion in the story, NCDMB has never awarded any contract to the Minister or any company connected to him and neither has the Board awarded contracts for shore protection in Brass LGA of Bayelsa State because it is clearly outside our statutory mandate

9) It is pertinent to state that NEITI declared NCDMB as the most transparent federal oil and gas agency and the Board achieved this lofty feat because our operations are always complaint with government’s financial regulations

10) NCDMB has initiated several oil and gas projects in Bayelsa State and engendered multiple investments that are geared to uplift the people and the economy. Therefore we demand that political gladiators in the state should spare us distractions and negative reportage that are capable of creating disincentive for investments

11) NCDMB’s financial processes and operations are always open and transparent. The Board and its leadership have never been manipulated and cannot be influenced to favour individuals or political parties, no matter how highly placed because what the Board does must be in line with its mandate in the NOGICD Act

12) One would have expected POINTBLANK NEWS, if it were a credible media outfit, to conduct a thorough investigation with a view to validating the veracity of the story before going to press. But in this case, it was a mere conjecture by the authors to please their sponsors

13) From the foregoing, it is obvious that this story was calculated to malign the Board, its leadership and the Honourable Minister of State for Petroleum Resources, to score cheap political points and create disaffection. Going forward, the Board will not hesitate to take appropriate legal action against any individual or media organizations that publish materials that are spurious, malicious and libelous.” Onyesoh concluded.