New Fuel Price Exhumes Debate on Coins

22 Jan 2012

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Nigeria’s Coins

The new official pump price for petrol of N97 per litre announced by President Goodluck Jonathan last week has raised the prospect of conflicts between fuel marketers and consumers at a time when coins have virtually disappeared from the system, reports  Festus Akanbi

In a move that caught organised labour and their allies napping, the announcement of a N97 price tag for a litre of petrol by President Goodluck Jonathan last week eventually put paid to a six-day nationwide strike and protests over government's attempt to withdraw the subsidy on petrol.

But as business and commercial activities picked up all over the country, public affairs commentators have predicted that the next battle line will be drawn between petroleum marketers/fuel station attendants and consumers of petrol over the issue of change after each purchase.

The commentators, which include financial experts, said given the virtual non-existence of coins in the economy, the decision by the federal government to fix the pump price of petrol at N97 will create problems in a nation trying to calm frayed nerves over the fuel price increase.

Some analysts are also arguing that by fixing the pump price of fuel at N97, government has opened another channel for petroleum marketers to make several millions from customers from the sale of petrol.

According to this school of thought, by not rounding up the figure to N95 or N100 per litre, the federal government has inadvertently made it possible for the marketers to make billions from the change that they will not pay to motorists. So they are making marketers richer.

Rational for N97 per Litre
Explaining how the federal government arrived at the price of N97 per litre, the Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala said on television last week, that it was based on the assumption that crude oil prices will hover at between $100 and $120 per barrel this year, the same price in 2011.

She added that using that as a benchmark and since the landing cost of petrol was N104 per litre at the ports (excluding distribution cost) in 2011, the president directed that it be reduced by a few naira below the landing cost to N97 per litre.

Will Coins be Re-introduced?

However, some analysts who have been following the policies of the Central Bank of Nigeria in recent times said the decision to fix a litre of petrol at N97 was deliberate. They described the development as the latest effort by the regulatory authorities to re-introduce coins into the system.

The CBN governor, Sanusi Lamido Sanusi at the last Bankers Committee retreat in Calabar, Cross River State, gave indications that the apex bank will soon roll out measures that will increase the availability and general acceptability of coins as a medium of exchange in the country.

The move, according to him, will be geared towards improving the image of the smallest denomination of the nation's medium of exchange. He said: “Certainly, we are aware that Nigerians will like to see the use of coins and that is the reality. You will hear something from us in that respect in the next few weeks. It is an on-going process and obviously, these are things that go through the presidency and the board of the CBN. So very soon you will hear something about coins.”

The three denominations of coins made by the national mint for the CBN are N2, N1 and 50 kobo.

When contacted, CBN deputy governor, Operations Directorate, Mr. Tunde Lemo disagreed with the insinuation that fixing the pump price of petrol at N97 will encourage the use of coins. Lemo, who acknowledged that Nigerians have consistently refused to accept coins, said people may find ways around the issue of N97 to avoid the conflicts that may arise at filling stations.

He said what he expects consumers to do is to round up the figure to avoid leaving their change to fuel attendants. “People don't use coins because Nigerians don't have value for coins as a unit of exchange. What can N1 or N2 buy?” Lemo wondered.

He maintained that it will be wrong for anybody to blame the absence of coins in the system on CBN, explaining that the apex bank has enough coins to go round economy, adding “We have enough coins in our branches. Banks and consumers do not demand for them.”

Lemo said Nigeria lost the opportunity to make coins popular when the naira denomination project of former CBN governor, Prof. Chukwuma Soludo was shut down by the past administration. He however restated the commitment of the apex bank to re-launch coins into the economy, saying the plan is at an advanced stage.

He declined to give a timetable, saying the plan is yet to be officially approved, pointing out that a new set of coins with better value will soon be introduced into the system.

Schism at Fuel Stations
President, Financial Market Dealers Association of Nigeria (FMDN). Mr. Akinsowon Dauda was of the opinion that the regime of N97 per litre of petrol will create problems at the retail level for somebody buying small volumes of petrol.
Although he did not rule out a situation whereby consumers will round up the figure to tackle the problem that could emanate at fuel stations, he added that many people do not believe that coins still exist in Nigeria. “I don't know coins are still being spent in Nigeria at all,” saying CBN should have anticipated the crisis likely to be generated by the new pricing regime in petroleum products marketing by making coins available in the system.

Are Banks the Problem?
However, a cross section of Nigerians who spoke with THISDAY last week admitted that coins are no longer popular in the system, as banks flagrantly disobey the CBN order on payment through coins. In a recent interview with THISDAY, the chief executive of FMDAN, the umbrella body for bank treasurers, Mr. Akinwale Abbe said banks shouldn't be blamed for the fate that has befalling coins in the country.

He pointed out that given the acceptability of payment terminals like automated teller machines, it will be difficult for bank users to collect coins. He observed that ATMs are designed in such a way that it dispenses notes and not coins.

According to him, Nigerian coins have lost their value and this explains why people cannot get coins from the various ATM points. He said inflation has also made Nigerian coins to lose their values. He pointed out the need for the CBN to urgently redesign coins in a way that will make it attractive to users.

THISDAY checks also showed that local retailers have been rejecting coins because banks won't accept them as deposits. A Lagos-based supermarket owner, Mrs. Yemi Ogunsola stated that, “the banks are not only rejecting coins, but they reject even such notes of lower denominations like N10 or N5, and where they accept (bank notes) they impose an extra charges of N1,000 for each N10,000 collected.”

Ogunsola therefore explained that they were compelled to sell items which were supposed to be sold for N5 at the rate of N10 because of lack of coins. According to her, it has become almost a crime now in Nigeria to walk into a restaurant or supermarket, or board a commercial vehicle if you don't have change. “After buying stuff and it is time to pay, the first thing you hear is something like, “Please, do you have N30 so that I can give you N100 because I don't have change?”

Currency Reforms
One of the recent attempts by the CBN to promote the use of coins was the directive that all banks should pay two percent of all withdrawals in coins. This means, for instance, that if a customer is withdrawing N20,000 from his bank account, he has to go home with coins worth N4,000 to spend.

Also, last year the CBN directed banks not to accept coin deposits from the public until further notice, the essence of which was to encourage their circulation. Furthermore, the CBN, through its branches, takes coins to supermarkets, petrol stations and other retail outlets to ensure availability.

In the last two decades, the CBN has carried out some reforms in the management of the local currency in naira and kobo. When the government of General Yakubu Gowon indigenised the currency, from the British pounds shilling, he introduced what has came to be known as naira and kobo in 1973. The currency was greeted with wide acceptance by Nigerians. It automatically became the legal tender and was high in value against the United States dollar and the British pound sterling.

Today, the story is different as subsequent administrations particularly that of General Ibrahim Babangida devalued the local currency against international currencies such as the dollar and the pound. The devaluation led to the conversion of one naira and 50 kobo notes to coins in 1991 but Nigerians rejected the coins.

The downside of the currency profile is the inherent inflationary pressure that comes with the prevalence of high denominations. The rise in the rate of inflation and wasted value inherent in this every day, amounts to several millions of naira of transactions as values are rounded off to the nearest N10.

The re-introduction of newly minted N1, N2 and the 50kobo coins by the CBN during Prof. Chukwuma Soludo's tenure was certainly welcomed because its availability was expected to dampen the upward price push, which the absence of lower denominations brought about.

Justifying its decision to change the coins, the apex bank had said that coins in circulation at the period were too big and heavy and therefore, very inconvenient for transactions. Usually, countries restructure their currencies once in every five to eight years and the currency change was long overdue. As a result, with coins being a legal tender had to be changed and established as a unit of account.

The CBN argued further that there was no reason why traders should not accept coins because they are light, portable and convenient to carry. They ensure more accurate transactions and also because they are legal tender. With sustained sensitisation, the public will get used to spending coins, argued the CBN.

The apex bank insisted that coins were introduced into the system to further ensure a balance in the nation's currency structure and unit of accounts as well as to ease transactions in the country.

Tags: Business, Nigeria, Featured, Coins

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