Downstream Operators Advocate Phased Adjustment of Petrol Pump Prices as Subsidy Returns 

Peter Uzoho

With the return of the expensive subsidy payment on petrol imported into the country by the Nigerian National Petroleum Company Limited (NNPC), some operators in the petroleum products marketing business have advised the federal government to explore the option of gradual subsidy removal to make the policy more manageable and less painful.

Their suggestion came on the heels of the return of subsidy which President Bola Tinubu had abolished during his inaugural speech on May 29, 2023. The policy action had led to the rise of petrol pump price in the country by over 200 per cent from the previous N185 per litre, to now between N580 and over N617 per litre, depending on the location.

The outrageous petrol price following the subsidy removal also triggered inflation as other commodities and transportation witnessed sudden rises in prices with attendant adverse impact on most Nigerians struggling with poor purchasing power.

The return of subsidy in the petrol marketing system was not unexpected as the government and the NNPC had ruled out any further increase in petrol prices beyond the current pump price, a position that negates market forces, which is normally driven by the principle of demand and supply.

Petrol landing cost follows the trend at the international market and oscillates according to the rise and fall of crude oil price, with other determining factors including the foreign exchange situation, inflation, interest rate, as well as other operational and agency costs associated with the importation.

With the oil price currently hovering around $95 per barrel, industry experts believe that the current pump price of petrol should be in the region of N720 and above per litre, hence the return of subsidy payment for petrol.

But speaking to THISDAY in an exclusive chat, a former Chairman of the Major Oil Marketers Association of Nigeria (MOMAN) and Managing Director of 11Plc, Mr. Tunji Oyebanji, advised government to explore the option of phased removal of subsidy.

He explained that with that method, the pump price of petrol will be adjusted in piecemeal from time to time until it gets to the actual market price. 

Oyebanji maintained that the gradual price adjustment approach will also make the prices bearable for Nigerians and the subsidy payment manageable to the government.

He argued that government and the NNPC may have decided to keep petrol pump price still at its current rates despite the rising crude oil prices and landing cost because the quantity NNPC was importing has reduced with the drop in demand.

Oyebanji argued that the amount of subsidy per litre had also reduced compared to when the product was being sold for N185 as the product is now sold for N600.

“So, maybe where the subsidy was like N400 per litre, it has reduced to N150 per litre. And not only has the quantity reduced, the subsidy has also reduced. So, when you multiply the two, it may mean that subsidy that could have probably been maybe N4 trillion is now N1 trillion.

“So, government’s thinking may be that, given the uproar and the potential pushback and the likelihood of confusion, they may have decided that the subsidy now is more bearable than before and so, let them try and manage it now until the situation improves,” he said.

However, to mitigate the burdens of high petrol prices or high subsidy payment which may be around N400 per litre, Oyebanji opined that government “should be adjusting prices gradually so that the impact will not be like this one where prices went from N185 to close to N500 initially. That would have been maybe better.”

He further explained: “But you know what happened, everything just happened overnight and that would be a very difficult pill to swallow wherever it maybe. But when people are doing adjustment like N3; N5, the impact will not be as hard as it is now. 

“So, that may be another way of going about it because if we do not do those adjustments and the exchange rate continues to go as it is going and crude price keeps going up, that means that subsidy that had come down to maybe equivalent of N150 per litre, will start to climb again, and before you know it, it can go back to that huge amount. 

“So, in a fully deregulated economy, prices should be adjusted in bits as the market changes and if they do that, more people will be able to import and there will be competition which will keep prices at a lower level.”

Also, National President of Petroleum Products Retail Outlet Owners Association of Nigeria (PETROAN), Dr Billy Grillis-Harry, told THISDAY that his members were “not also opposed to the suggestion for a phased subsidy removal approach.”

He, however, vehemently stated that subsidy was no way to go for Nigeria, adding “but before subsidy is removed, there should be very clearly defined parameters to ameliorate the suffering of Nigerians”.

He advised the president to focus on declaring a state of emergency on the local refineries and that the  order should be monitored to ensure the refineries were fired into operation to start refining crude oil in Nigeria.

Executive Secretary of MOMAN, Mr. Clement Isong, however, cautioned the federal government’s decision to partially return the subsidy to curtail the rising price of petrol.

He insisted that the short-term intervention must be targeted, affordable, well thought out, and time-bound and should not negatively impact the Nigerian economy in the long run.

 “MOMAN supports short-term interventions in the prices of imported petroleum products, provided they are time-bound and targeted. However, the intervention should not hurt the Nigerian economy in the long run. Subsidy is bad, intervention to help consumers transit is good,” he stated.