Answers to 13 frequently asked questions on the new price of petrol in Nigeria
1.What is the benefit of the new price regime to Nigerians?
This government is elected to serve the people and provide benefits to all. The new pricing regime brings the following benefits:
Solves the recurrent fuel scarcity crisis by ensuring availability of products at all locations of the country
Reduce hoarding, smuggling and diversion substantially and stabilise price at the actual product price
Ensures market stability and Improves fuel supply situation through private sector participation
Creates
Labour market stability (will potentially create additional 200,000
jobs through new investments in Refineries and Retails and prevent
potential loss of nearly 400,000 jobs in existing investments)
2. Why the new price regime?
This
has been brought about by the non-availability of foreign exchange to
import petroleum products. Marketers have drastically reduced their
importation since Q3 2015 due to a scarcity of forex. There is a need
for them to source independent of CBN to be able to meet the nation’s
demand. Also the rise in Crude oil price and prevailing high cost of
importation has brought back subsidy regime (at the present price of
N86.50) since April 2016. Due to decline in government income related to
crude oil price and limited crude oil output caused by the spate of
renewed vandalism and sabotage of oil infrastructure in the Niger Delta,
there is neither funding nor appropriation to cover this in the 2016
Budget.
3. What is the difference between this new price regime and previous price reviews?
Before
arriving at the new price regime, a comprehensive study of the costs of
importation was undertaken. All stakeholders including marketing
companies and independent experts were consulted in arriving at the
appropriate cost reflective regime. This is in furtherance of the Price
modulation framework rolled out in January 2016 which entails modulating
prices down or up on a periodic basis to reflect actual prevailing
costs.
4. Is this new price regime a deregulation?
While
the Federal Government is not deregulating, the Government through this
new price regime will ensure that the price of products are monitored
and modulated to ensure that citizens get a fair value for products they
purchase.
5. What is the real cost of PMS to the Nigerian consumer?
The
estimated “true” cost of PMS was valued to be 243.05NGN per litre. This
is factoring the estimated average time spent to obtain PMS at the
official price (86.50NGN), the estimated hourly wage of the average
Nigerian, the average price of PMS on the black market and the estimated
average volume bought per visit to the filling stations and also
factoring in the frequency Nigerians source PMS from the different
markets
6. Why do we have scarcity?
Unavailability
of Foreign exchange and Inability to open letter of credit has forced
marketers to stop product importation and this imposed over 90% supply
on NNPC since October 2015 in contrast to the past where NNPC supplies
~48% of the national requirement.
NNPC does not have the resources
for and is not designed to meet this increase in supply, this has
resulted in the current fuel situation across the country.
7. Will the new price regime ensure availability of petroleum products?
The
new price regime will allow Marketers source their foreign exchange
independently of CBN and ensure adequate product supply in all locations
of the country whilst catering for full cost recovery and averaging of
prices across the nation
8. Will the new price regime positively impact the economy?
Clearly
the continuation of subsidies in any form for PMS limits the ability of
Government to deliver its statutory functions such as power generation,
security, education, health etc. The new price regime will enable
government focus on these critical sectors and free up our scarce
foreign exchange via CBN to be used in other sectors
9. What happens to the subsidy provision in the 2016 budget?
There is no provision for subsidy in the 2016 budget
10. Why should Nigerians not enjoy low petroleum prices as the nation is a Major Oil Producer?
Crude
oil price is an internationally traded commodity , the prices are not
set by the countries that produce it. Neither do oil producing countries
get a discount in the international market for producing this product.
Furthermore, crude oil price accounts for about 80% of the final cost of
fuel. Other costs include depot charges, transportation costs,
chemicals, spare parts, raw materials etc. is related to host of
economic factors. . Therefore, at the current crude oil price of $40 per
barrel, the finished domestic refined fuel sold to Nigerians cannot be
priced lower than the cost of the crude plus the other associated costs
incurred in converting the crude into PMS and supplying the product to
the consumer.
11.How would the Government ensure that Petroleum Marketers sell within the price range?
The
relevant regulatory institutions (DPR, PPPRA) will be further empowered
to ensure level playing ground, strict compliance with market rules by
all stakeholders and consumer protection.
12. How does petrol price in Nigeria compare with those of other countries?
Even
with the new price regime, Nigeria would remain one of the cheapest
fuel markets in Africa and this could even be lower once competition
takes effect. Likelihood of smuggling to Neighboring countries will also
be significantly reduced with the new price regime.
13. When do we stop petroleum products importation?
Nigeria
will only stop products importation when it attains local production
sufficiency. The present administration is working assiduously on key
initiatives towards boosting our local refining capacity. The
overarching objective is to create a competitive downstream petroleum
market in Nigeria and be a net exporter of petroleum products by 2019.
