Why Buhari slashed petrol price to N125

President Muhammadu Buhari yesterday approved an immediate reduction in the pump price of premium motor spirit (PMS), otherwise known as petrol, from N145 to N125 per litre.
Also, the President directed officials of the Nigerian National Petroleum Corporation (NNPC) to work out an appropriate price in line with market realities for AGO (diesel) and kerosene.
Buhari reduced the price after the Federal Executive Council (FEC) meeting. The Minister of State for Petroleum, Timipre Sylva, who gave an insight into the development after the meeting presided over by Buhari, said: “The drop in crude oil prices has lowered the expected open market price of imported petrol below the official pump price of N145 per litre.
“Therefore, Mr. President has approved that Nigerians should benefit from the reduction in the price of PMS which is a direct effect of the crash in global crude oil prices.
“In view of this situation, based on the price modulation template approved in 2015, the Federal Government is directing the NNPC to reduce the ex-coastal and ex-depot prices of PMS to reflect current market realities.
“Also, the PPPRA shall subsequently issue a monthly guide to NNPC and marketers on the appropriate pricing regime.
“The agency is further directed to modulate pricing in accordance with prevailing market dynamics and respond appropriately to any further oil market development.
“It is believed that this measure will have a salutary effect on the economy, provide relief to Nigerians and would provide a framework for a sustainable supply of PMS to our country.
“The Ministry of Petroleum Resources will continue to encourage the use of compressed natural gas to complement PMS utilization as a transport fuel.”
Last Friday, Sylva said the Federal Government had begun consultations with relevant stakeholders on a possible reduction of the pump price of petrol in the wake of the crash of crude oil prices.
He clarified that no decision had been made to cut the pump price, saying that consultations were on.
“We are still consulting, we are still following it closely. Of course, usually, the product prices follow the crude oil price but we are still consulting. We will get back to you, please, be patient,” he stated.
The minister was in the State House then to brief President Buhari on the work of the presidential committee to assess the impact of the coronavirus on the economy.
It was learnt that the approval for a reduction in the pump price followed a presentation to council yesterday, on the need to do so following the global fall in oil price.
This is consequent upon the slump in the international crude oil price from $60 to $30, causing the fear of a possible economic crisis.
The NNPC challenged professionals in the petroleum sector to come up with solutions to tackle current challenges facing the industry.
The Group Managing Director of NNPC, Mallam Mele Kyari, listed over-supply and the outbreak of the coronavirus, which has led to a considerable fall in the price of crude oil, as the two major challenges facing the oil and gas industry today.
“The combination of these two events means that there would be a lull in activities in the oil industry, and if forecasts are right, we may witness very low oil prices throughout the year and that will have a collateral effect on the economy,” the GMD observed.
As the landing cost of petrol yesterday crashed to N64.32 per litre, going by the recent pricing template released by the Petroleum Products Pricing Regulatory Agency (PPPRA), there are fresh agitations for the government to deregulate the downstream subsector, using the opportunity provided by the current oil slump.
The outbreak of the deadly coronavirus and its spread across the world has forced the international oil market to a near standstill, leaving crude oil price to crash from around $60 per barrel to about $29. The drastic fall in the price reduced the expected pump price of petrol to N64.32.
Despite the development, the ex-depot price stood at N125.63 per liter, while government’s approved retail price hovers between N135.00 and N145.00 under a subsidy scheme that has been repeatedly criticized.
While the PPPRA disclosed that the country currently has about 2,217,972,763 liters of PMS in stock, expected to last for 39 days in the face of the growing concern as businesses close down across the world over the coronavirus pandemic, there are indications that the Federal Government could save the N450 billion that was budgeted for subsidy in 2020.
With the Nigerian National Petroleum Corporation (NNPC) being the only importer of petrol, PPPRA revealed in its Petroleum Products Stock Data published yesterday that private sector players such as the Depot and Petroleum Products Marketing Association (DAPPMA) and Major Oil Marketers Association of Nigeria (MOMAN) had no PMS in stock.
The immediate past president of the Nigerian Association for Energy Economics (NAEE), Prof. Wumi Iledare, said there was the need for government to allow market realities to drive the sector.
“I wish the government will have the will to let the PPPRA take charge, using the template for petroleum products pricing. Government must take advantage of this to liberalise or restructure the market to readjust itself going forward in proportion to relate changes in crude oil prices and exchange rates,” Iledare stated.
Last year alone, Nigeria spent N3trillion importing about 18 billion litres of petrol, while the nation is struggling with the poor state of its refineries and the absence of modular refineries.
A former President of the Nigerian Association of Petroleum Explorationists (NAPE), who is the Managing Director of Degeconek Limited, Abiodun Adesanya, also insisted that the existing development provided an opportunity to address the anomaly in the downstream sector.
Predicting that the slump in oil price could leave a massive loophole in the nation’s economy, Adesanya said: “I never supported subsidy for petrol. It is good we remove it through this opportunity.”
PricewaterhouseCoopers’s Associate Director, Energy, Utilities and Resources, Habeeb Jaiyeola, also called on the government to stop pegging the price of the product.
Also, oil marketers under the umbrella of Major Marketers Association of Nigeria (MOMAN), stated that the global reduction in crude oil prices had presented Nigeria with the opportunity to reform and restructure the downstream sector of its petroleum industry.
MOMAN Chairman, Tunji Oyebanji, said the fall in oil prices would open up petrol importation by bringing multiple players to participate. He appealed to the government to review industry margins.
According to him, removing fuel subsidy at the period of a drop in prices would eliminate waste, address the issue of the low margin of marketers, as well as, set the country on the path of determining appropriate pricing for the product in the country.
He also advocated the need for the restructuring of the nation’s downstream oil industry in order to set it on the path to sustainability.
“The elimination of oil theft and leakages in the system, the optimization of the supply chain, the introduction of alternative energies and the regular and consistent maintenance of the distribution infrastructure are all necessary aspects of this downstream reform, which the passage of the Petroleum Industry Bill (PIB) will provide an opportunity for the country to resolve once and for all.’’
Though the Federal Government unveiled a new template for the pump price of petrol, there are concerns among operators on when it will become operational as existing stocks are yet to be dispensed, thus fuelling the fear of possible hoarding and scarcity of the product.
Some petroleum marketers yesterday told The Guardian that they were expecting the template from the government to determine the next line of action. With the exception of NNPC retail stations, independent and major marketers will wait to see the template to determine the margins and discuss new arrangements that will border on the existing stock yet to be dispensed to customers.
Until this happens, it is unlikely that the pump price would be affected immediately by the operators who had before now complained about the poor margins of N6 on every litre of fuel sold in the country.
The MOMAN president, Oyebanji said: “We are not sure whether it is a reduction or a complete deregulation. It is a bit difficult to say now, but we hope that in the process, marketer’s margin will be improved within the industry, so as to attract more investment in the business.”
Meanwhile, the FEC meeting on Wednesday observed a minute silence to honour the victims of Sunday’s explosion in Abule-Ado in Lagos State.
The meeting also used the same minute silence to honour the memory of former Minister of Science and Technology, Prof. Emmanuel Emovon.
Emovon, who died on February 20, 2020, at the age of 90 years, was Minister of Science and Technology under the General Ibrahim Babangi-led Military administration.
Emovon who would have clocked 91 years on February 24, was also one- time Vice Chancellor at the University of Jos, Plateau State. (The Guardian)