Nigerians may be bracing themselves for another round of rising transport fares and food prices as Dangote Petroleum Refinery has increased the price of Premium Motor Spirit (PMS), generally known as petrol.
The Guardian reported that the price of petrol at the refinery’s gantry went up by N1,265 to N1,350 per litre on Saturday, September 12, a rise of N85.
This is the fourth upward revision of petrol price in 22 days and has brought the total rise to N185.
The development has raised concerns of further hikes in transit tickets, food prices and business operating costs at a time when consumers are still grappling with the fallout from earlier energy price adjustments.
The latest boost was announced when worldwide crude oil prices were high, with Brent Crude trading at roughly $104.60 per barrel after prior swings above $107.
The spike has been attributed to supply concerns due to the ongoing turmoil in the Middle East and disruptions in the Strait of Hormuz.
The adjustment has, in turn, reignited issues about the sustainability of Nigeria’s post-subsidy petroleum pricing regime and if the introduction of large scale local refining might effectively mitigate the impact of global oil price fluctuation on Nigerian consumers.
The latest petrol price rise has made it increasingly difficult for ride-hailing operator Peter Obasi to operate the business, with tariffs listed on the inDrive platform no longer covering his operating costs. Oil & Gas
“Fuel price is not favourable to us indrive. “We have to ask consumers to contribute to the amount on the app and if they refuse I have to terminate the ride since it is not favouring my business. “This is crazy, I bought fuel at N1,400 per litre,” he said.
Consumer Bolanle Ajisafe said the current price hike would put more pressure on household finances.
Petroleum economist, Prof. Wumi Iledare remarked that the comparison of crude oil prices alone could not be the basis for the new increase, stressing that the ultimate price of petrol is affected by many components. He said the fluctuation in crude oil prices from $100 to $107 a barrel should be seen along with the cost of refined products, logistics, primary margins, retail margins and distribution costs.
He says crude prices and fuel prices are not always in a one-to-one relationship, especially in Nigeria, where exchange rate swings and imported products continue to affect downstream costs.
Iledare highlighted that petrol prices can go up faster than they come down because of the way costs are passed throughout the supply chain.
It was an asymmetry in price transmission, he said, with rises in food costs transmitted to the pricing of petroleum products faster than falls. Economics
The expert cautioned that the removal of the option of imported petroleum products could result in a market controlled by a single provider, with the leading refiner having too much influence over prices.
The Petroleum Economics and Wealth Initiative (PEWI) also said the situation where crude oil is exported by Nigeria and imported by Dangote is not necessarily an economic contradiction.
But it emphasised that Nigeria should strive to capture more value through competitive domestic refining and downstream operations without compromising the foreign cash revenues from crude exports.
The last increase confirmed the post-subsidy pricing regime was functioning as designed, said Dr Ayodele Oni, an energy economist. Petrol prices were now moving in tandem with changes in crude oil prices and other market realities, he said, unlike the former arrangement when the government kept prices through subsidy payments. Oil & Gas
What changes for domestic refining is not the oil price, it is everything around it: the import freight, demurrage, financing and FX premium Nigerians paid for decades is gone’, Oni said.
But he cautioned the new hike will have “serious consequences” for households as the petrol costs filter straight into transit and food prices.
“It’s serious and it’s quick. “Petrol goes straight into transport and transport goes into food, which is the biggest part of the average household basket,” he said.
Oni called on the federal government to step in with targeted support, rather than forcing refiners to sell at a loss.
“The economically rational question is not whether the pump should ignore the crude but who should pay the cushion. “The answer is government, not refinery,” he remarked.
He suggested that more earnings from crude oil be ploughed into transport help and financial transfers to disadvantaged Nigerians, with published data to ensure accountability.
He also recommended funding for conversion of commercial cars and mass transit fleets to Compressed Natural Gas (CNG) and Liquefied Natural Gas (LPG). The step, he maintained, would permanently reduce petrol usage.
Energy expert, Prof Dayo Ayoade stated, “This latest increase is consistent with the workings of a deregulated petroleum market where international price movements impact domestic prices.
“There is no big surprise there because when you go to a market system, the market will set the price,” he said.
Ayoade said refiners could hardly be expected to take big losses by selling below market price. Economic Sciences
“You can’t expect them to take a big hit on the local market,” he said.
But he admitted people were feeling the squeeze of high prices, and encouraged the government to look at solutions that could soften the blow without resorting to a return to blanket petrol subsidies.
“You can subsidise the transportation. You can up transportation of CNG’, he remarked.
“The consumers are fed up with high prices, fed up with the cost of living and government has to do something.
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