YOUR SAY: Should Buhari hike fuel price or give fresh fuel-forex subsidy?

Nigeria is back to the point we envisaged three months ago, the point where we would be discussing a new hike in fuel price or reintroduction of fuel subsidy, following the pseudo-deregulation of the downstream oil sector.

In May, the Muhammadu Buhari administration raised the pump price of petrol, claiming to have run out options, and resorting to what it termed “partial deregulation”.

Over the weekend, the Nigerian National Petroleum Corporation (NNPC) hosted a meeting of former group managing directors of the corporation. At the meeting, it was disclosed that the N145 per litre pump price of petrol was a deviation from the liberalisation policy.

The former GMDs opined that the fuel price did not reflect the prevailing realities in the Nigerian economic landscape.

According to data compiled by Bloomberg, the naira has depreciated by 36.44 percent against the dollar since the new fuel price regime kicked off on May 11, 2016.

The change in the position of the naira against the dollar has not reflected on the price of petrol in the liberalised regime.

According to Vice President Yemi Osinbajo and Ibe Kachikwu, minister of state for petroleum resources, the pump price was bench-marked at a N285 to the dollar as obtainable at the interbank market at the time.

“We realised that we were left with only one option. This was to allow independent marketers and any Nigerian entity to source their own foreign exchange and import fuel,” Osinbajo said in May, after the announcement.

“We expect that foreign exchange will be sourced at an average of about N285 to the dollar, (current interbank rate). They would then be restricted to selling at a price between N135 and N145 per litre.”

According to the Petroleum Products Pricing Regulatory Agency (PPPRA) template released in May, the landing cost of PMS was N122.03 per litre, while the distribution margin stood at N18.37. This was calculated at N285 to the dollar.

Going by the new foreign exchange regime, marketers can get forex at any price between N305 and N394 to the dollar.

At, N310 to the dollar, marketers are getting forex at 8.8 percent higher than the PPPRA template, which has led to complaints and speculations about a hike in pump price, which was further confirmed by the NNPC GMDs.

THE 5 TOUGH OPTIONS BEFORE BUHARI

With current foreign exchange policy, and the price of crude oil on the international market, Buhari has five tough options, from which he must choose in the days to come. They are:

FOREX SUBSIDY: If the president wants the pump price to remain at N145 for a litre, he may have to ask the Central Bank of Nigeria to create a special window for oil marketers to get forex at the initial N285/$1.

This would mean that the government would be paying forex subsidy in excess of N25 on every litre, if the interbank market rate stands at N310/$1.

According to Muhammad Sanusi, emir of Kano and former CBN governor, forex subsidy encourages corruption.

FUEL SUBSIDY: The second option is for the president to reintroduce subsidy on PMS. According to TheCable’s calculations, the least price a litre of petrol can go for, in the face of the new forex regime, is N149.

Our price was obtained by considering the cost elements on the PPPRA template, in line with the new forex realities.

Going by this, the president may need to approve a N4 per litre fuel subsidy. But as long as the history of oil subsidies go, this may translate into billions in just a few weeks.

HIKE IN PUMP PRICE: The third option, which may be the economic way out, is to allow for another hike in pump price. But the president’s love for the masses may make this next-to-impossible. Pump price peg can be pushed from N135/N145 to N145/155.

STATUS QUO AND FUEL SCARCITY: The president can choose to maintain status quo and reduce the profit margin of oil marketers to the barest minimum. This is obtainable, but may soon lead to fuel scarcity and unofficial sales.

TOTAL DEREGULATION AND PASSAGE OF PIB

The phrase is “long overdue”! Nigeria should have since passed the petroleum industry bill and  implement a total deregulation of the downstream oil sector.

The federal government has said time and again, that it would split the comprehensive bill into smaller bills to ensure swift passage, but this remains a mirage.

The president and his petroleum team may be having one of the biggest dilemma in the administration at this time, but a decision has to be made to avert a repeat of fuel scarcity.

What would you recommend for the president?

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