With $60 Per Barrel, FG in Dilemma over Deregulation

With $60 Per Barrel, FG in Dilemma over Deregulation

· Fear of social disturbances stalls new pump price
· FG now subsidising PMS without budgetary provision

Gboyega Akinsanmi

As Brent Crude traded at $59.34 per barrel at the international oil market on Friday, the federal government is in a dilemma to increase the pump prices of premium motor spirit (PMS) or subsidise the product without budgetary provision, THISDAY checks have revealed.

However, according to our findings, the federal government cannot announce a new pump price in line with its deregulation policy due to perceived opposition by the organised labour; public disapproval such a decision will attract nationwide and social disturbances that may result from it.

The leadership of Petroleum Products Marketing Company (PPMC), an arm of Nigerian National Petroleum Corporation (NNPC), made this proposal during recent meetings with Independent Petroleum Marketers Association of Nigeria (IPMAN) and Major Oil Marketers Association of Nigeria (MOMAN).

Traded at $53.13 per barrel when the oil market opened on January 5, crude oil prices have been on a steady upward trajectory, closing at about $59.34, a development that stoked debate among leading petroleum economists and global investment banks including Goldman Sachs Group.

The upsurge is consistent with the forecast of the International Monetary Fund (IMF), putting the average crude price at $41.29 per barrel in 2020 and projecting about $50.03 per barrel in 2021 before falling back to $48.82 per barrel in 2022.

Unlike IMF’s forecast, Goldman Sachs, a leading global investment bank, predicted that the price of Brent Crude could rise to $65 per barrel by summer 2021, which it claimed would be driven by output cuts in Saudi Arabia and the implications of power shift in the United States.

The price upsurge and relatively steady production output have positively impacted Nigeria’s external reserves, rising sharply to $36.304 million, as shown in the data of the Central Bank of Nigeria (CBN) on January 14.

On Friday, however, the price upsurge triggered a widening variance between the landing cost of PMS currently standing at about N185 and the subsisting pump price, now trading from N159 at NNPC filling stations to N162.50 at non-NNPC filling stations across the federation.

Multiple sources at PPMC’s meetings with IPMAN and MOMAN privately revealed that the federal government had been considering an upward review of fuel pump price amid the widening difference arising from the price of crude oil at the international market.

One of the sources at the meetings said that the federal government “is under pressure to review the current pump price because it no longer represents the realities at the international oil market.

“From loading to discharging ports only, the landing costs of PMS range from N180 to N185. The cost does not include other charges by agencies of the federal government and the Lagos State Government.”

According to the source, the Department of Petroleum Resources (DPR) imposes three different charges namely; product certificate charges (PCC), quality certificate charges (QCC) and vessel arrival charges (VAC).

While the PPMC collects Petroleum Equalisation Fund and jetty fees, the source clarified that the Lagos State Government imposed wharf landing fee as stipulated in the Wharf Landing Fees Law of Lagos State, 2009.

When all these charges are added to the landing costs currently ranging from N180 to N185, the source observed that the pump price would be hovering between N200 and N205 in line with market realities.

He explained the concern of the federal government on two grounds, which according to him, had to do with its insistence to fully deregulate the petroleum downstream sector and its decision to not make provision for fuel subsidies in the Finance Act, 2021.

With this growing uncertainty in the downstream sectors, the source disclosed that nearly all independent marketers and oil majors “have stopped importing fuels into the country. They now depend on the NNPC for the PMS.

However, another source told THISDAY that the PPMC leadership “has stopped discussing the upward review of fuel pump price for fear of mass action by the organised labour and social disturbances such a review may generate.”

Already, the source disclosed that the organised labour had warned the federal government against any economic measure that would inflict more pressure on the masses with the grave effect of the economic downturn.

Amid disappointing economic indices and recent electricity tariff increase, the source noted that the federal government through the PPMC found it difficult to announce an upward review in the price of the PMS.

However, the source disclosed that the organised labour gave two conditions for which it could support the upward review of fuel pump price, thereby requesting that the federal government “to ensure that all refineries nationwide are functional and foreign exchange effectively stabilised.”

Under the administration of President Muhammadu Buhari, Nigeria has run into economic turbulence, first in the second quarter of 2016 and also in the third quarter of 2020, thereby inflicting grievous agonies on the ordinary people.

In the third quarter of 2020, the National Bureau of Statistics revealed that Nigeria officially slid into its worst economic recession in over three decades with a contraction of 3.62 percent in its Gross Domestic Product (GDP).

Amid the excruciating economic crisis, the federal government had reviewed upward the pump price of PMS and the electricity tariff, which stoked stern public criticism and even threat of mass action before it eventually revised to the old price regimes.

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