Posted on December 29, 2016 by Research Team

Fuel Price Increase Looks Likely As Landing Cost For Fuel Crosses N180

The National Bureau of Statistics released its latest monthly PMS report showing that the average price of fuel in Nigeria rose slightly to about N146.7 per litre. This is slightly above the government approved retail PMS price of N145. While states like Yobe sold petrol at an average price of N160, most states fell under the N150 price range. The data also revealed that average diesel prices had risen to about N195.6 for the month of November.

On paper, this NBS report suggests all is fine with two of the most closely watched input costs for the manufacturing and trade sectors of the economy. Unfortunately, based on the latest information reaching Nairametrics from operators in the downstream sector, there appear to be challenges brewing.

 

According to our sources, the landing cost for fuel in Nigeria rose to as high as N185/litre on average for most importers. This landing price is about N40 per litre higher than the official retail price of N145/litre suggesting that the government may well be going back to the dark and nearly forgotten days of fuel subsidy.

 

Operators in the industry are not surprised at all by the spike in the landing cost of PMS also known as fuel or petrol in Nigeria. They are quick to point to the rise in oil prices following the landmark deal reached by OPEC a few weeks back, as well as, the persistent naira depreciation (readers will recall that an exchange rate of $1/N287 was used to derive the current price of N145 per litre).

This deadly combination only means an upward pressure on PMS prices as marketers try to recoup costs. Operators point to the spiraling cost of diesel (already fully deregulated) as an example. Diesel costs over the last two weeks has risen from about N200 to as high as N250 in some filing stations across Lagos.  Since they get no subsidy for selling, these guys are quick to reflect the true cost of diesel prices.

 

PMS is a different ball game. The Buhari led government is scared of an economic revolt and will not risk the likely political fallout of another price increase. The last thing it needs is another social unrest amidst poverty and frustrations suffered by millions of Nigerians. Unfortunately it can only hold on for just so long. If the exchange rate continues to depreciate and crude oil prices continue to rise, the government will have no choice but to either increase prices or bring back fuel subsidy. It’s between a stone and a hard place for this government.

 

As Nigerians look forward to the new year, the likelihood of a fuel price increase is NOT impossible. We expect fuel prices will rise in the coming days except the government accepts it will continue to subsidize billions daily. While a subsidy may bring a temporary relief to the government in power, the reality of limited government revenue makes it nearly impossible to sustain fuel prices at N145/litre.