The Federal Government subsidy on Premium Motor Spirit, popularly known as petrol, has risen to N47.5 per litre, as the crude oil price increased to $67.86 per barrel yesterday, data from the Petroleum Products Pricing Regulatory Agency disclosed.
The data disclosed that PPPRA’s PMS pricing templates for December 12, 16, 17, 18, 19 and 23 put the expected open market prices of petrol per litre at N172.92, N177.33, N177.32, N174.81, N177.92 and N180.78.
But the ex-depot price for collection of petrol, as captured in the templates, remained at N133.28 per litre, indicating that the NNPC subsidised the commodity by an average of N47.5 per litre during the review period.
The NNPC has been the sole importer of petrol into Nigeria for more than two years after oil marketers stopped importing the commodity due to crude price fluctuations and the halt in the payment of subsidy to oil dealers by the Federal Government.
What CBN says
The Central Bank of Nigeria, in its economic report for November 2019, confirmed the appreciation in crude oil price.
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It stated that the average spot price of Nigeria’s reference crude oil, the Bonny Light (37° API) at end-November 2019, was $66.11/b, compared with $61.10/b recorded in October 2019, representing an increase of 8.2%, relative to the level in the preceding month.
The bank also confirmed that the rise in crude oil price was due largely to the news of anticipated production cut by the OPEC+ and the adoption of a more stringent export control system for Nigeria and Iraq.
Impact of high oil price on subsidy
Industry operators argued that the development in the international crude oil market would impact on the petrol subsidy in the country.
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National Operations Controller, Independent Petroleum Marketers Association of Nigeria, Mike Osatuyi, explained that the rise in oil price meant that petrol subsidy would increase.
According to him, if the price of oil increases to $90, as long as the pump price of petrol remains at N145 per litre, the government must continue to subsidise the product.
He said, “We are waiting for government policy; whatever government decides, we are going to comply because we need to move forward. With Dangote refinery coming on stream, we should expect some radical policy changes in the oil industry, especially in the downstream sector.”
A Call for deregulation
Chief Executive Officer, Major Oil Marketers Association of Nigeria, (MOMAN) Clement Isong, described the subsidy on petrol as a drag on the downstream sector of the nation’s oil and gas industry.
“We are consistent in our view that the subsidy payment or subsidy in the petroleum downstream sector degrades operational efficiency and economics of the downstream sector. We don’t think it is good for the industry as a whole. We believe it is only deregulation that can help us clean up the industry and bring back efficiency.”
But IMF frowns at increasing subsidy
The International Monetary Fund, in its latest Regional Economic Outlook, called on Nigeria to reduce fuel subsidy in order to boost productive government spending.
It said, “Fuel subsidies tend to be poorly targeted, foster over-consumption, curtail investment and maintenance in related sectors, and crowd out more productive government spending. Some countries need to take the opportunity afforded by low oil prices to reduce fuel subsidies to free up additional fiscal space (Cameroon, Nigeria, Senegal), as was done in Mozambique and South Sudan and are being pursued by Burkina Faso.”