Nigerians had barely started to recover from the impact of the coronavirus pandemic when they were once again slammed with fuel price hike; BENJAMIN UMUTEME takes a look at the unfolding scenario in this report.
Nigerians were greeted with a hike or as the Nigeria Electricity Regulatory Commission (NERC) put it as a cost-reflective electricity tariff in September. This is after Nigerians had had to endure for months an almost total shutdown to life and businesses nationwide.
Justifying the new hike, the chairman of the Commission, Prof. James Momoh, said the move would attract more investments to the power sector, as investors in the sector would be able to recoup their investments.
The NERC introduced an increased service reflective tariff in September, this year, which was later adjusted downwards by the federal government after protests by labour unions.
There was total outrage by citizens who felt the government was incentive to the plight of the people who were already in a very difficult situation due to inability to do business — a result of part of measures to curb the spread of the coronavirus pandemic.
This not only led to prices of goods and services increasing, also led to significant loss of jobs as many businesses were forced to trim down their activities or close shops altogether.
Coupled with that is the rising prices of food occasioned partly by farmers inability to properly farm as a result attacks by bandits or herdsmen, in addition to recent fuel hike which upped the price of goods and services.
The hike
As a mini product country which heavily relies on proceeds from crude oil to run the economy, oil market volatility is felt across the length and breadth of Nigeria. Therefore, the ripple effect of pump price hike impacts on goods and services. Simply put, fuel increase affects everybody.
That is why it did take Nigerians by surprise when the Nigeria National Petroleum Corporation (NNPC) subsidiary, PPMC adjusted the ex-depot price of petrol, with marketers expected to sell between N165-N173 per litre.
The ex-depot price is the price at which the product is sold by the PPMC to marketers at their various depots. This is the fifth time the government will increase the price of petrol in 2020.
The new adjustment which was contained in an internal memo from PPMC with reference number PPMC/C/MK/003, dated November 11, 2020, signed by its manager marketing, Tijjani Ali, was addressed to the executive director, commercial, of the agency.
The memo read in part, “The EDC may please refer to the management directives in respect of the above subject (PPMC PMS prices for November 2020) as per the attached memo.
“In line with the above, we propose PPMC November 2020 actual prices for PMS with effect from 13th November 2020, as follows: PPMC Ex-Coastal Price for PMS N130 per litre; PPMC Ex-Depot Price (With collection) N155.17 per litre.”
In its petrol price proposal for November, the PPMC put the landing cost of petrol at N128.89 per litre, up from N119.77 per litre in September/October. It also disclosed that the estimated minimum pump price of the product would increase to N161.36 per litre from N153.86 per litre.
Nigerians react
For Remi Olaitan, who runs a business centre, the increase in price of fuel is a disincentive to small business.
“It is seriously affecting us. As you know, the power situation is very unpredictable at times. You have to run your generator for most of the day and it is not helping us,” she told Blueprint Weekend.
In the same vein, Matthew James, who manages a barber’s shop, told this reporter that it was frustrating being a business owner in Nigeria.
According to him, while the Nigerians are yet to recover from electricity tariff increase, the government increases fuel. “If I have to buy N1500 fuel per day, how much is left for me,” he asked.
The multiplier effect is that prices of foodstuff shot up geometrically, which reflected in October’s inflation rate. Experts and social commentators are of the view that the government’s action will only further increase the suffering if Nigerians.
FG’s insistence
Despite the hullabaloo by various interest groups and ordinary Nigerians alike, the government continues to stick to its guns that the increase is for the good of Nigerians.
They say the temporary pains seem to mask the long term gains of allowing market forces to determine fuel prices. The government had repeatedly said it would no longer pay subsidies on petroleum products as it would channel the money to bridging the country’s infrastructure gap.
The Minister of State for Petroleum, Timipre Sylva, said the announcement of a Covid-19 vaccine by Pfizer triggered a slight increase in the price of crude oil in the global market.
Sylva said, “What happened recently was because of the announcement of a vaccine for Covid-19 by Pfizer. With that, crude oil prices went up a little bit.
“If you have been following crude oil prices, you would have seen that crude oil prices went up a little bit as a result of this announcement. So, when crude oil prices go up a little bit, then you will see that (it will) instantly reflect on the price of petrol, which is a derivative of crude oil.”
According to him, the pump price of petrol is directly determined by the price of crude oil in the global market.
He said it was not the first time the government would give the same explanation whenever the pump price of petrol changed in the country, adding that the government took the decision to deregulate the sector in order to ensure its optimum performance.
“When the price of crude oil goes up, then it means that the price of the fixed stock has gone higher; it will also affect the price of the refined product and that is why you see that product prices are usually not static, it depends on the price of crude oil which goes up and down.
“That is why we say, deregulate so that as the price goes up or down, you begin to go up and down as well as the pump. Before now, we fixed it – which was not optimal for us as a country,” Sylva said.
Taking his turn also, Presidential spokesman, Garba Shehu, noted that despite the hues and cries, how many Nigerians benefit from low fuel charges.
He said, “We belong to a global market system. We are buying, mostly, refined products from the international markets. Is it fair to the taxpayers . . . How many Nigerians have cars anyway? How many of them run generators in their homes that they need this fuel for? Is it fair that the farmer and the herder and all of these low-level people in our society, that the taxpayer money is taken from them and is subsidising the lifestyle of our city, urban dwellers? So, the president is just trying to be as practical as possible on this matter.”
He said further that it was unwise for the government to continue to determine prices and be an active player in the petroleum industry.
“Government is not the best manager of businesses; we should surrender them to the market.
We have done this with the telecoms; the telecoms are serving the whole nation excellently well, and when we do this with petrol, we will no longer have to cope with queues, spending two nights ahead of Christmas travel. All nations of the world put this thing to the market. We should no longer pretend.”
Market survey
A trip to the market would provide a better understanding of the impact of the increase in fuel price.
Blueprint’s checks at the Karu market, a suburb of the federal capital territory (FCT), revealed that prices of foodstuff have almost doubled the former price.
Traders there say they have had to pay more as suppliers complain of high costs of transportation. For instance, the price of a small bowl of onions which we had to sell for N100 suddenly rose to N350, while local rice price that was between N600 and N650 has hit N1000, at the time of filing this report. A 25 litre of palm oil rose to N17, 000 from about N13, 000.
The Nigeria Labour Congress (NLC, in its reaction, warned that there is a limit to what Nigerians can tolerate. According to NLC President, Ayuba Wabba, “Nigerians cannot be made to bleed endlessly for the failures of successive governments to properly manage our refineries, ensure value for money for the numerous Turn Around Maintenance (TAM), which were poorly and barely executed.”
Experts’ views
Analysts are of the view that as it stands at the moment the driver of the recent increase is the exchange rate. According to them, with a weak naira, it would be difficult for the price of the product to fall even when crude price is low.
For oil and gas expert, Olumide Ibikunle, the global crude oil prices are majorly linked to the price of the final product, which are refined products like petrol, diesel, kerosene, and then foreign exchange. However, he admitted that there are other elements in the pricing template.
He said, “You need to realise that there are other elements of the pricing template. I just mentioned two of the most important ones, which are the exchange rate and the crude oil prices.
There are other items like international shipping cost, which is also a key part of it; freight costs, also depending on the availability of tankers for instance, if tankers are not available in the international market to ship refined products; the cost of moving refined products also increases.
“These products are ordered in advance. I don’t need PMS today and place the order today. I place the order two or three months in advance.
You must realise the dynamics at that time versus what it is now, might be different. So that consideration is also something that fits into the price consideration, and we must also factor that in.
“So, if prices are N160 today, perhaps it is reflective of the $46 or $45 per barrel that we saw 2 months ago. Hence, what you see in October or November will be reflective of what you see in September.”
Uche Uwaleke, a professor of the Capital Market at the Nasarawa State University, told Blueprint in a WhatsApp message that food inflation is over 17 per cent and has remained the major driver of inflation even during this harvest season. This has been ascribed to security situations where farmers are only allowed access to their farm upon payment of money to bandits.
The National Bureau of Statistics (NBS) in its CPI report for the month of October put the inflation rate at 14.23 per cent up from 13.71 per cent in September.
Food inflation in October was highest in Edo, Kogi and Zamfara, the report said.
Uwaleke said, “The increase in the pump price of fuel also contributed because according to the NBS, a major cause of core inflation came from increase in transport cost.
“Consequently, the government should focus on increasing food production by aggressively implementing the massive agricultural programme contained in the Economic Sustainability Plan.”
