Regarding the removal of the petrol subsidy, the Nigerian National Petroleum Company Limited (NNPCL) and gasoline traders, represented by the Independent Petroleum traders Association of Nigeria, got into another altercation on Tuesday.
This conflict developed in the midst of the naira’s depreciation versus the US dollar in the official Investors & Exporters Window as well as the black market. On Tuesday, the black market saw trade at a rate of 1,225/dollar, while the official market reported a closing rate of 998/dollar.
Economists and oil marketers said that the Premium Motor Spirit (PMS) or petrol subsidy was increasing as the value of the naira declined.
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The NNPC, on the other hand, refuted these claims and stated that it was fully recouping its fuel import expenses.
The NNPC maintained that the fuel subsidy had been removed, refuting remarks made by Financial Derivatives Company CEO Bismarck Rewane, who advocated for a reduction rather than a removal of the subsidy.
Oil marketers said that with the depreciation of the naira and the rising price of crude oil, the subsidy on petrol was increasing.
They maintained that PMS ought to cost N1,200 per litre in a free market. As the only company that imports gasoline into Nigeria, the NNPCL currently charges N617 to N660 per litre, depending on where the product is purchased.
The CEO of the Centre for the Promotion of Private Enterprise, Dr. Muda Yusuf, admitted a partial gasoline subsidy.
He underlined that the item was subsidised by the government for social, political, and commercial reasons. Olufemi Soneye, the NNPCL’s Chief Corporate Communications Officer, refuted the opinions of economists and marketers, arguing that the federal government had really stopped providing petrol subsidies.
On May 29, 2023, Bola Tinubu made the formal announcement that the petrol subsidy would expire during his inaugural speech. After this announcement, the price of gasoline at the pump—which had previously been less than N190 per liter—rose to more than N500 and, a few weeks later, more than N600.
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“We prioritise our time on substantive matters rather than responding to assumptions,” the CCCO of the NNPCL stated in response to inquiries over the purported subsidy made by dealers and experts.
“At NNPC Ltd, we prioritise national development through energy security and sustainable growth. We reiterate that the Nigerian government does not pay subsidy on fuel; we recover full costs from our imported products.
“As a global energy company, our focus remains on fostering a vibrant and energy-secure Nigeria.”
Rewane made it clear on a live television programme on Sunday night that the gasoline subsidy had been reduced but not withdrawn entirely.
He continued by highlighting the consequences of the lower fuel subsidy and how they will affect Nigerians on salaries.
He said, “At the inauguration, it was said that (fuel) subsidy was gone but subsidy was actually reduced.”
Emphasizing his position, he explained, “There is the convergence of exchange rates and reducing the windows into one. The consequence of that is that money has been transferred from consumers to the government.
“Subsidies are reversed taxes; if you reduce them, you increase the people’s taxes and reduce their income. What has happened is that government revenue has increased by 44 percent between May and June (2023). Money has been transferred to the government but what is the government doing with it?
“The consumers, on the other hand, had a minimum wage, which in dollar terms was $40 in 2002. In 2019, it was about $70, but it has now been reduced to $24.”
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The Independent Petroleum Marketers Association of Nigeria’s Chief Ukadike Chinedu, National Public Relations Officer, said that the fuel subsidy was rising. He highlighted that the price per litre that the item should have in a free market is about N1,200.
“To be pragmatic in this analysis let’s consider the cost of petrol today in the United States. For premium petrol, it is $2.99, while super petrol sells for $3.15 or $3.10 depending on the part of that country where you are making the purchase.
“Now, $3 in Nigeria is over N3,000, because a dollar in the parallel market is over N1,000. You can also see the cost of diesel, that is over N1,000/litre, and it is important to state that petrol is usually higher in price than diesel in a free market.
“So if you consider the cost of diesel, dollar and other international factors, the price of petrol in Nigeria should be around N1,200/litre, but the government is subsidising it, which to an extent is understandable,” he stated.
Ukadike emphasised that he had previously made it clear that the government was using a strategy akin to a quasi-subsidy.
This basically means that the Federal Government will decide not to completely eliminate the subsidy, but rather to cut about half of it.
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Still, the IPMAN delegate expressed optimism, repeating that the cost of refined petroleum products will come down after the Port Harcourt and Dangote refineries started operating.
“I also believe that there will be a reduction in the prices of petroleum products this year when you consider what the government is currently doing. The coming onboard of the Port Harcourt refinery and the supply of crude to Dangote refinery are good developments in the sector.
“Their operations will help stabilise the price of PMS and other petroleum products in Nigeria, because it will definitely cut down the importation of products,” Ukadike stated.
According to the CEO of the Centre for the Promotion of Private Enterprise, the subsidies’ economic, social, and political ramifications account for some of their retention.
Yusuf said, “To protect the citizens from further hardship is the reason why the government seems to have applied the brakes on subsidy removal. We are all witnesses to the pain and hardship that citizens are going through.
“So when you are adopting some of these policies, especially these liberal economic policies, it comes to a point where you have to moderate your position for social reasons.
“Just as the World Bank said, if we want to leave the price fully to market forces and the liberal economic policies, the fuel price will be above N800/litre. Can any government that is sensitive to the feelings of its citizens allow that to happen?
“Even if economically that is the way to go, there must always be a human face to economics. So what the government has done is to moderate the reform, and that is why I think the government has insisted that the NNPC should still hold the price at the current level.”
Yusuf noted that it is critical that the government consider the advantages and possible disadvantages of providing subsidies. He made it clear that completely doing away with subsidies might make things worse financially.
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“All of us who were saying that they should remove the subsidy, we can see that they have partially removed it now, but look at the consequences. Economically it will sound good, but socially and politically it is very costly.
“So those in government need to balance all those considerations. They need to balance economic, political and social considerations. That is why we find ourselves in a situation where we have partial subsidies, both in petrol and electricity,” he stated.
The World Bank underlined in December that the Federal Government was still providing a petrol subsidy. The group insisted that the price of Premium Motor Spirit (PMS) shouldn’t drop below N750 per litre in the absence of the subsidy.
According to data from the FMDQ Securities Exchange, the naira ended the first day of official trading on the Investors and Exporters Window at N988.46/$, an 8.97% drop from its Friday closing rate of N907.11/$ at the end of official trading for 2023.
As one of the worst-performing currencies in 2023, the naira’s slide is part of a worrying trend.
According to Bloomberg, 2023 was among the worst years for the naira—a questionable claim that may hold true until 2024. On Thursday, December 28, 2023, there was a notable 55% decline in the value of the national currency.
Kyle Chapman, an FX markets analyst at Ballinger & Co. in London, claims that in 2023, the naira will remain the third worst-performing currency in the world.
This unfavourable situation can be linked to problems including an accumulation of unpaid forward contracts, unmet dollar inflow commitments, and inflation that is at a two-decade high.
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Chapman said, “The naira’s downward momentum is likely to continue through much of 2024, and its ultimate trajectory will depend on whether the CBN’s rhetoric transforms into concrete policy moves that drive up the flow of US dollars into Nigeria and shore up trust in the official market.
“If the CBN’s promised measures materialise and Tinubu’s government enacts structural changes to increase oil production or to drive foreign investment, there is plenty of opportunity for the naira to lift from its record lows. But a quick fix is unlikely, and further depreciation will come to counteract supply and demand imbalances.”
The World Bank said in the December Nigeria Development Update that the official market naira depreciated by 41% against the US dollar, while the parallel market had a 30% devaluation.
The paper stressed that in order to attain stability in the official market, a larger volume of naira is required.
It said, “Further monetary policy tightening is expected to help underpin the value of the naira. However, there is also a need to increase FX supply in the market. Facilitating FX flows, especially from all exports, through the NAFEM can help provide additional volumes in the official window that can help provide stability.
“In addition, clarity on the CBN’s net reserve position, and on the CBN’s continued progress in clearing the FX backlog, would also strengthen market confidence.”
The Nigerian National Petroleum Company Limited released a report on Tuesday that detailed 112 instances of crude oil theft that occurred in the Niger Delta during the week of December 23, 2023, to December 29, 2023. 42 illicit refineries were discovered during this time in various parts of the oil-rich region.
The events that were recorded happened in Ogidigben, Mereje, and Obodo Omadina in Delta State; Konsho and Tebidaba in Bayelsa State; and Obokofia in Imo State. The unlicensed refineries in Umuire, Abia State, and Upata, Rivers State, were also discovered and demolished, the oil corporation revealed in an official documentary that was uploaded on its X handle.
Additionally, the documentary focused on the identification of 14 illicit links in various regions of the Niger Delta. Notably, a tunnel concealing an illegal connection was found in Owaza, Abia State. Additionally, the company identified 10 cases of vandalism during the week.
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The two-and-a-half-minute documentary also revealed the discovery of illicit storage locations in Rivers State’s Tonne Kiri and Ebocha, where oil pits were found.
Sacks containing crude oil were found in Ogbia, Bayelsa State. More unlawful storage facilities were found in the Delta State towns of Bomadi and Ekuku-Agbor as well as Urhonigbe in Edo State.
The company announced that in Okrika and Tombia, Rivers State, as well as Emereje, Delta State, it had found 22 wooden boats carrying stolen petroleum.
The report also said that during an operation in Delta State, 11 vehicle arrests were made, and that there were eight oil theft instances that occurred in deep seas, 46 in the eastern region, 32 in the central region, and 26 in the western region.
Oil theft costs Nigeria a lot of money, which makes it difficult for the nation to meet the output quota set by the Organisation of Petroleum Exporting Countries. Nigeria’s capacity to reach the authorised production levels is hampered by the ongoing threat posed by oil thieves.
The National Oil Company said, “Between the 23rd and 26th of December, 2023, 18 suspects were arrested,” and it vowed to keep up the fight against crude oil theft.
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