No subsidy/new forex regime: It is costly for Govt to miscalculate its steps
Economic issues recently have become more windy with confusing side to the masses who just want to see the hardship of recent woes of the economy distilled for a drastic turnaround. Recently, the cost of petroleum products has made earlier troubled situation of economic mischief become more turbulent for Nigerians. The removal of subsidy on Premium Motor Spirit (PMS) immediately informed hike in prices of commodities. Although Nigerians have raised alarm in frustration to the development, it appears more that it has become a new reality they would have to grope with.
More worrisome for Nigerians in the past few days have been projections that they may still have to pay for more beyond the subsisting N617 official price for petrol. Instability in pump prices of PMS associated with the removal of subsidy and foreign exchange (Forex) fluctuation, has further plunged the oil downstream subsector into crises, just as projection of intending hike in pump prices has got Nigerians perplexed. Oil marketers had indicated that the cost of petrol would rise to between N680/litre and N720/litre in the coming weeks should the dollar continue to trade from N910 to N950 at the parallel market.
Recent developments relating to foreign exchange have further plunged the downstream oil subsector into instability. Weekend, foreign exchange hit a higher blow of crossing the N900/dollar ceiling, up to over N945/dollar at the parallel, a development marketers noted have hit hard on dealers with uncertainties forcing them to shun importation due to scarcity of foreign exchange to import the commodity
It was gathered independent importation had ceased as marketers struggle to recoup investment due to the fall of the Naira. Oil dealers had said the CBN Importers and Exporters (I&E) official window for foreign exchange, which boast of a lower exchange rate of about $740/litre, had remained illiquid and unable to provide the $25m to $30m required for the importation of PMS by dealers.
Marketers had noted that about $25m to $30m needed to import petrol cannot be sourced in the I&E window, a development discouraging marketers from importation. The CBN last week attributed the continued fall of the Naira against the dollar to the diversion of Diaspora remittances to the parallel market.
Reports have shown oil marketers still depend on sourcing dollars from the parallel market, as the CBN’s I&E official window was illiquid. The development, oil dealers had said would further inform jerking in pump price of petrol, while scarcity of the commodity looms, following the uncertainties which have made dealers sceptical of importing.
According to oil marketers, since subsidy has been discontinued, Nigerians should expect more vagaries in the pump prices of petrol, as petroleum products prices would now fluctuate with the exchange value of Naira to the dollar, even as they projected Nigerians risk to pay N750/litre should the value of Naira further devalue to exchange for N1000/$1 It is expected that other marketers would follow suit should the NNPCL which is still the major importer of petrol fix a new pump price any moment.
It has been noted dealers were not importing petrol despite the licences issued by the government recently to about six marketers to bring in products. Oil marketers had noted that the landing cost of petrol has risen month-on-month, MoM, by 37.4 per cent to N632.17 per litre in July 2023, from N460 per litre in June 20, just as the landing cost for August is expected to rise further.
The projection had angered the Organised Labour threatening a full blown shut down of the Country should such increase take place. The Organised Labour in reaction had vowed to proceed at this time with a total, comprehensive and indefinite nationwide shutdown of the Country, should there be another increase in petrol pump price from the subsisting N617. Recall the Organised Labour had earlier suspended a proposed indefinite strike on Thursday, August 4, 2023, following a meeting with President Bola Tinubu.
However, in response to projections of further hike in the price of petrol, and threats by the Organised Labour to lead a natiowide shutdown in protest, President Bola Tinubu had said in reply that there was no going back on subsidy removal, promising his government would take measures to maintain the current pump price.
The President recently described as premature the threat by the NLC to shut down the economy indefinitely over projected increase in pump price. Tinubu, according to his Special Adviser on Media and Publicity, Ajuri Ngelale, assured that there will be no increase in the price of PMS in any part of the country. The media briefing took event after the presidential spokesman had met with his principal on the issue, following the threat by the NLC to go on strike without notice if the fuel price is increased again.
According to him, the official position is that there is no increase in prices at this time as “the president is convinced based on information before him that we can maintain current pricing without reversing our deregulation policy by swiftly cleaning up existing inefficiencies within the midstream and downstream Petroleum sector.” He had said it is incumbent on all stakeholders to hold their peace and endeavour to do due dillegence to assertain the true position.
According to him, the president is determined to maintain competitive tension within all sub sectors of the petroleum industry to ensure that no single individual or organisation dominates the sector.
Ngelale who illustrated with a chart to prove that the cost of petrol is still much more cheaper in Nigeria than in other West African countries, had stated, “This morning, I have the privilege of sitting down with His Excellency President Bola Tinubu as we discussed the current unfolding situation in the Country as it relates to fuel supply and demand. The president wishes first to state that it is incumbent upon all stakeholders in the country to hold their peace. We have heard very recently from the organised labour movement in the Country concerning their most recent threat. We believe that the threat was premature and that there is a need on all sides to ensure that fact finding and diligence is done on what the current state of the downstream and midstream petroleum industry is before any threats or conclusions are arrived at or issued.
“Secondly, Mr. President wishes to assure Nigerians following the announcement by the NNPC limited just yesterday that there will be no increase in the pump price of petroleum motor spirit anywhere in the country. We repeat, the president affirms that there will be no increase in the pump price of petroleum motor spirit. We also wish to affirm that the president is determined to maintain competitive tension within all sub sectors of the petroleum industry.
“He is determined to ensure that our policy drawn up as well as policy implemented follows the cue that there will not be any single one entity dominating the market. The market has been deregulated. It has been liberalized and we are moving forward in that direction without looking back.
“The President also wishes to affirm that there are presently inefficiencies within the midstream and downstream petroleum sub sectors that once very swiftly addressed and cleaned up will ensure that we can maintain prices where they are without having to resort to a reversal of this administration’s deregulation policy in the petroleum industry.
“…the present cost of refined petroleum motor spirit at the pump in each of the West African nations that neighbour us and I’ll just name some for example… Senegal at pump price today of N1,273 equivalent per liter, Guinea at N1,075 per liter, Côte d’Ivore at N1,048 per litre equivalent in their currency, Mali N1,113 per litre, Central African Republic N1,414 per litre, Nigeria is presently averaging between N568 and N630 per litre. We are presently the cheapest, most affordable purchasing state in the West African sub-region by some distance. There is no country that is below N700 per liter.
“So, this is the backdrop we have seen that at the inception of our deregulation policy as of June 1 as Mr. President took office, we have seen PMS consumption in the country drop immediately from 67 million litres per day consumption, down to 46 million litres per day consumption. The impact is evident. What it also does mean though, is that we are not at the end of the tunnel. There is still a bit of darkness to travel through to get toward the light. And we are pleading with Nigerians to please be patient with us.
“And as we promised from the beginning, we will be open with Nigerians, we will be transparent with them. And we are ready to show you exactly what it is that our nation is facing with respect to the illiquidity in the market in terms of foreign exchange, as a result of what is now known to have been a gross mismanagement of the Central Bank of Nigeria over the course of several years preceding this time.”
The Nigerian economy is now well known to be premised around new realities, particularly with the petrol subsidy removal and recent monetary policy decisions with the harmonisation of exchange rate, policies which President Tinubu declared at the onset of his administration. While arguments have been put forward in attempt to make Nigerians see reasons with the benefits of the policies, it is clear enough that the present impacts have been stormy to Nigerians.
In this light, it is pertinent the government cannot afford to rest on its oars in the face of necessity to concertedly harmonise measures to blend the twin policies which have hit Nigerians and businesses heavily. It is also pertinent that the government cannot afford to fall into costly errors by incongruities of decisions in the management of the present situation in line with both policies. Since it has declared no going back on the decisions, it is only rational that the pragmatic measures to be taken with regards to coordination of efforts towards implementation of policies around the new development must be sound enough with complementary synchronisation, to navigate within a system of clear direction, with efforts being mustered harmoniously for proper wiring of coordinated responses for concrete effectiveness. Nigerians are lamenting while businesses in their various classes are shrinking. It is therefore no doubt that it is time the government cannot afford to wallow in error, doing so would mean catastrophic collapse for the already fragile framework of the economy.
