Why policy consistency matters post-subsidy
The recent fluctuations in the price of Premium Motor Spirit (PMS), commonly known as petrol, have once again underscored the fragile nature of Nigeria’s post-subsidy fuel market. While slight reductions in fuel prices may offer some relief to the public and suggest potential success in the reforms championed by the Tinubu administration, these gains remain tenuous unless critical structural and policy issues are urgently addressed.
A key recent development threatening this stability is the decision by the Dangote Petroleum Refinery to suspend sales of refined products in naira. The refinery, citing the need to meet its crude oil purchase obligations, denominated in U.S. dollars illustrates the continued instability in the downstream oil sector. It also highlights the unresolved tensions from the fuel subsidy removal policy.
Compounding this is the risk that the Dangote Refinery, a crucial player in the domestic supply of fuel, may face difficulties sourcing crude oil locally due to falling national production and renewed threats to oil infrastructure. Given the central role of the Dangote Refinery in easing Nigeria’s reliance on imported petroleum products, this development must be addressed with urgency.
While it is understandable that a private entity must adopt measures to ensure its financial sustainability, its success is also tied to national economic health and public welfare.
Therefore, it is imperative that the Nigerian National Petroleum Company Limited (NNPCL) streamline its operations and provide adequate support for the domestic refining industry, including the Dangote Refinery. NNPCL’s commitment to reviving the Port Harcourt and Warri refineries is commendable, but this effort must be part of a broader, integrated strategy. It must include ensuring the domestic refineries have reliable and appropriately priced access to crude oil.
In particular, it is counterproductive if refineries are forced to purchase crude in dollars while selling their refined products in naira. NNPCL, being both a regulator and a participant in the sector, must balance its commercial interests with national economic stability.
According to the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), domestic refineries, including Dangote, currently meet only half of Nigeria’s daily PMS demand, estimated at 60 million litres. This gap is still filled through imports, placing immense pressure on the naira and foreign reserves.
Increasing the capacity utilisation of domestic refineries could drastically reduce this dependence, improve fuel availability, and mitigate forex pressures. Furthermore, the warnings from the Independent Petroleum Marketers Association of Nigeria (IPMAN) regarding potential fuel scarcity due to forex constraints must not be dismissed.
A sustainable pricing model must be developed, one that encourages local production and reduces the risk of market shocks. The authorities must avoid returning to the erratic price surges of the past, which disproportionately harm everyday Nigerians.
Macroeconomic implications of unstable fuel pricing are significant. A depreciating naira, increased demand for foreign exchange, and pressure on the nation’s reserves all have cascading effects on inflation and living costs.
Reinstating and sustaining a naira-for-crude policy could offer some insulation, lowering import-associated costs such as shipping and insurance, thereby easing pressure on prices at the pump. To truly lay the ghost of fuel subsidies to rest, the government must commit to fostering a stable, transparent, and efficient oil sector. Fuel prices influence transportation costs, food prices, and general inflation.
Nigerians cannot afford further instability. It is the government’s duty to ensure that policy inconsistencies or neglect do not reverse the modest gains achieved so far.
In these challenging times, when millions are struggling to make ends meet, the government must act decisively to ensure that the cost of energy does not become an additional burden. Ensuring the success of domestic refining, stabilising fuel prices, and protecting the purchasing power of the naira must be treated not just as economic issues, but as urgent national priorities.
