Cross-border smuggling looms with return of fuel subsidy – Experts

NIGERIA will likely witness another season of cross-border smuggling of Premium Motor Spirit (PMS) as the corruption-ridden fuel subsidy regime is already back, energy experts say.

They argued that the return of the subsidy and floating of the naira would also see neighbouring countries resort to Nigeria’s ‘cheap’ fuel, which could lead to inflation of Nigeria’s consumption figures by relevant authorities.

President Bola Tinubu-led administration announced a ‘no more subsidy’ regime on May 29 – the day he took over power.

The move consequently triggered over a 200 per cent increase in PMS being subsidised by the government prior to the declaration.

“Nigeria has missed the opportunity to reform the oil sector and learn from its counterparts like Petrobrass and Saudi Aramco, which are reaping the benefits of such reforms. It has also lost the goodwill of the Nigerian people with a poor approach to social intervention programmes,” Lead Director of the Centre for Social Justice, Eze Onyekpere, told The ICIR.

Following the announcement of fuel subsidy removal by Tinubu, the Nigerian National Petroleum Company Limited (NNPCL) distorted the market with a regulatory “price control regime”, which saw licensed marketers unable to import amid a short supply of dollars at the official market rate.


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 In October 2023, the ICIR reported that price distortions by the NNPCL were a major concern that caused problems for the deregulated market and had not allowed licensed marketers to import and compete with the NNPCL.

Subsidy is back, IMF confirms

The International Monetary Fund (IMF) has confirmed that the Nigerian government brought back petroleum subsidies through the back door.

This was disclosed earlier this week after the Executive Board’s Financing assessment meeting with Nigeria. The organisation expressed concerns that the government capped fuel prices at retail stations.

What energy experts say

Informed energy experts revealed that the country was paying about N907.5 billion subsidy on PMS monthly as the nation’s foreign exchange crisis pushed the actual cost of a litre of fuel to N1,203.

A week before the 2023 presidential election, which ushered in the new administration, the Group CEO of the Nigerian National Petroleum Company (NNPC) Limited, Mele Kyari, said at the final cutover ceremony of NNPC and the birth of NNPCL at the corporation’s towers in Abuja that the country was spending over N400 billion monthly on petrol subsidy.

Recent investigations into Nigeria’s petrol pricing dynamics have revealed a significant surge in the landing cost of the product attributed to the escalating black-market exchange rate.

According to findings, at the prevailing black-market rate of N1,500 per dollar, the landing cost of petrol has soared to N1,009 per litre, marking a substantial increase from N720 per litre recorded in October 2023.

Licensed importers rely on NNPC as sole importer

To date, the state-owned oil company remains the sole importer of petrol into Nigeria, despite the passing of the Petroleum Industry Act 2021 and the deregulation of the downstream sector, which allows private oil marketers licensed to import the product into the country.

However, accessing forex required for the importation of the commodity has proved difficult, leading to them depending on the state-owned oil company.

More than 90 licensed marketers tasked with importing petroleum products into Nigeria find themselves hamstrung by an unresolved price differential, making them unable to bring in any products nearly nine months after President Bola Tinubu announced the deregulation of the downstream segment of the petroleum industry.

A major marketer and former Chairman of the Major Oil Marketers Association of Nigeria (MOMAN), Adetunji Oyebanji, told The ICIR that the current situation would make NNPC remain the sole importer and the situation would fuel corruption.

“Deregulation is good, but when there’s a limited supplier in the market, there would always be artificial pricing and sudden billionaires would be created as a result of corruption. Few people closer to the NNPC will benefit from this development.

“Our production targets are not being met, and there is no solution in sight since we don’t have any supply and not meeting our Organisation of Petroleum Exporting Countries (OPEC) quota. Currently, we cannot import, and everyone is waiting for allocation from the NNPCL. You may have many situations, but it is what the NNPCL gives to you that you distribute,” he added.

The country manager of TradeGrid, Jide Pratt, said that marketers needed access to forex to import refined products into the country to change this development.

According to him, it will benefit all parties if the NNPCL stops being the sole importer of petrol into Nigeria.

He said PMS Eurobob delivered to West Africa was at $867.60 per tonne. There are 1000 litres in every tonne, which brings the landing cost of petrol per litre in Nigeria to $0.87.






     

     

    “With an exchange rate of N1,555/$, the retail price should be estimated at N1,098 per liter. A lot needs to be done,” he said.

    Analysts argued that the return of fuel subsidies was to the detriment of key infrastructural development and would deprive the government of funds for developmental projects.

    “The government has lost the goodwill it had initially when it removed the subsidy on May 29, 2023, and did not complete the plan with necessary reforms and social interventions that would serve as a safety net for the poor,” a Professor of Energy Economist, Adeola Adenikinju told The ICIR.

    He explained that the process of fuel subsidy removal was not properly managed, and Nigerians who believed the reforms were disappointed, adding that ”social safety programmes should have accompanied reforms and subsidy removal. Unfortunately, the government dillydallied on the reforms.”

    Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.

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