By AYOOLA OLAOLUWA
The Federal Government is in a dilemma on how to remove fuel subsidy without attracting a public outcry and stiff opposition from labour unions as price of crude oil continued to rise.
A barrel of Brent crude, the British light crude, which Nigeria’s blends are benchmarked, was selling for $84.86 cents in the international market as at 2.58pm on Saturday. And experts expect it to keep rising.
A U.S bank, Goldman Sachs, in a recent advice to its clients, said the rollout of vaccinations in Europe, Asia and other parts of the world will ignite the biggest jump in oil demand ever. It projected 5.2 million barrels per day rise over the next six months.
“The volume of new demand will be unable to be matched by immediate increases in supply”, the bank, which forecasted in March that the price of Brent Crude would hit $80pbd by the third quarter of 2021, said in the investment advice.
In series of interviews with players in the oil and gas sector, BH gathered that the landing costs of a litre of petrol is higher than the price Nigerians currently pay at the pump.
While Nigerians across the country currently pay between N162 and N170 for a litre of petrol, informed sources put the landing cost of petrol between N285 and N300.
For instance, the Major Oil Marketers Association of Nigeria (MOMAN), put the landing cost of petrol at N278 on September 30, when a barrel of crude in the international market was sold for $80.
MOMAN’s Executive Secretary and Chief Executive Officer, Clement Isong, said, “The last time we checked in September, the spot price if we assume an exchange rate of N410 per $, you have a landing cost price of N278 per litre.
“The truth is for as long as we continue to subsidise the price of fuel, we are borrowing money to consume. This means we are selling short the future generations.
“We need to adopt mass transportation to cut the per capita consumption of fuel and also reduce our dependence on importation to reduce the stress on the naira,” the MOMAN boss stated.
Also, the Group Managing Director (GMD) Nigerian National Petroleum Corporation (NNPC), Mele Kyari, had recently said that the price of petrol should be more than the price at which diesel is being sold then. Diesel price recently moved to N300 per litre.
Kyari explained that the difference between the prices of petrol and diesel should be around N10 per litre, with petrol having the higher cost.
“Today, we are paying N162 per litre (for petrol). I am sure that many people buy AGO (diesel) in the market and it is selling at N280 per litre in the market.
“There is nowhere in the world that diesel sells more than PMS. That means that the price of petrol anywhere in the world, assuming you are going to sell it at the market rate, you are going to sell it above that price you have seen. The difference in prices between both is usually around N10 per litre”, the NNPC boss had stated over a month ago.
Checks in filling stations in Lagos at the weekend revealed that diesel sells for between N310 and N330 per litre.If the NNPC is to be taken by his words, a litre of PMS should be selling for around N320 and N340.
According to a data released by the NNPC, the corporation only paid N281.97 billion revenue into the federation account between January and June 2021, but spent a total N438.37 billion on subsidy payments as of June 2021.
The corporation further disclosed that subsidy cost climbed from N143.29billion in June to N175.32 in July, but fell to N149.28 in August. The corporation is yet to release the cost of subsidy for September 2021.
The Federal Government, faced with dwindling revenues and inability to fund the over N13 trillion 2021 budget, had made several attempts to deregulate the downstream oil but has not been able to due to lack of political will and fear of a possible backlash from labour.
The government had succeeded in increasing fuel price from N121.50 to N123.50 per litre in June; N140.80 to N143.80 in July and N148 to N150 in August 2020.
In September 2020, government again pushed the pump price of petrol to N158 and N162, but met stiff opposition when it tried to effect another price hike in December of the same year.
With the attempt to remove subsidy now stalled for over 10 months, the government is currently in a dilemma on how to save the nation’s economy from imminent collapse by removing fuel subsidy without attracting the wrath and anger of labour unions and millions of disillusioned Nigerians.
Highlighting the government’s dilemma, the NNPC has not contributed to the Federal Account Allocation Committee (FAAC) since May 2021 due to payments to cover subsidy on petroleum imports.
But financial experts argued that with oil prices surging, the Federal Government would find it more and more difficult to fund its budgets and sustain subsidy payments unless it can substantially increase its oil production output which is currently stands at 1.46 million barrels per day.
They insisted there is no other way out of the financial logjam for them than to stop subsidy payments on petroleum products, electricity and other consumables.
“Soon the government may not be able to pay the price difference again because it runs into billions of naira.
“The solution is full deregulation. Let the consumer feel it once and for all. This politics of walking around the problem won’t help at all’’, said an economist, Dr. Tunde Johnson.
A professor of economics at the Pan African University, and founder of Centre for Value in Leadership (CVL), Pat Utomi, adduced the rising demand of crude oil to the return of mass transportation to pre-pandemic levels.
He said more planes are now in the air as anti-coronavirus lockdowns and other restrictions are being eased.
Utomi, however, said that the rising international oil prices posed a dilemma to Nigeria which is earning the much-needed foreign exchange.
According to him, the surge in crude price portends increased importation costs for petroleum products and by extension the landing cost.
The Group Managing Director, Geoplex Drillteq Limited, Mr. Wole Ogunsanya, said the current subsidy regime is not sustainable.
“Subsidy payment now is going to increase because as the price is fixed at N165 per litre, rising crude prices would mean we pay more per litre of fuel imported into the country.
“Until we rehabilitate our refineries and build more for us to refine locally, subsidy payments will continue to rise and will be subject to the price of crude oil in the international market”, Ogunsanya noted.
However, a renowned economist, Dr. Ayo Teriba, said the upturn in the price of the international oil benchmark, Brent crude, is a good omen for the country, noting that it has pushed Nigeria’s oil revenue above the 2021 budget estimate.
“In all, there will be enough foreign exchange and foreign reserves will no longer be under the threat of being depleted any time”, the chief executive officer of Economic Associates stated.
Meanwhile, the government, it was gathered at the weekend, is reluctant to effect the withdrawal of subsidy, fearing a violent backlash from labour and Nigerians already dealing with poverty and inflation.
The Nigeria Labour Congress (NLC) threatened to shut the nation without notice should the government increase the pump price of petrol.
A source close to the NLC President, Ayuba Wabba, told our correspondent that talks have broken down between the labour and government and that there is currently no negotiation with government over fuel price increase.
Dependable sources in government confided in BH that the government would continue to bear the burden of about N200 subsidy per litre of PMS imported into the country by the NNPC until the Dangote Refinery in Lagos comes on stream.
The NNPC, in a statement, said that it would continue to bear the cost differential on the actual landing cost and the N165 pump price of petrol it sells to wholesalers and retailers until the conclusion of ongoing engagement with the organised labour and other stakeholders.