05 Apr 2020

Monthly petrol pricing template may upset downstream sector – Stakeholders

The Federal Government’s monthly plan to implement and re-activate a pricing template for Premium Motor Spirit (PMS), otherwise known as petrol set in May 11, 2016, might disrupt the current stability enjoyed in the downstream sector, as the inability of marketers to immediately align with set prices could result in product scarcity and resumption of fuel queues.

In fact, the new monthly pricing template, which has not been implemented in the last four years may set the Federal Government on a collision course with marketers, who continue to advocate full deregulation of the sector.

The country has enjoyed stability and a level of uninterrupted supply of petroleum products within the last four years, due to a pricing mechanism that was retained, despite changes in global oil prices and government’s monopoly in the importation of petrol.

While major marketers may find it easy to adjust their prices immediately, independent marketers are struggling to maintain their books, as many struggled to comply with the initial reduction to N125 last month.

Already, the major marketers are calling for full deregulation of the industry, rather than the controlled prices.

According to the Major Oil Marketers Association of Nigeria (MOMAN), the present situation gives the government an opportunity to deregulate the market.

With oil prices relatively unstable and foreign exchange presently scarce, especially for the importation of fuel by marketers, the impact of the monthly price review might not be felt immediately till the lockdown ends, and demand for PMS rises.

If the oil prices maintain the upward movement, having risen to $34.11 at the weekend, and going by moves by OPEC and OPEC+ to agree on a deal, the relief on the pump price of petrol might be a short one, as government might have to revert to the pre-existing template of N145 per litre.

OPEC and its allies are regrouping over the weekend following signals from the United States President Donald Trump that American producers would not be joining any production cut, and a rift between Saudi Arabia and Russia put Monday’s planned summit on the ropes.

Similarly, there are concerns about the sustainability of monthly pricing template, considering that marketers stock products to meet demand and uncertainty in price affects the margins from the business; importations are still being managed by the Nigerian National Petroleum Corporation (NNPC); and the ability of many Nigerians to bear additional fuel costs may not be feasible, even as government revenue dwindles.

The Federal Government had in 2016 promised to monitor market fundamentals in line with the new policy of appropriate pricing with a view to advising marketers on subsequent guiding price band for products at the beginning of every month, but failed to fulfil the promise, until the recent fall in oil prices.

Already, Petroleum Products Retail Outlets Owners Association of Nigeria (PETROAN) has said that its members across the country have recorded massive losses due to the current changes in the price of petrol.

The National President of the group, Dr. Billy Gillis-Harry stated that even though it was commendable for the Federal Government to reduce the pump in the face of COVID-19 pandemic and its attendant economic down turn globally, the development has adversely affected businesses for the retailers.

While the Federal Government had in March reduced the pump price from N145 to N125 per litre, it again, through the Petroleum Products Pricing Regulatory Agency (PPPRA), announced a further reduction of the pump price of petrol from N125 to N123.50k per litre last week.

With the further reduction, Gillis-Harry stated in Abuja that the marketers would lose a sizable amount of money, which would impact negatively in their buying power.

“Our association wishes to bring to the notice of the Federal Government, the challenges of petroleum products retail outlets owners in Nigeria. Our members have recorded massive losses from March 19, 2020 when the first reduction was announced by the Federal Government.

“We therefore wish to appeal to the Federal Government, the PPPRA and other relevant stakeholder to come to our aid by urgently setting up an intervention fund to be midwifed by the CBN and disburse to our members in form of soft loans so as to cushion the effect of the PMS price reduction on their businesses and to guarantee replenishing re-investible capital,” Gillis-Harry said.

However, the Group General Manager, Group Public Affairs Division of Nigerian National Petroleum Corporation (NNPC), Dr. Kennie Obateru, insisted that the group, which has remained the sole importer of PMS would do everything possible to ensure availability of the product.

Apart from stocking its over 6, 000 retail outlets across the country and maintaining operations during and after the lockdown, Obateru said: “On product availability, NNPC has up to 2.6 billions litres of petrol, which amounts to 60 days sufficiency at an average consumption rate of 45m litres a day.

A Professor of Petroleum Economics and Policy Research, Omowumi Iledare, stated that at the current price, there would be surplus of PMS, adding that there could be the possibility of hoarding the product going by prevailing realities.

To him, after the lockdown, the price must naturally go up to avoid scarcity without subsidy.

“The government must use this opportunity to liberalise the market, and at least, move away from price setting without market consideration,” Iledare said.

He noted that should a sole importer be at play, what is to be regulated is not the retail price but the wholesale market, adding, “the retail market is competitive, but for sentiment and patronage driving the price equalisation strategy.”

The Founder and Principal Partner at Nextier, Patrick Okigbo, noted that the only solution to the downstream sector remained total deregulation.

He said: “The government should do what it has known for a long time to be the only solution: deregulate the market.  This is the best time to get it done and it will not impact the people.”

Okigbo insisted that the Federal Government must also remove fuel subsidy now that the price of crude is at record low, adding that the low price offers the best opportunity to deregulate the market.

Head, Public Affairs, Department of Petroleum Resources (DPR), Mr. Paul Osu, who admitted that unless the lockdown was over, the true situation of the market could remain elusive stated that the regulator would ensure compliance on the modulated price.

While adding that the agency has ensured strict monitoring despite the lockdown, he noted that some fuel stations were last week sealed due to violation of the new pump price.

Urging the public to report erring fuel stations, Osu said the group would not only enforce the new pump price, but penalise marketers, who attempt to hoard, divert the product or sell less quantity.

PricewaterhouseCoopers’s Associate Director, Energy, Utilities and Resources, Habeeb Jaiyeola, said the Federal Government needed to communicate with petrol marketers and enable to plan appropriately, otherwise compliance with the modulated price would be difficult.

He said while government is looking to introduce a dynamic modulation system given the current price and the COVID-19 challenges, there was need for a strategy and holistic plan, especially between the marketers and the government.

“The price must be a collective decision. Private sector must be allowed to stay in business. The price must also give Nigerians the best reasonable price,” Jaiyeola.

He projected that crude oil price would move should OPEC intervene based on current plans, adding that such reality would push the price up.