A clash between the Nigerian National Petroleum Company Limited (NNPC) and fuel marketers has reignited concerns about a potential increase in fuel prices. The core of the disagreement revolves around the recent downward trend of the naira against the dollar, sparking intense debates about the existence of hidden subsidies and their implications on the economy.
The naira’s plunge to N998/$ at the official window and a staggering N1,225/$ on the black market has set off alarm bells among economists and marketers alike. Bismarck Rewane, the CEO of Financial Derivatives Company, contends that the much-touted removal of fuel subsidies was, in fact, a reduction, leading to a subtle wealth transfer from consumers to the government.
During a recent live television program on ChannelsTV, Rewane said, “At the inauguration, it was said that (fuel) subsidy was gone but subsidy was actually reduced.”
“There is the convergence of exchange rates and reducing the windows into one. The consequence of that is that money has been transferred from consumers to the government.
“Subsidies are reversed taxes; if you reduce them, you increase the people’s taxes and reduce their income. What has happened is that government revenue has increased by 44 per cent between May and June (2023). Money has been transferred to the government, but what is the government doing with it?
“The consumers, on the other hand, had a minimum wage, which in dollar terms was $40 in 2002. In 2019, it was about $70, but it has now been reduced to $24.”
Adding to the chorus of concerns, oil marketers argue that the subsidy on petrol is on the rise, fueled by the depreciation of the naira and the escalating cost of crude oil.
Chief Ukadike Chinedu, the National Public Relations Officer of the Independent Petroleum Marketers Association of Nigeria (IPMAN), asserts that the realistic price of petrol should be around N1,200/litre, factoring in international dynamics.
He said: “To be pragmatic in this analysis let’s consider the cost of petrol today in the United States. For premium petrol, it is $2.99, while super petrol sells for $3.15 or $3.10 depending on the part of that country where you are making the purchase.
“Now, $3 in Nigeria is over N3,000, because a dollar in the parallel market is over N1,000. You can also see the cost of diesel, that is over N1,000/litre, and it is important to state that petrol is usually higher in price than diesel in a free market.
“So if you consider the cost of diesel, dollar and other international factors, the price of petrol in Nigeria should be around N1,200/litre, but the government is subsidising it, which to an extent is understandable,” he stated.
“I also believe that there will be a reduction in the prices of petroleum products this year when you consider what the government is currently doing. The coming onboard of the Port Harcourt refinery and the supply of crude to Dangote refinery are good developments in the sector.
“Their operations will help stabilise the price of PMS and other petroleum products in Nigeria, because it will definitely cut down the importation of products,” Ukadike added.
Contrary to these claims, the NNPC vehemently denies allegations of partial subsidy. Olufemi Soneye, the Chief Corporate Communications Officer, dismisses the assertions as mere “assumptions” and emphasizes the government’s steadfast stance of not subsidizing petrol.
He said, “We prioritise our time on substantive matters rather than responding to assumptions.
“At NNPC Ltd, we prioritise national development through energy security and sustainable growth. We reiterate that the Nigerian government does not pay subsidy on fuel; we recover full costs from our imported products.
“As a global energy company, our focus remains on fostering a vibrant and energy-secure Nigeria.”