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Petrol won’t sell above N100 without subsidy – Experts

By on December 1, 2015

Experts in the oil and gas sector have called on President Muhammadu Buhari to stop subsidising petrol as they explain that the price of the commodity will not go beyond N100 per litre if the Federal Government terminates the fuel subsidy regime.

The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, had told journalists in Abuja recently that Buhari had allowed the fuel subsidy to continue because of his magnanimity.

But this, according to experts, including Kachikwu, is not sustainable.

Industry experts, who spoke with our correspondent on the subject, stated that the President might feel that the removal of subsidy would result in a rise in the pump price of petrol, but maintained that the cost of the product might either remain the same or would not go above N100 per litre if the government puts a stop to subsidy payments.

They stressed that the fall in the global prices of crude oil had presented the best opportunity for the President to stop the subsidy regime.

The President, Nigeria Association of Energy Economics, Prof. Adeola Adenikinju, said, “The price of crude oil has fallen to as low as $40 per barrel. Therefore, this is the best time for the government to remove subsidy.

“The fall in price has provided the government the best opportunity to remove subsidy now.”

When told that the President had expressed concern that the removal of subsidy might result in a hike in the price of petrol and hardship for majority of Nigerians, the professor said, “The price of crude oil has fallen so low that even if subsidy is removed now, its removal will not have any considerable effect on the price of petrol. It will not cause a serious increase in petrol price and the cost may not exceed N100 per litre. So, it just has to go.”

Also calling for a halt in further subsidy payment, another industry expert, Mr. Dibu Aderibigbe, stated that the Nigerian economy was currently faced with paucity of funds, and wondered why the government would still be paying billions of naira as subsidy.

Aderibigbe, who is the National Treasurer, Independent Petroleum Marketers Association of Nigeria, said subsidy removal would not result in petrol price hike.

He stated, “I say it will not because the business will then be run by the forces of demand and supply. When you have a lot of producers in the market, you cannot just jerk up your price. There are fundamental factors that determine price. One is the price of crude oil; then, the cost of transportation, the refining cost, marketing cost and other issues.

“So, the pump price of petrol will certainly fluctuate with the price of crude, and that is the most important factor here. And the price of crude has been hovering around $40 and $48 per barrel. So, at the end of the day, the final price may not be even higher than what we currently pay. In fact, at best it can’t be up to N100 per litre.

“You can also allow those who want to import the product to go ahead and import, but not the government; and you can also start your refineries. If those who refine locally are charging a high price, then those who are importing will beat them in the business. That competition will ensure price stability and affordability.”

The payment of subsidy by the government has been a contentious issue as stakeholders in the oil and gas sector have on several occasions called on the Federal Government to discontinue the practice, particularly when the country’s revenue is being badly hit by the fall in crude oil prices.

Kachikwu had recently stated that the Federal Government might review refined petroleum products’ prices by January 2016, as he explained that the subsidy arrangement was not sustainable.

He had said, “Frankly, sustaining subsidy based on the rate that we have now is a major problem for the country and is only happening through the magnanimity of the President. We are looking at price modulation.

“By January, we will have a price modulation dynamism that will enable us address the critical issues with the marketers. But the issue of price reduction is not in the horizon at all.”

Similarly, a former Governor of the Central Bank of Nigeria, Prof. Chukwuma Soludo, had advised the President to remove the controversial fuel subsidy and privatise the nation’s refineries immediately.

“The fundamental case against subsidy removal is not economic: it is the fact that the citizens do not trust the government to optimise the use of the proceeds for their welfare. If PMB does not deal with these issues now, I wonder when, if ever,” he had said.

Kachikwu had also stated that the current fuel scarcity across the country was largely as a result of the non-payment of the N413bn subsidy claims to the oil marketers, adding that they all stopped importing petrol because of the debt.
[Punch]

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