Soon Nigerians will have to pay more than N145 per litre of petrol (Premium Motor Spirit/PMS) to fill their car tanks. Already, independent marketers have been quietly pushing for a review of the current prices, arguing that it is no longer economical. They are demanding for a more realistic price which they estimate at around N160 to N165 per litre.
Fuel marketers are making the argument that when the N145 per litre fuel price was fixed in May this year, the exchange rate used in fixing the price was N285 to the US$ in the official market while in the black market it was N330 to N350. However, the official exchange rate of the naira is now about $315 to the US$ while in the black market, the naira sells at an average of N390 to N400 to the US$. This basically means the cost of importing fuel has gone up.
Besides the exchange rate, the price of crude oil in the international markets has also gone up. As at the time, the federal government fixed the price of petrol, crude oil price was US$40. Recently, the price has averaged US$50, an increase of almost US$10 per barrel. According to the Petroleum Product Pricing Regulating Authority (PPRA), crude oil cost make up 80% of the cost of a litre of fuel and other petroleum products.
Other petroleum products prices are already reflecting the higher cost of crude oil and the weaker naira. For example, diesel prices have increased from an average of N160 in May this year to an average price of N200 per litre currently, while kerosene and aviation fuel prices have since skyrocketed to new price levels. Only the price of petrol has remained unchanged over the period. This is why marketers are currently demanding for a higher price in line with the increased cost of getting the imported petrol into the country.
The government, already mindful of the increased cost of living Nigerians are facing in all direction, is reluctant to give in to the demand of marketers. But not giving into the demand of marketers will mean the government will have to either reintroduce subsidies or risk a potential fuel crisis like what was experienced in most of last year and early part of this year until May when prices were reviewed upwards.
Since the government cannot afford another fuel subsidy, the expectation is that it will be forced to allow a petrol price hike above the current N145 per litre. Sadly, the federal government has boxed itself into making this decision because it has continuously shied away from taking the critical decision of total deregulation of the downstream industry.
If the government had moved for full deregulation instead just hiking fuel prices as it did in May this year, it would not now be saddled with the decision of whether it should approve new prices or not. Diesel sellers increase and decrease price of diesel without resorting to the government, but surprisingly, petrol dealers cannot do the same, an anomaly that has cost the government trillions of naira in subsidy payments over the years.
The solution here is not for the government to just sanction another price increase but to simply take the bold step of deregulating the pricing of petrol in Nigeria. Let the laws of competition be allowed to operate in petrol pricing just the same way it applies to diesel, kerosene and aviation fuel.
The current approach of fixing petrol prices ensures that Nigerians get the pain of the price increase without the benefits of investments in the downstream sector that could create competition, jobs and eventually ensure that we have a price that is reflective of the true cost of the product.
In May 2016, when the government hiked the prices of petrol, it had promised that it will lead to the creation of about 200,000 jobs but that has not happened because the price of petrol is still fixed, thereby discouraging investors from making long term commitments to the sector. Until there is full deregulation, the needed investment in the downstream will not come.
Diesel prices are a good example of what could happen if the government makes the move to deregulate the downstream sector. The current half measures of fixed higher prices are not doing Nigerians any good. It is only creating pains without offering any benefits.
