Federal government’s decision to allow an upward adjustment in the pump price of petrol is to allow marketers resume importation by sourcing forex from the parallel market, an industry insider has told TheCable.
With the autonomous marketing selling at roughly N300/$1 as against the official rate of N197, the price of petrol was adjusted from N86.50 to N145 per litre on Tuesday.
Since October 2015, only the Nigerian National Petroleum Corporation (NNPC) has been importing petroleum products, leading to incessant fuel crisis nationwide.
CBN’s inability to make enough forex available to the NNPC at N197/$1 had largely hampered the corporation’s ability to import sufficient products, with local refineries still largely dormant.
Nigeria’s foreign reserves have taken a hit with the fall in crude oil price, as the country is unable to meet most of its forex needs.
Marketers had started withdrawing from importation in the first quarter of 2015 following a heavy subsidy debt overhang and increasing difficulty in sourcing forex.
“We stopped importing altogether in the last quarter of 2015. NNPC decided to go it all alone. After the crippling crisis in March 2016, NNPC finally realised that it was impossible to do it alone. The reality is that the downstream sector is an area NNPC has no competence, and this was worsened by the unavailability of FX from the CBN,” the insider said.
TheCable understands that in the heat of the crisis, the federal government made overtures to the marketers to resume importation.
After a series of discussions, it was agreed that since there is no provision for subsidy in the 2016 budget, they would be allowed to sell at a profitable margin.
Effectively, no subsidies will be paid to the marketers as none would exist under the new “price modulation” mechanism.
Ordinarily, the mechanism locks down the price, allowing for profit when import price is lower and “cost recovery” when it is higher.
However, Tuesday’s announcement did not state categorically if the downstream sector has now been deregulated.
The insider who spoke with TheCable said it is a “moot point”.
“This is deregulation, QED. If crude oil price rises, pump price will also go up, else marketers will withdraw from importation again and we will return to square one. No marketer is going to be waiting for subsidy again, especially as anybody who collects subsidy is now described as a subsidy scammer,” he added.
On Tuesday, Ibe Kachikwu, minister of petroleum resources, said: “It has now become obvious that the only option and course of action now open to the government is to take the following decisions:
“In order to increase and stabilise the supply of the product, any Nigerian entity is now free to import the product, subject to existing quality specifications and other guidelines issued by regulatory agencies.
“All oil marketers will be allowed to import PMS on the basis of forex procured from secondary sources and accordingly PPPRA template will reflect this in the pricing of the product.”