More shocks
Early this week, petrol prices at the retail outlets of the NNPC jumped from ₦537 to ₦617 per litre, sending shock waves around the country…
Early this week, petrol prices at the retail outlets of the NNPC jumped from ₦537 to ₦617 per litre, sending shock waves around the country as within minutes, other outlets around the country adjusted their prices to an average of ₦610 to ₦640 per litre. President Bola Tinubu has sought an amendment to the 2022 Supplementary Appropriation Act via a letter addressed to the National Assembly. Tinubu, in the letter, said the amendment was to allow the federal government to source ₦500 billion from the ₦819.5 billion 2022 supplementary budget for palliatives.
On inauguration day, President Tinubu off-handedly announced that “Subsidy is Gone,” and a series of events have happened since that fateful day. While most observers, including SBM, agree that the removal was necessary, the key questions being raised concern the chaotic way the removal was implemented and the lack of relief from the government as the removal shoots Nigerians’ cost of living through the roof. After the announcement, the NNPC immediately increased the pump price of petrol from ₦190 to about ₦490 in all its retailing stations across the country, and other marketers followed suit, albeit theirs being slightly higher depending on location. The NNPC thereafter issued petrol importation licences to several independent marketers, thus ending its status as the country’s sole importer of petrol. There are reports that the first imports have arrived in the country, and the landing costs of the products are close to ₦600. Since NNPC’s group managing director, Mele Kyari, announced this on 18 July, petrol prices have nearly quadrupled. Following the merger of the Investors & Exporters’ (I&E) window with the parallel market, the NNPC and preferred oil marketers, licensed to import the product, are purchasing the dollar at twice the non-existent official rate of around ₦400. When only the NNPC was involved in importing the product, it could use the official rate to value its price in Naira terms. Now that there is no “official rate,” importers must jack up the product’s wholesale cost to filling stations, even if crude oil’s price stays stagnant. But the price of the product has been in an upward motion. The World Bank reported that the average price of Brent in June was $74.89, slightly decreasing from over $75 the previous month. This month, the price of Brent has been on a steady rise, reaching around $80. Although oil supply is tight, thanks to OPEC cuts, the weakening of the US dollar, the decision of the American Federal Reserve to potentially increase rates by 75 basis points, and not 100, and the signalling from the Chinese government that it is ready to boost its economy — even though economic indicators from the country do not say so — are making oil traders boisterous enough to keep prices within the high $70 bracket. The Nigerian government appears to be grasping at straws to cope with these fluctuations. The World Bank approved a loan of $800 million to enable the Nigerian government to remove subsidies in 2021. When President Buhari hesitated on the idea, the loan was withheld until he appealed to the National Assembly to approve the credit facility last year. Mr Tinubu is now seeking to take out ₦500 billion from the ₦810 billion supplementary budget that was attached to the 2022 appropriation, contrary to the wise advice of Ali Ndume, representing Borno South in the Ninth Assembly. Ndume had cautioned that the supplementary budget, intended for after-flood repairs, be added to the 2023 appropriation for judicious use. The Senate took Mr Ndume’s counsel in a roundabout way in May, amending the implementation date to December this year. However, Tinubu’s move to take out ₦500 billion could stall flood-control and road-refurbishment projects, which would be ill-advised given the expected increase in flooding this year. The World Bank loan was taken for subsidy palliatives, so it should be disbursed for that reason. Also, Nigeria’s recent fuel cost increase has had a significant economic impact. Switching to Compressed Natural Gas (CNG) could counter this impact by reducing fuel costs, promoting cleaner energy and enhancing energy security. CNG is cleaner, locally produced and reduces dependence on expensive imported petrol. It cuts pollution, creates jobs and fosters a sustainable energy industry. Despite some challenges attached to its adoption, such as infrastructure development and consumer education, a subsidised nationwide CNG conversion offers significant benefits for Nigeria’s economy, environment and energy security.