BY HENRY BOYO (Twitter.com/betternaijanow)

Petroleum marketers   have announced, in their communiqué of 29th August, 2017, that they would commence mass retrenchment, unless government pays their over $2bn outstanding invoices, and also settles interest charges, on delayed payment and related exchange rate differentials.  Nonetheless, government’s present lean revenue expectations may compel the need, to additionally borrow N720bn domestically or $2bn externally and oppressively compound the already crippling deficit of N2.32tn in the N7.4tn 2017 budget.

Evidently, confusion still trails the flip-flops in government’s failed attempts to remove subsidy and deregulate petrol pricing. However, the $2bn outstanding debt as at July, may alarmingly, technically rise beyond $4bn (N1.4tn) before year end, if petrol price remains at N145/litre and fuel subsidy will voraciously consume almost 20 percent of the 2017 budget! Furthermore, in a report in Punch edition of 24/8/17, the Fiscal Responsibility Commission has confirmed that Government illegally withdrew over N359bn from the Excess Crude Account to fund subsidy in 2015. 
The above title was first published on 31st October 2016; sadly, the question posed still remains, officially unanswered: please read on: 
The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, informed newsmen in Abuja, on 17 December, 2015, that the Federal Government would focus on modulation of petroleum product prices to ensure efficiency and optimal supply of products; price modulation, according to the Minister, has nothing to do with the removal or existence of subsidy.

The Hon Minister also explained that price would no longer be fixed, as crude oil price would continue to determine the price of petrol. Kaichukwu, however, dismissed speculations that pump price would go back to N97/litre in 2016, but, added however, that a band between the discounted N87 and the former N97/litre might be adopted. Evidently, sadly at this stage, the Hon Minister probably did not fully recognize Naira exchange rate as a prime determinant of petrol price.

However, on 11th May 2016, after almost 5 months of the social anguish induced by acute fuel shortage, Vice President, Yemi Osibanjo, announced a new pump price of N145/litre. Government also expressed optimism that the new price would lead to improved supply, and stimulate competition to eventually drive down prices, as allegedly, presently experienced with diesel. In reality, however, the deregulation of diesel price has failed to spur competition or bring down prices as speculated; eventually, the market is now a cartel. Incidentally, diesel price often exceeded 200/litre this year, even when crude price hovered around $40/barrel. 

The N145/litre petrol price according to Kachikwu, was predicated on a projected rate of N280=$1, and this may have encouraged modest petrol imports from private sector oil marketers. However, barely 2 weeks after the announcement of the N145/litre price, CBN introduced its flexible exchange rate regime, which pushed Naira rate above N300/$, despite crude oil price remaining stable around $40/barrel; invariably, profit margins became eroded to make N145/litre impractical for third party importers. Ultimately, the over N150/$ present gap between official and parallel exchange market rates will simply push the official rate well beyond N300=$1 to further make the N145/litre unattractive to importers. 

Curiously, on 4th September 2016, an informal association of 9 former NNPC Group Managing Directors, expressed fears, in an NNPC press release, after a meeting with the Petroleum Minister, that the subsisting price benchmark of N145/litre was “not congruent with the petroleum downstream liberalization policy, especially when foreign exchange and other price determining components, such as crude oil cost and NPA charges remain uncapped”. Unfortunately, we do not know if the Ex GMDs had earlier discussed their observation with the Hon Minister, and if Kachukwu’s explanations did not change the Ex-GMD’s perception on the lack of congruency of N145/litre price. Indeed, prior to their unsolicited intervention, some private oil marketers had similarly suggested, according to a Punch Newspaper report of 07/08/2016, that “the actual or real cost of petrol was N151.87, if all pricing components are adequately captured”.

To collaborate the above observation, on 24th October 2016, Mr. Mele Kyari, the NNPC GMD, Crude Oil marketing, also stated, at an oil Expo in Lagos, that the sale of petrol at N145/litre was no longer sustainable as “it is impossible today to import products at the current fixed exchange rate”. GMD Kyari therefore warned that the burden would become too heavy if the NNPC is sole importer of petrol. 

However, in order to douse public anxiety that Mele Kyari’s statement may have instigated, two days later, NNPC’s GMD, Public Affairs, Garba Deen Muhammed, quickly assured Nigerians, at a press briefing, that the pump price of N145/litre has not been increased. Muhammed confidently asserted that petrol shortage is impossible with the present, apparent “supply glut and the very robust stock and long term procurement contract that NNPC has established with suppliers”. When asked if NNPC was still subsidizing fuel, the GMD emphatically denied that “No, there is no subsidy”, and explained that the current availability of PMS was a result of the “diligent application of commonsense” with price modulation, and also because prices were now determined by market forces.

So, our present dilemma therefore is, that if GMD Mele Kyari does not publicly recant that he was in error for suggesting that the N145/litre price was not sustainable, and the 9 Ex NNPC GMDs do not also backtrack on their urgent recommendation to increase petrol price, who then, are we to believe on this issue of sustainable petrol price, supply and subsidy? 
Nevertheless, if the NNPC remains the sole importer as suggested by Kyari, and petrol continues to sell below its cost price, then of course, it is inevitable that the corporation’s books will ultimately look very ugly! Incidentally, Newspaper publications on forex usage have never thrown up NNPC as purchasing forex from commercial banks to fund its huge petrol imports. The critical questions therefore must be, how does NNPC source its forex and what Naira exchange rate applies when NNPC resorts to in-house dollar income for its substantial petrol imports.

Invariably, the obvious follow up question, from the preceding narrative, must also be how much subsidy is NNPC presently giving away on each dollar allocated to its petrol imports to ‘artificially’ sustain the present N145/litre price; furthermore, how much of this subsidy is reflected as unbudgeted, public expenditure without the necessary legislative appropriation, since provision for subsidy was conspicuously absent in the 2016 budget; consequently, by how much has the 2016 deficit increased beyond the projected N2.2Tn?

Conversely, if the internal subsidy on dollar exchange rate for NNPC’s petrol imports is actually adequately compensated for by the price modulation strategy which was reechoed as a virtue by the GMD Public Affairs, then we should properly celebrate the Corporation’s ingenuity in hatching this enabling solution to the hydra headed fuel pricing issue.
The above piece will be concluded with the following excerpts from an article titled “Fuel price, the bone in NNPC’s throat”, published in Punch and Vanguard editions of 25/07/16, also see www.betternaijanow.com . 

“The deregulation of the petrol market will remain inchoate with severe market distortions, if price and the applicable Naira exchange rate for fuel imports remain centrally regulated. Evidently, unless the price cap for petrol is lifted, marketers will refrain from direct import, and NNPC may once again monopolise supply as sole importer to avert scarcity, inspite of the fact that this business is unsustainable.” 

“Nevertheless, the retention of N145/litre petrol price, concurrently with further Naira depreciation and crude oil prices beyond $50/barrel, will inevitably bring back subsidy. We may then require a supplementary Appropriation bill to fund unbudgeted petrol subsidies in 2016; consequently, the profligate annual subsidy provisions of the past would inadvertently, sadly return with a vengeance; and we may ultimately require over N4bn/day (i.e. N1.5Tn annually), to fund subsidy on the estimated 40m litres daily consumption. Inexplicably, if crude oil price fortuitously rises beyond $50/barrel, the increased revenue with concurrent Naira depreciation will ironically instigate much higher fuel prices and bring back subsidy big-time!”

“However, a plausible resolution to the inflationary and oppressive consequences of rising fuel prices and the avoidance of oppressive subsidy values, will infact be a stronger Naira exchange rate. For example, if fuel importers could purchase dollar with N100=$1, fuel pump price may not exceed N100/litre; consequently, up to N45/litre (about N2bn from 40m litres daily consumption) can be recovered as petrol tax, if petrol price remains unchanged at N145/litre; evidently the additional N800bn annual sales tax revenue (over 12percent of 2016 budget) in place of subsidy expenditure of about N1.5tn, will certainly go a long way in remediating our decayed infrastructure.” 

“Ultimately, the Naira will remain weak with auctions of dollar rations in the market with excess Naira liquidity.”