Fuel subsidy and crude prices in Nigeria

Business: Will Nigerians pay more for fuel as crude price rallies

The federal government slashed the pump price of PMS when the price of crude fell at the global market with government officials saying that marked the end of fuel subsidy.

Now that the price of crude is rising and with the Petroleum Equalisation Fund Act still in place, will Nigerians pay more for fuel? Olatunde Dodondawa reports.

Nigeria’s efforts at removing fuel subsidy since the advent of democratic rule since 1999 have been unsuccessful. Recent announcement by the government that fuel subsidy is gone forever now seems to be just a political statement due to the fact that the government failed to provide any pricing template for May 2020.

This follows the 2016 pattern when the federal government attempted to remove fuel subsidy by increasing the pump price of petrol for N98 per litre to N145 per litre.

The government introduced price modulation mechanism meant to review the current crude oil price and ensures it reflects the pump price of petrol.

Former Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, assured Nigerians that the pump price of petrol would be reviewed quarterly to reflect the price of crude oil prices.

However, price modulation was never reviewed and Nigerians were shocked when former Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Dr. Maikanti Baru, told Nigerians in December 2018, that NNPC was paying fuel subsidy in form of ‘under-recovery’ to sustain pump price of petrol at N145 per litre.

Fuel subsidy refers to that fraction of the price that consumers are supposed to pay to enjoy the use of petroleum products but is paid by government so as to ease the price burden.

When NNPC Group Managing Director, Mallam Mele Kyari, announced early last month that fuel subsidy was gone forever, it was met by stakeholders with mixed reactions.

This is because he lacks the power to remove fuel subsidy, according to industry stakeholders.

They said it was the sole responsibility of the federal government through the Petroleum Products Pricing Regulatory Agency (PPPRA).

Now, there is uncertainty over fuel subsidy removal among downstream industry stakeholders.