Industry Demands Clarity Over Nigeria’s End of Subsidy Regime

Mele Kyari, Group Managing Director of the NNPC, Nigeria’s state hydrocarbon firm, upstaged the country’s Petroleum Product Pricing Regulatory Agency, proclaiming the end to government subsidy of the pump price of gasoline.

While the PPPRA scrambled all day, fruitlessly, to put together a press release, Mr. Kyari declared, last Tuesday, in a TV interview:

“As at today, subsidy/under-recovery is zero. Going forward, there will be no resort to either subsidy or under-recovery of any nature. NNPC will just be another player in the market space. But we will be there for the country to sustain security of supply, at the cost of the market”.

Newspaper reports immediately interpreted the declaration as that of the state. “The Federal Government, yesterday, affirmed its resolve to deregulate the downstream sector”, reported the Guardian (of Lagos), effectively granting Mr. Kyari the status of the Petroleum Minister.

Among industry players, the verdict was split as to whether it was NNPC’s call to make such a significant policy statement.

“For a while, NNPC has had the sole responsibility of funding gasoline imports”, says Austin Avuru, author of Politics, Economics & the Nigerian Petroleum Industry, and Chief Executive Officer of Seplat, the country’s largest homegrown upstream player. “What matters to me is whether this is full deregulation or not”.

That view is expounded on by Clement Isong, Executive Secretary of the Major Oil Marketers Association of Nigeria, MOMAN. “What we have put in place now is price modulation”, he says. Isong is concerned that “under a price modulation regime, subsidy can return where the price of crude oil goes back up and there is no will to increase the pump price as has been the case consistently in Nigeria.

“This is the risk in having the authority and power of deciding the price in your hands. The people can push you to exercise it and you bow to that pressure. This makes investors nervous”.

The fuel subsidy regime has been one of the most intractable issues in Nigeria’s revenue management in the last 20 years. But despite widespread criticism that it was wasteful, the current government has kept the programme going, allocating close to $200Million in the 2020 budget to it.

A heated debate continues to swirl around the corruption of the subsidy regime, with fingers pointing at the NNPC. The latest Benchmarking Exercise Report of the Nigeria National Resource Charter NNRC, launched last month, laments that probes initiated by the National Assembly, “to investigate alleged diversion of funds for subsidy payment and non-remittance of funds to the Federation Account, have not led to legal consequences for the NNPC”.

Apollo Kimchi, PPPRA’ head of public affairs, tells Africa Oil+Gas Report that, going forward “the Federal Government has decided that the PPPRA will announce the pump price of gasoline every end of the month, for the following month”. The agency will wok out the cost for the month, based on the crude oil price, and other parameters in the pricing template “and announce the price”,  He says: “If the import prices go up, the pump price will go up; if the import prices come down, the price will come down..”

But Kimchi’s statement is not enough to assuage marketers, who bear the brunt of the government’s pronouncement on product prices, literally, by fiat. If the state doesn’t have the power of price control of petroleum products, as is the case in other commercial ventures, “investors will not want to risk their money”, Isong contends. “This is why practitioners in the downstream prefer price liberalisation to price modulation”.

To take away the power to set pump prices, he testifies, “the PPPRA Act needs to be amended”.

 

 

 



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