Analysis… How realistic is N85 for PMS?

In from Ali Smart . . .

As the year draws to a close in two days, not many Nigerians are taken in by the much anticipated N85 price of the premium motor spirit (PMS) being proposed by the federal government come January.

To many, whether PMS will henceforth sell at N85 per litre or not, remains to be seen.

The pessimism, if you may, stems from the fact that Nigerians have been badly browbeaten in the past to believe that once prices of anything goes up around here, especially the prices of essential commodities like petrol, it hardly ever comes down.

Kachikwu’s vague promises

The Minister of State for Petroleum, Ibe Kachikwu who spent his Christmas in the Port Harcourt Refinery Company (PHRC) inspecting the plant, while fielding questions from reporters at the weekend gave assurances that the PMS price will reduce to N85 per litre in January 2016.

He said he had approved the new price template of the Petroleum Products Pricing Regulation Agency (PPPRA) on Thursday 24 Dec 2015.

He explained that the price modulation is to help ensure the fluctuation of prices to reflect the realities of the crude oil market. Kachikwu further reiterated the ideal and idea of a new price regime on Sunday while on inspection tour of the Kaduna Refining and Petrochemical Company (KRCP).

He also informed that the federal government is working round the clock to ensure availability and sustenance of the products in just few weeks from now, assuring Nigerians that the current hardship being faced will soon be a thing of the past, and that the queue which is gradually disappearing will completely  ‎disappear in a matter of weeks.

Nigerians react

Expectedly, not many are optimistic that the new price regime being proposed by the federal government will become a reality. To many, laudable as the pronouncement sounds, it’s too good to be true.

Reacting to the promised pump price of PMS, the Conference of Nigeria Political Parties (CNPP) at the weekend said the pronouncements by Kachikwu have only served to create more confusion that profiteers would explore to unleash hardship on Nigerians.

It said the explanation by Kachikwu on how government wants to modulate price without removing subsidy to achieve the proposed N85 pump price sounded questionable given that he has been oscillating between how subsidy is not being removed and how the same subsidy is not sustainable in view of economic realities on ground.

A statement issued by CNPP’s Secretary General, Chief Willy Ezugwu warned that the group will not sit by and watch Nigerians suffer on account of “A government that failed to properly articulate and think its policy through,” pointing out that the latest move by the government was reminiscent of the New Year subsidy removal gift under former President Goodluck Jonathan, which Nigerians vehemently rejected.

It said the position announced by the Minister of State for Petroleum in recent days tended towards removal of subsidy despite the denials.

The federal government, CNPP stressed, “Must also immediately present plans of how it will protect Nigerians from the fuel cabal since they will naturally shift their attention to extorting the populace once there are no more subsidies.”

Other watchers of the situation are of the view that the fact that the government is still fixing prices means that there is some sort of subsidy, and that the planned reduction or price modulation being proposed can only work if Nigeria’s refineries fully come on stream.

In the view of Dr. Austin Nweze, a political economist and public affairs commentator from the Pan Atlantic University of the Lagos Business School, the proposed N85 for PMS is not something to cheer about because the pump price ought to be lower than what is being offered by the government.

“The thing is that since the international oil price is down, we’re supposed to have lower prices for petrol here. Since they are buying oil cheaper now, the citizens are supposed to be discounted. That was why under the last administration, they brought down the price of the pump price too when it became obvious that the global oil was falling.

“So actually, the price should be lower than what the government is offering in the first place.

“But the fundamentals should be taken care of. As l said, since the international oil price is going down, the pump price should be about N60-N50 because l’m not sure the cost of refining has gone up yet. The raw crude is still cheaper.”

While acknowledging that the price of oil at the international market will continue to fluctuate and as such will affect the price either positively or negatively, he said it would help if the government intensified efforts to get the local refineries fully functional to enable the country reap the benefits.

The government, he reiterated, “is not doing Nigerians any favours or being considerate and nice. It’s the right of the citizens to enjoy such benefits.”

Waxing philosophical, Nweze said Nigeria is the only OPEC country where the price of a bottled water is costlier than a litre of petrol.

“We need to begin to do things right. We need to have people-focused policies. The nation cannot move forward once government policies alienate the people.”

Nigeria, he emphasised, “Will not be any better until we learn to set economic policies hinged on the progress of her citizens. We need to make conscious effort to improve the quality of life of the people. That’s what defines us as a nation of civilised people.”

Read also: Kachickwu overules self on price of petrol, subsidy

The Trade Union Congress of Nigeria (TUC) is on the same page.

The TUC holds the view and very strongly too that petrol should sell at N50 per litre if local refineries are functional.

In a statement by the TUC President, Bobboi Kaiýgama, the body suggested a stakeholders’ meeting to discuss subsidy removal and why it has not been possible to refine and purchase fuel at N50 per litre.

“The price of crude oil in the international market has dropped drastically. This should have a direct effect on domestic consumption of the product,” Kaiýgama said.

It is however instructive to note that Kachikwu at the weekend revealed that the nation’s refineries had been repositioned to produce not less than 10 million litres of petrol, per day, just as he expressed confidence that with more refineries coming on stream, the fuel supply situation will continue to improve in the country.

Dwindling receipts from oil revenue

But with Nigeria’s oil receipts expected to reduce substantially as crude oil prices may slump to as low as $20 per barrel in 2016, going by the International Monetary Fund (IMF) projection, it remains to be seen what magic the government will perform considering the fact that the benchmark for the budget is based on $38 per barrel.

Based on the recent budget presented by President Muhammadu Buhari benchmarking oil price at $38 per barrel for the 2016 fiscal year, and with Nigeria expected to produce 2.2 million barrels of crude oil per day in 2016 and sell at $38 per barrel, the country expects to generate $83.6 million per day in 2016, amounting to $30.514 billion in the year 2016.

But going by IMF’s predictions at $20 per barrel, Nigeria would generate $44 million per day in 2016, amounting to $16.060 billion in the year, which means that Nigeria would get at least 47.4 percent less revenue from oil than is already projected, consequently adding more pressure to the nation’s need to go borrowing in 2016.

With these, can the country still afford to pay the huge amounts it has been doling out as subsidy payment?

And the question on many lips is whether the proposed price for PMS is feasible, given that government is yet to clearly take a stand on the issue of subsidy, which will advertently affect the pump price of the product.

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