By Tony Obiechina, Abuja
The Nigerian National Petroleum Company Limited in the early hours of Tuesday raised the pump price of Premium Motor Spirit (PMS) from N537 to N617 per litre.
The situation caught many Nigerians unawares as motorists who visited the filling stations on Tuesday with the hope of buying at the old price of N537 per litre were surprised to meet a new pump price.
Recall that in May a day after President Tinubu was sworn into power, some Petrol stations increased the fuel price from N195 to N537 per litre.
This was sequel to the President’s inaugural speech on May 29, 2023 when he announced the removal of fuel subsidy.
On Tuesday morning in response to the new price, NNPC filling stations in Abuja witnessed brief queues, particularly the one located along Murtala Mohammed Express road, Kado remained shut for some few hours as the Petrol attendants had adjusted their fuel pumps to reflect the new price of N617.
Statistics shows that in the first half of 2023, Nigeria spent N3.6 trillion on fuel subsidy alone. According to the Federal Government the country will save close to N6.7 trillion if fuel subsidies payment is discontinued.
The Nigeria Extractive Industries Initiative (NEITI) in its latest report disclosed that Nigeria has spent N13.7 trillion on fuel subsidy in the last 13 years.
However, in the opinion of some economic experts, the increase in fuel price should not come as a surprise because the sector has been deregulated and prices are expected to reflect the current economic realities.
Some of the major factors adduced for the increase in the price of petrol include:
-The recent increase the price of crude oil in the international market: When President Bola Tinubu removed fuel subsidy on May 29 this year, the price of crude oil was about $74.75 per litre. However, as of the end of trading on July 17, the price of crude oil had risen to $82.74 per litre.
This implies that between May 29 and July 17, the price of crude oil in the international market had risen by $7.99 per litre or 10.68 per cent. What this means is that since Nigeria still rely on imported petrol to meet local demand for the product and with the deregulation of the sector, the price of petrol will continue to reflect the international price of crude oil.
-The increase in the Dollar to Naira exchange: Another possible factor that could have led to the increase in the price of petrol is the increase in the exchange rate between the Naira and the Dollar.
Recall that when the President announced the removal of fuel subsidy on May 29, the Naira was exchanging at N740 to the Dollar and the foreign exchange market had not been liberalized.
But with the liberalization of the foreign exchange market, the Naira has continued to lose its value in the foreign exchange market.
Currently, the Naira is trading at about N829 to a dollar due to persistent pressure from Nigerians and investors for foreign exchange to conduct international transactions.
With the removal of petrol subsidy, oil marketers are now free to source their foreign exchange anywhere around the world to import petroleum products and then recover their costs without impediments. This would be expected to have an effect on the price of the product.
-The third factor is the high transportation costs: The distribution of petroleum products across the country is done through the movement of trucks. And this was why, during the period of fuel subsidy, the Federal Government came up with the Petroleum Equalization Fund through Decree 9 of 1975 (as amended by Decree Number 32 of 1989 now chapter 352 of the Laws of the Federation).
The main objective of that Fund is to ensure price uniformity of petroleum products via the reimbursement of marketers for losses they incur in trucking products from depots to their filling stations anywhere in the country.
However, with deregulation of the downstream petroleum sector following the removal of fuel subsidy, the Federal Government has now stopped payment into the Fund.