Nigerian National Petroleum Company Limited and IPMAN at odds over subsidy removal.
In the ongoing debate on petrol subsidy removal, the Nigerian National Petroleum Company Limited (NNPCL) and fuel marketers, represented by the Independent Petroleum Marketers Association of Nigeria (IPMAN), are at loggerheads.
Naira Depreciation Adds Fuel to the Fire
The clash intensifies amid the naira's depreciation against the US dollar, leading to economic concerns and differing perspectives on the subsidy's impact.
The Nigerian National Petroleum Company Limited (NNPCL) and the Independent Petroleum Marketers Association of Nigeria (IPMAN) clashed over the removal of subsidy on petrol. This disagreement unfolds against the backdrop of the naira's depreciation against the US dollar.
Economists and oil marketers contend that the subsidy on Premium Motor Spirit (PMS) is increasing due to the naira's fall. Bismarck Rewane, CEO of Financial Derivatives Company, asserted that while subsidy was reduced, it was not entirely removed.
"At the inauguration, it was said that (fuel) subsidy was gone but subsidy was actually reduced," - Bismarck Rewane
Oil marketers argue that considering the depreciation of the naira and crude oil costs, PMS should be priced at around N1,200/litre in a free market. Currently, the NNPCL imports petrol and sells it for N617/litre to N660/litre in various locations in Nigeria.
"To be pragmatic in this analysis let’s consider the cost of petrol today in the United States. For premium petrol, it is $2.99, while super petrol sells for $3.15 or $3.10 depending on the part of that country where you are making the purchase." - Chief Ukadike Chinedu, National Public Relations Officer, IPMAN
NNPCL, however, maintains that it recovers the full cost on imported products and denies the existence of a subsidy.
"At NNPC Ltd, we prioritise national development through energy security and sustainable growth. We reiterate that the Nigerian government does not pay subsidy on fuel; we recover full costs from our imported products." - Olufemi Soneye, Chief Corporate Communications Officer, NNPCL
The clash over this issue has intensified, with differing views on the economic implications.
The naira closed at N998/dollar at the official market and N1,225/dollar at the black market, highlighting concerns about its decline. Analysts attribute the naira's poor performance in 2023 to unsettled forwards, undelivered promises of dollar inflows, and high inflation.
"The naira’s downward momentum is likely to continue through much of 2024, and its ultimate trajectory will depend on whether the CBN’s rhetoric transforms into concrete policy moves that drive up the flow of US dollars into Nigeria and shore up trust in the official market." - Kyle Chapman, FX markets analyst at Ballinger & Co
The World Bank insists that if there is no subsidy, the cost of PMS should not be less than N750/litre. As the debate continues, the naira's depreciation adds complexity to the discussion on petrol subsidy and its economic ramifications.
