MAN Warns of Hyperinflation, Subsidy Hits N400, Diesel, 625
NewsReport gathered that the rising oil prices since the start of the Russia-Ukraine war, combined with exchange rate uncertainty in Nigeria, among other factors, have driven up the prices of refined petroleum products across the country.
According to industry estimates reviewed on Tuesday, the cost of Brent, the crude against which Nigerian oil is traded, surpassed $133 per barrel around 6 p.m. Nigerian time. The commodity had traded below $90/barrel before the war in Ukraine started.
Oil merchants told our correspondent that the surge in global crude oil prices has increased the cost of Automotive Gas Oil, usually known as diesel; JetA1, also known as aviation fuel; and Premium Motor Spirit, generally known as petrol.
The position of oil marketers on the impact of crude price hikes on refined petroleum products in Nigeria had also been confirmed by the Federal Government through the Minister of State for Petroleum Resources, Chief Timipre Sylva, and the Group Managing Director of the Nigerian National Petroleum Company Limited, Mele Kyari.
“Unlike PMS, diesel or AGO has been deregulated and the price is basically determined by the cost of crude oil, foreign exchange rate and few other factors,” the President, Petroleum Products Retail Outlets owners Association of Nigeria, Billy Gillis-Harry, stated.
He added, “While diesel is a deregulated commodity, petrol is not deregulated but is rather subsidised and you can imagine the amount of subsidy being spent on a litre of petrol currently.”
Gillis-Harry explained that the actual cost of petrol without subsidy was usually a little higher than that of diesel, stressing that if not for a subsidy, PMS would be selling around N550 to N600/litre going by the rise in crude price.
The approved subsidised pump price of PMS in Nigeria is between N162 to N165/litre, but oil marketers stated that the actual cost should be a little higher or about the same price of diesel had it been PMS was deregulated.
The PETROAN president further stated that the N3tn that was projected by the government as subsidy spending in 2022 might double before the end of the year if the crude oil price continues to rise.
He said, “We’ve been saying this forever that we should deregulate and allow market forces to determine the price of PMS at the pumps. This subsidy we are paying, at the end of the day may not be the best for this country.
“Today the government is proposing N3tn for subsidy this year, but at the end of the day it might rise up to N5tn or N6tn going by the rise in crude oil price.”
The GMD of NNPC had in June last year stated that there was nowhere in the world where the pump price of petrol was lower than the cost of diesel.
Notably, The PUNCH reported Kyari to have stated that the price of petrol should be more than the N280/litre price at which diesel was being sold at the time.
Kyari had said, “Today we are paying N162/litre (for petrol). I am sure many people buy AGO (diesel) in the market and it is selling at N280/litre in the market today.
“So (there is) nowhere in the world diesel sells more expensive than PMS. That means that the price of petrol anywhere in the world, assuming you are going to sell it at the market, you are going to sell it above that price you have seen.”
This implies that at the current pump price of about N600/litre for diesel and N165/litre subsidised rate for petrol, the Federal Government is spending over N400 as subsidy on every litre of petrol consumed in Nigeria.
As the price of diesel grew, airline operators stated on Tuesday that the cost of aviation fuel had also been on the increase, a development that led to flight cancellations and delays, leaving many passengers stranded at airports.
Passengers Stranded As Aviation Price Hits N580/litre
Aviation fuel which sold for N190/litre and later N360/litre in January this year, rose to between N579 and N607/litre on Tuesday.
Oil marketers as well as airport officials said the cost of aviation fuel differed in various airports.
In Lagos, Jet A1 was sold for N579 per litre on Tuesday; Abuja N599, Port-Harcourt N599; and Kano N607. Just a few weeks ago, aviation fuel marketers increased Jet A1 to about N450 per litre which forced the carriers to raise airfares by 100 per cent.
The latest hike in aviation fuelled to scarcity of the product, a development that forced virtually all the carriers to reschedule flights while others who could not get Jet A1 cancelled flights.
The domestic terminals of the Lagos and Abuja airports, as well other airports across the country were full as restless passengers besieged airline check-in counters. Several passengers became stranded.
The Chief Operating Officer of Ibom Air, Mr George Uriese, decried the situation, saying the latest increase in Jet A1 price had put domestic carriers in a very tight situation.
According to him, airlines may find it difficult to raise fares because passengers have got to a limit where they may be unwilling to pay more.
He said, “Something has to give way at this time, which I don’t know”
He felt perhaps airlines might be forced to change their business models if the situation persisted.
FG Needs To Stop Subsidy Regime -Marketers
To address the continued rise in the prices of refined petroleum products as well as subsidies, oil marketers insisted that it was high time that the government stopped the petrol subsidy regime, as well as fixed the country’s refineries.
“This situation has again shown why it is so important for us to get our refineries working and start refining our own crude here in Nigeria,” Gillis-Harry stated.
Also, the Executive Secretary, Major Oil Marketers Association of Nigeria, Clement Isong, recently told our correspondent that petrol subsidy might hit N6tn in 2022 if the current factors causing the rise in global crude oil prices continued.
The Secretary-General, OPEC, Sanusi Barkindo, stated that the world was being faced with an oil supply threat due to the Ukraine/Russia war.
He disclosed this while speaking at the 2022 Cambridge Energy Research Associates Week in Houston, United State. The CERA Week is an annual event for energy leaders, experts, ministers, exhibitors, among others, where they discuss industry issues.
Barkindo said, “OPEC consumers’ perception of the war is that the threat, whether it materialises or not, is already reverberating through the markets.
“We have no influence over current events since geopolitics has seized the market and is driving the market’s pace.
“The world is facing a potential supply threat from the Russian Federation.”
He stated that the crisis being faced currently on energy buttressed the fact that OPEC and non-OPEC producers should be fully aligned.
MAN Warns Of Hyper Inflation
As a result of the increase in the prices of petroleum products especially diesel, the Manufacturing Association of Nigeria on Tuesday said that Nigerians should expect higher inflation rates and a surge in the prices of goods and services as the cost of diesel rises.
Speaking on behalf of MAN, the Chairman, Infrastructure Committee, Ibrahim Usman, said the rise in inflation would be driven by a higher cost of production for manufacturers who depend largely on diesel for production.
In a telephone interview with one of our correspondents, Usman said, “the rise in the price of diesel means higher production cost for manufacturers because most of us rely on diesel to produce. So when the cost of production is high, then manufactured products will be sold at a higher price, this is to enable the manufacturer to make a profit after-sale and stay afloat.
“So basically it will increase the inflation in the country which is already high, further compounding the problems and plight of Nigerians.”
He said that the government can prevent the expected consequences by providing adequate power supply across the country and offering discounts on electricity tariffs to manufacturers.
“To avoid these things from happening, the government should make sure that it creates a situation whereby the cost of electricity is reduced for manufacturers and that power supply is accessible to producers,” Usman said.
Expect Food Prices To rise -Economists
In a chat with The PUNCH, an economist and CEO of Centre for the Promotion of Private Enterprise, Dr Muda Yusuf, said the astronomical rise in the price of diesel would lead to a concomitant increase in the cost of several items including food because food items are often transported with trucks.
Yusuf, who is a former Director-General of the Lagos Chamber of Commerce and Industry, said Nigeria was paying for failing to encourage investments in the oil sector and possess working refineries.
“It is not just the cost of finished products that will rise. There will also be a rise in the cost of food items because trucks that deliver food items run on diesel,” he said.
“High diesel cost would trigger higher transportation costs. Most haulage vehicles are powered by diesel. An increase in transport costs typically impacts the general price level. A major driver of inflation is high transportation costs,” Yusuf added.
The economist said the continued rise in the price of crude oil occasioned by the Ukraine/Russia war would continue to put a strain on Nigeria’s finances due to the payment of petrol subsidies which will reduce the country’s foreign exchange earnings.
Yusuf further stated that the epileptic power supply, which forces many factories to run on diesel generators, would force firms to increase their prices or reduce their profit margins.
He added, “High and increasing cost of diesel is compounding an already difficult situation for many investors. We would see an escalation in production and operating costs; mounting inflationary pressures, erosion of profit margin and risk to business continuity, especially for SMEs in the real sector. It has implications for poverty as well.
“Most firms still depend on diesel generators to power their operations in the face of epileptic electricity supply.”
Also, a development economist, Aliyu Ilias, said the increase in the price of diesel would contribute to the inflation of goods in the country.
Ilias said, “Diesel is used by industries and big vehicles, such as those that convey goods. With the increase in price, there would be a multiplier effect on the cost of products in Nigeria.
“This is a similar case in the aviation sector. When the cost of aviation fuel increased, there was an increase in the cost of air tickets.”
He encouraged the government to boost the local refining of diesel.
“The government needs to refine locally. There is no alternative to diesel. Many industrial rely on diesel to power their generator,” he said.