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…Says, International price of crude oil and exchange rate constitute largest components of cost build-up for PMS
The Major Oil Marketers Association of Nigeria (MOMAN) has reiterated its support for the policy of deregulation in the petroleum industry. It also acknowledges challenges faced by the Nigerian public and extends deepest empathy to all citizens during this time.
It assured Nigerians that there is a better future for the industry and the economy in the nearest future if the government can carry through its reforms in the economy.
The international price of crude oil and the exchange rate constitute largest components of cost build-up for Premium Motor Spirit (PMS), accounting for over 80%. The remaining 20% includes statutory dues, distribution costs, and margins. Deregulation promises a transparent and level playing field where cost-reflective prices are evident at fuel stations.
It follows, therefore that in a liberalized market, the pump price of PMS should accurately reflect the current economic realities.
In recent months, the price of PMS has remained relatively stable. On 30 May 2023, Platts reported a price of $827 per metric ton (MT), and on 14 July 2023, it was $859.25 per MT.
However, there has been a significant increase in foreign exchange rate. MOMAN can infer from its calculations in May that the Nigerian National Petroleum Company Limited (NNPCL) determined its pump price using an exchange rate of about N630 to the US Dollar, while banks reported an exchange rate of approximately N650 on the Investors and Exporters (I&E) window.
As of today, the liquid exchange rate is close to N825 to the Dollar. This devaluation adds N100 to the cost of importing a single litre of PMS into the country. Consequently, an increase in the pump prices of petrol should be expected.
In the spirit of transparency, MOMAN advocates for federal, state, and local governments, as well as employers of labour, to implement palliative measures to support less privileged individuals in the society currently facing hardships. It is essential that rapidly executed palliative measures receive wide publicity to alleviate already agitated public sentiments.
At MOMAN, the association has always anticipated that the removal of subsidies and the stabilization of downstream market would be a gradual process. This process necessitates operators and regulators to engage the public transparently, earn public trust, and foster fair competition that ensures full value for customers at the fuel pumps.
The association commends the authorities for their urgent efforts in opening the market, allowing various players to import petroleum products into the country. This market liberalization and the commitment to a level playing field should enhance operators’ efficiency, enabling them to offer competitive pricing choices to the public.
Some operators have successfully imported PMS into the country, marking the first practical step towards a liberalized market. However, major challenges still lie in accessing foreign exchange for imports and ensuring a level playing field regarding pump prices. If marketers are undertaking the financial risk of importing petrol, measures must be in place, in line with the Petroleum Industry Act (PIA), to ensure that no one player has an unfair advantage.
Furthermore, it is important to note that a crucial aspect of the program’s success lies in three key areas:
- Effective & sustainable implementation of the gains from subsidy removal. These gains should be invested in the promised palliatives, including subsidized transportation, as well as social investment programs for healthcare, education, and infrastructure development (such as roads, railways, and power). MOMAN urges that these initiatives be rolled out in
a visible, transparent, and timely manner.
- Focused and sustained increase in our national production of crude oil from the current 1.2 million barrels per day to closer to 2m barrels per day – this will bring the much-needed foreign exchange.
- Ongoing engagement and accountability to Nigerians with respect to the first two points.
MOMAN firmly believes that transparency & engagement are essential for building public trust and understanding.
The reality is that downstream deregulation has brought about structural changes and opportunities for Nigeria and PMS now stands as the most expensive product in the energy mix for consumers.
MOMAN would like to offer pragmatic advice to combat the current situation faced by all Nigerians and minimize financial impact on households.
Nigeria is blessed with one of the largest gas reserves in Africa and an abundance of solar resources so we encourage end-users to analyze and adjust their individual energy consumption mix.
Households should consider switching from PMS and Automotive Gas Oil (AGO) to gas or solar power for their homes if they can afford it.
However, MOMAN emphasizes need for special precautions to ensure the safety of lives and assets when dealing with gas.
Additionally, the government and businesses can promote the use of Liquefied Petroleum Gas (LPG) and Compressed Natural Gas (CNG) for intercity buses, tricycles (kekes), minibuses, and taxis to power their vehicles.
In any event, the country will need to explore and deploy different energy options to develop a sustainable, affordable and long-term energy mix for powering homes businesses and mobility.
MOMAN remains committed to its mission of fostering transparency, competitiveness, and best practices in the Nigerian downstream petroleum sector.
The association believes that effective communication among all stakeholders is vital in addressing the challenges and ensuring a brighter future for the Nigerian people.