The removal of the fuel subsidy

Subsidy Removal – Why N500/Litre is Inevitable

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Zarama Mustapha, the Deputy President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), shed light on the factors influencing the new pump price of Premium Motor Spirit (petrol) in Nigeria. Mustapha emphasized that the Nigerian National Petrol Company (NNPC) Limited, as the sole importer of petrol, determines the price for oil marketers across the country. He explained that the current retail price of petrol, set by the NNPC, cannot be less than N500 per litre.

To arrive at this price, oil marketers will procure petrol at over N460 per litre from fuel depots. They will then factor in transportation costs and profit margins, which collectively contribute to the final pump price exceeding N500 per litre. Consequently, since the recent adjustment of petrol prices and the removal of subsidies, the selling price of a litre of petrol has already surpassed N500 nationwide. This, in turn, has led to long queues at filling stations and a significant increase in transportation costs, exacerbating the country’s traffic situation.

Mustapha further elaborated on the role of the NNPC and its influence on market dynamics. He expressed his belief that the deregulation of the petroleum sector is a recent development and expressed hope that other players would eventually be allowed to participate in product importation, fostering healthy competition with the NNPC. Despite the deregulation, Mustapha asserted that the NNPC is still government-owned, thus retaining a significant influence over the industry.

The removal of subsidy on petrol was announced by President Bola Tinubu during his inaugural speech at the Eagle Square in Abuja on May 29. Tinubu explained that the previous administration, led by Muhammadu Buhari, did not allocate funds for subsidies beyond June in the 2023 budget. Although many Nigerians anticipated the implementation of the new price regime by July 1, the queues at filling stations and retail outlets’ hoarding of petrol, along with price hikes, emerged almost immediately after the presidential pronouncement.

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Responding to the NNPC’s price adjustment, Mustapha expressed surprise at the early implementation and lack of official communication regarding depot prices for independent marketers. He highlighted the varying prices across states, dependent on proximity to the source of supply and the associated transportation costs. With the deregulated price pegged at around N460 per litre, the addition of transportation costs and profit margins contribute to the final price determined by the government.

The Trade Union Congress of Nigeria (TUC) and the Nigeria Labour Congress (NLC) have voiced their concerns regarding the subsidy removal. TUC President Festus Osifo criticized the decision, emphasizing the need for practicable palliatives and alternatives. He argued that the proposed N5000 cash transfer by the government would not be sufficient. Similarly, NLC National President Joe Ajaero stated that the removal of subsidies should be accompanied by viable alternatives and highlighted the repair of refineries and provision of transportation alternatives as possible solutions.

A recent meeting between the Organized Labour and representatives of the Federal Government ended in a stalemate as both parties failed to agree on the way forward.

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