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Expect N165 petrol price by January 2017, Nigerians told – Businessday

HomeNewsExpect N165 petrol price by January 2017, Nigerians told – Businessday
Expect N165 petrol price by January 2017, Nigerians told – Businessday
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The retail price for petrol may rise by at least 13.7 percent to N165 per litre by January 2017 from the current price of N145, industry experts say.

This is because the current petrol price template is predicated on an exchange rate of N285/$ and crude oil price of $45 per barrel, and these have now been overtaken by an exchange rate of N305/$ and oil price of about $55 per barrel.

Although the pricing template had been rendered void since June, following the devaluation of the naira and the uptick in gas prices, petrol marketers sold old stock, hence were able to maintain the N145 set in May. But as the marketers run out of stock and start importing new cargoes, a new pricing template must evolve and it could see Nigerians pay as high as N165 per litre in January, according to Dolapo Oni, head of energy research at Ecobank. “As we see higher crude oil prices, let us also expect higher fuel prices. I expect an increase to at least N165 per litre in January,” Oni said in response to questions. He also calculated the ideal template, considering the current exchange rate and oil price, takes full pump price to N163 per litre. “At some point, as petrol importers start to buy new cargoes, the NNPC is going to have to take the difference between the ex-depot and real price if it must maintain the pump price at N145,” he said.

At root, the difficulty for Nigeria is that it exports too little oil per person, to offer a significant fuel subsidy, according to Charles Robertson, chief economist at Renaissance Capital. “Gulf countries export 25 times more oil per person and even they have removed the fuel subsidy,” Robertson said in an emailed response.

He further observed, “Nigeria does not control the global oil price, nor can it control the exchange rate (which is a reflection of the oil price). The NGN145 price did make sense when the exchange rate was at 200/$ in May 2016, but today it is a problem, and the country risks draining away its foreign reserves, supporting those who drive a car, when ideally, the country should be investing in infrastructure and reforms which make the country more competitive.”

Government has often claimed it no longer incurs fuel subsidy costs, making it unclear who bears the shortfall in the obsolete petrol pricing template.
Traders told BusinessDay, Monday, that Nigeria’s Central Bank was asking banks to submit bids for a “special currency auction” targeting fuel importers to meet demand for matured letters of credit.

The traders said the Central Bank sent a message to banks to submit backlog dollar demand from fuel importers by 3:00pm for a special intervention.
Industry sources said government wanted to ensure that fuel retailers had enough products, so it was channelling dollars to them to avoid acute fuel shortages like the one in the months of March and April, 2016, which crimped business activity.

The sources were unable to confirm the date for the auction but said they had started submitting bids to their banks. Although many said the dollar special intervention will be no permanent solution to the challenges they were facing. “Selling dollars at subsidised rates is no long term solution to our problems, rather, allowing the market set prices is the solution,” an industry player who did not want to be named said. “By maintaining a price ceiling, government is draining its foreign reserves to make up for the shortfall and is barricading investments in the downstream oil sector. Absolute deregulation will resolve all of the challenges we face in that sector,” the source added.

Nigeria consumes 45 million litres of petrol a day, or roughly 280,000 barrels, which would require the market to provide some $18 million a day.
Importers cover about 30 percent of this, with the NNPC covering the rest, which is mounting pressure on the market for dollars. Thirty percent of foreign exchange demand in Nigeria is used for fuel imports, according to data from the Central Bank.

Nigeria is in its deepest recession in 25 years, worsened by falling crude output as militants attack pipelines in the Niger Delta, the heart of its production, and global prices remain low, draining dollars needed to fund imports. Nigeria is the largest oil producer in Africa, pumping some 1.6 million barrels a day of crude.

However, it is forced to rely on imports to meet 70 percent of its domestic refined petroleum products demand, as the NNPC’s four refineries produce at less than 20 percent of installed capacity of 450,000 bpd.

Forced to intercede for businesses and households reeling from fuel scarcity and higher costs, the Petroleum Products Pricing Regulatory Agency (PPPRA) template in May, increased the approved retail price of petrol by about 62 percent to a band between N135 – N145 per litre from N87.
The non-dynamic template, which failed to take into the account rising oil and gas prices as well as the naira dollar exchange rates, has seen companies operating in the country’s downstream oil sector struggle with negative margins and has translated a burden of higher costs for Nigerians.

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