On Reversal Of Petrol Price Hike

On Friday morning, Nigerians woke up to the news that petrol price had been increased from between N162 and N165 per litre to N212.68.

But some few moments later the Minister of State For Petroleum Resources, Timpre Sylva, said the government had not approved the increase while the Petroleum Pricing Regulatory Agency (PPPRA) said what it posted on its website was a guiding price and not an increase per se.

In all of the confusion caused by the government itself, three indications emerged. First, it is very likely that petrol price may go up next month if the price of crude oil stays around $70 per barrel and the Federal Government is seeking the buy-in of labour and other stakeholders before the next increase.

Second, the government is shouldering a heavy burden of subsidy that it does not have the capacity to carry. Right now that the expected pump price is N212.68, the subsidy being paid on each litre of petrol is N50.68. And if we put the average estimated daily petrol demand at 50 million litres per day, then the government should be spending over N2.5 billion daily on subsidy.

Third, the downstream subsector of the oil industry is still being controlled by the government and what we currently have is quasi- deregulation. This remains so because the government has not put structures in place to enable total deregulation of the downstream subsector. As we have argued in earlier editorials, deregulation is desirable and it is the way to go to move the Nigerian downstream sub-sector to the next level but the challenge is that there is no solid mass transit system in place to cushion the effect of the policy on the people.

For the policy to be effective, the government needs a Public-Private Sector Partnership to build a working mass transit system that will ensure that a rise in petrol price will not translate to a huge increase in transport fares. However, the government only pushes for price hikes when it is cash strapped and that is the reason why it is always struggling to convince Nigerians that it means well.

Downstream deregulation is much more than unending price increases as the government is making it to look like. It is about increasing Nigeria’s refining capacity, creating more jobs and also expanding the nation’s economy. However, the inability of successive governments to create a conducive environment for the policy to succeed is the reason why downstream deregulation has been hard for the government to sell.

It is not too late for the government at all levels, through a PPP arrangement, to intervene in the mass transit sub-sector with a view to making transport fares affordable even when fuel prices go up. That will, to a large extent, enable the deregulation policy to thrive.