The price of fuel has been a niggling and touchy issue in Nigeria over the decades since the 1980s and counting, not least because every increase affects the prices of goods and services in most parts of the country, and by implication, livelihoods.
The recent northward and ratcheting trends in fuel price of fuel come difficult to imbibe for many Nigerians considering the fact that COVID-19 has caused loss of jobs, salary cuts to many, slowdown of business activities, to name just a few. It is noteworthy that relentless double digit inflation has been a steady upward trend over the years also.
Presently, Nigeria’s labour unions are locked horns in negotiations with the federal government, not as whether to, but as to how much the price of fuel should be increased, given the current landing cost of N190.00.
Coupled with that, a salient unit of the Nigerian economy, the country’s labour market is undergoing a structural shift, which requires that large segments of the country’s labour force learn new skills.
However, fact be told, the federal government simply has no choice this time around but to relinquish interest in fuel subsidy if it must make any impact in diversifying and growing the economy. No thanks to COVID-19, government revenues have taken a southward trajectory for the large part of 2020. Hence, any alternative action or inaction would mean borrowing money to meet recurrent responsibilities or, some recurrent responsibilities would not be met in the coming months, and probably years.
Interestingly, removal of fuel subsidy partly formed the basis of the International monetary Fund’s (IMF) revised GDP growth projection for Nigeria for 2021.
That the federal government wants to absolve itself of subsidy interest means there is no guarantee that the price of fuel will remain static for the unforeseeable future. The price of petroleum products will be determined by the forces of supply and demand. And with global economic rebound in the offing consequent to hope of getting the coronavirus under control soon, coupled with OPEC+ production limit for member nations, crude oil prices are almost certain to see a northward trend.
Since Nigeria currently refines insignificantly compared to her daily demand of fuel, the price of petroleum products will be determined by prices on the international market, which will largely be determined by crude oil prices, which, in turn, are being determined by prophylactic and therapeutic solutions to the coronavirus pandemic. When major economies become fully open, demand for crude oil will remain bullish.
Given that prognosis, and cautious reopening of major economies around the world, the price of Brent crude on the international market was $63.00 per barrel as of last Friday, with likely gradual increases from time to time, which means the pump price of fuel in Nigeria may continue to be readjusted from time to time, especially considering the fact that summer in the Western Hemisphere is around the corner when demand for fuel will push up prices, ceteris paribus.
An earlier spat between Nigeria Labour Union and the federal government to reduce the price, sequel to further jacking of price of the commodity to N170 had arm-twisted government to settle at N162 per liter, albeit temporarily.
On the other hand, with the promised take-off date of the Dangote Refinery, readjusted to 2022, the federal government will have the leeway and muscle to apply moral suasion on the company, and other private investors either to leave the price of fuel at N162 per liter, in which cases, government will be able to subsidise the sale of crude oil to Dangote Group and others by supplying at a discount for fuel to the local market, crash the price for the local market, or continue to allow the forces of supply and demand to determine the price of fuel.
That may be the likely scenario if the federal government sells crude oil to the likes of Dangote at international rate.
It is only subsidy on local production of fuel that will assuage or serve as a buffer from that additional painful happenstance on Nigerians.
Happily, Nigeria recently witnessed the commissioning of a 5,000 barrels/day private refinery in Imo State. It is hoped that such private sector driven investments will continue.
It may be recalled that Dangote Refinery, which is currently more than 80 percent complete, is designed to more than double supply Nigeria’s current daily demand of petroleum products.
That’s not all, it may also be recalled that BUA Group recently signed an agreement with Axens of France for the supply of process technologies for its upcoming 10 million tonnes per annum mega refinery and petrochemicals facility to be sited in Akwa-Ibom.
Other modular refineries are coming on board soon to serve the local market.
So, the mix of progress on the development of COVID-19 vaccines, government action, as well as the speed of completion and coming on board of local private refineries will determine the northward, southward or stagnancy of fuel price in Nigeria over the next one year.
This prognosis does not take into account the likely impact the long-expected Petroleum Industry Act will have on the price of petroleum products.
