Who will school the President on economics of petrol pricing?

by | January 23, 2018 11:26 am

Nigerians woke up during the weekend to another round of petrol scarcity. Even though some would say that the petrol scarcity never went away outside the major cities of Lagos and Abuja. Most people outside Lagos and Abuja are already used to buying petrol above the official pump price of N145 per litre. They do not really have to queue up to do this. They just drive in and drive out.

Thus the scarcity is more prevalent in Abuja and Lagos, the two cities where the government pretends that all is well with petrol pricing in the country and that its price control mechanism is working.

Giving reasons for the latest petrol scarcity, NNPC blamed it on technical hitches caused by ships that were unable to discharge petrol as scheduled at the ports. NNPC claims that this has been ratified. Already, the NNPC says, 250 truckloads of petrol have been sent to Lagos to ease the pressure at the filling stations.

However, the truth is that this scarcity of petrol is going to be the new normal for the rest of the year, as we have written on this page before. As long as the NNPC remains the sole importer of the product into the country, we are going to have this intermittent scarcity hitting us for the rest of the year.

The NNPC does not have the distribution capacity to sustain product supply across the country and the subsidy burden that it bears from importing and selling petrol at below market prices will continue to rise and put pressure on its finances.

Private operators would not consider coming into the petrol importation business as long as there is subsidy, which also means that NNPC will continue to bear the burden alone and the associated risks that comes with it.

The country is in this situation because President Muhammadu Buhari is yet to admit that the current pricing structure is not realistic. It can only facilitate the massive smuggling of the product to neighbouring countries and effectively turn us into “Father Christmas” to our neighbours. Nigeria’s regulated price is distorting price mechanism in the West African region and encouraging smuggling.

A number of other African countries due to the high cost of subsidies have put mechanisms in place to deregulate the industry and relieve their government of the burden of unsustainable subsidy payment. This has energized their market, led to better market delivery and created enabling environment for private sector led investment in the sector.

Rather Nigeria’s regulated petrol pricing has become a source of cheap money to unscrupulous businessmen and women. Buhari really needs some urgent lessons on the economics of petroleum pricing or else the country is stuck in this rot.

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