Subsidy Reinstated: How the Federal Government Utilizes NNPC to Absorb Market Fluctuations
In a significant turn of events, it seems that the Federal Government (FG) is reinstating the subsidy scheme on Premium Motor Spirit (PMS) through the operational spectrum of the Nigerian National Petroleum Company Limited (NNPC).
This move intends to stabilize the market dynamics and maintain a stronghold on the nation’s oil and gas industry’s downstream segment. Here, we dissect the implications of this development and what it holds for the various stakeholders involved.
Recent signs point to the Federal Government revisiting the subsidy payments on Premium Motor Spirit (PMS), leveraging the NNPC to alleviate market shocks and retain a monopoly in the industry’s downstream sector. This move, reminiscent of strategies adopted under Muhammadu Buhari’s tenure, is now manifesting under President Bola Tinubu’s administration. Let’s delve deeper into the unfolding scenario.
The Subsidy Scheme: A Brief Overview
The voiceofnigeria analysis indicates that the country is now witnessing a substantial monthly loss of about N318 billion (or N10.6 billion daily), tagged as under-recovery in NNPC’s ledger. This shift appears as a direct consequence of the NNPC utilizing its privileged access to foreign exchange resources to subsidize costs, a tactic previously labeled under-recovery in their books during Buhari’s era.
Current Market Trends and Pricing
Pricing trends have showcased a noticeable escalation recently. The landing cost of PMS, now approximately N728.64 per litre, has surged compared to its N529 stance in July. Additionally, multiple auxiliary costs, including freight, lightering, and marketers’ margins, have driven the price to range between N818 and N833 per litre, depending upon one’s residential city. Consequently, the average subsidy seems to hover around N200 per litre, translating to a substantial N318 billion monthly expense.
Furthermore, an examination of global market trends delineates a rise in international trading prices for PMS, marked by a 19.88% increase since July. Coupled with the depreciating exchange rate, these fluctuations have prompted a surge in the crude oil price, touching $90 recently.
Challenges Faced by Marketers
The reinstatement of this subsidy scheme hasn’t been welcomed by all. Marketers express growing concerns over the NNPC’s exclusive access to foreign exchange resources, which hinders their ability to import goods, despite possessing the necessary licenses from the Nigerian Midstream Downstream Regulatory Authority (NMDPRA). The prevailing foreign exchange crisis is feared to impact the deregulation of the downstream sector severely.
Comparative Analysis with Neighboring Countries
In a comparative perspective, the current pump price in Nigeria is significantly lower than neighboring countries such as Cameroon, Benin, and Sierra Leone. Despite the PMS price being almost identical to kerosene/jet fuel on the international market, it remains notably cheaper domestically, primarily due to the reinstated subsidy scheme.
Expert Insights and Predictions
Prominent industry experts have voiced their concerns over the abrupt return of the subsidy scheme. Tunji Oyebanji, the former chairman of the Major Oil Marketers Association of Nigeria (MOMAN), emphasized the need for a comprehensive roadmap to navigate the subsidy removal effectively, urging stakeholders to collaborate and synchronize their strategies to prevent adverse impacts on the sector