Deregulation Promises Transparent Level Playing Field with Cost-Reflective Prices- MOMAN
The Major Oil Marketers Association of Nigeria (MOMAN) reiterates its support for the policy of deregulation in the petroleum industry. It also acknowledges the challenges faced by the Nigerian public and extend deepest empathy to all citizens during this time.
The international price of crude oil and exchange rate constitute largest components of the cost build-up for Premium Motor Spirit (PMS), accounting for over 80%. The remaining 20% includes statutory dues, distribution costs, and margins. Deregulation promises a transparent and level playing field where cost-reflective prices are evident at fuel stations.
It follows, therefore that in a liberalized market, the pump price of PMS should accurately reflect the current economic realities.
In recent months, the price of crude has remained relatively stable. On 30 May 2023, Platts reported a price of $827 per metric ton (MT), and on 14 July 2023, it was $859.25 per MT.
However, there has been a significant increase in the foreign exchange rate. MOMAN can infer from its calculations in May that the Nigerian National Petroleum Company Limited (NNPCL) determined its pump price using an exchange rate of about N630 to the US Dollar, while banks reported an exchange rate of approximately N650 on the Investors and Exporters (I&E) window.
As of today, the liquid exchange rate is close to N825 to the Dollar. This devaluation adds N100 to the cost of importing a single litre of PMS into the country. Consequently, an increase in the pump prices of petrol should be expected.
In the spirit of transparency, MOMAN advocates for federal, state, and local governments, as well as employers of labour, to implement palliative measures to support less privileged individuals in society currently facing hardships. It is essential that rapidly executed palliative measures receive wide publicity to alleviate the already agitated public sentiments.
MOMAN has always anticipated that the removal of subsidies and stabilization of downstream market would be a gradual process. This process necessitates operators and regulators to engage the public transparently, earn public trust, and foster fair competition that ensures full value for customers at the fuel pumps.
The association commends the authorities for their urgent efforts in opening the market, allowing various players to import petroleum products into the country. This market liberalization and commitment to a level playing field should enhance operators’ efficiency, enabling them to offer competitive pricing choices to the public.
Some operators have successfully imported PMS into the country, marking the first practical step towards a liberalized market. However, the major challenges still lie in accessing foreign exchange for imports and ensuring a level playing field regarding pump prices. If marketers are undertaking the financial risk of importing petrol, measures must be in place, in line with the Petroleum Industry Act, to ensure that no one player has an unfair advantage.
Furthermore, it is important to note that a crucial aspect of the program’s success lies in three key areas:
- Effective & sustainable implementation of the gains from subsidy removal. These gains should be invested in the promised palliatives, including subsidized transportation, as well as social investment programs for healthcare, education, and infrastructure development (such as roads, railways, and power). MOMAN urges that these initiatives be rolled out in a visible, transparent, and timely manner.
- Focused and sustained increase in national production of crude oil from the current 1.2 million barrels per day to closer to 2m barrels per day – this will bring the much-needed foreign exchange.
- Ongoing engagement and accountability to Nigerians with respect to the first two points.
MOMAN firmly believes that transparency & engagement are essential for building public trust and understanding.
The reality is that downstream deregulation has brought about structural changes and opportunities for Nigeria and PMS now stands as the most expensive product in the energy mix for consumers.
Therefore, MOMAN offers pragmatic advice to combat current situation faced by all Nigerians and minimize the financial impact on households.
Nigeria is blessed with one of the largest gas reserves in Africa and an abundance of solar resources, the association encourages end-users to analyze and adjust their individual energy consumption mix.
Households should consider switching from PMS and Automotive Gas Oil (AGO) to gas or solar power for their homes if they can afford it.
However, MOMAN emphasizes the need for special precautions to ensure safety of lives and assets when dealing with gas.
Additionally, government and businesses can promote use of Liquefied Petroleum Gas (LPG) and Compressed Natural Gas (CNG) for intercity buses, tricycles (kekes), minibuses, and taxis to power their vehicles.
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In any event, the country will need to explore and deploy different energy options to develop a sustainable, affordable and long-term energy mix for powering homes businesses and mobility.
MOMAN remains committed to its mission of fostering transparency, competitiveness, and best practices in the Nigerian downstream petroleum sector.
MOMAN believes that effective communication among all stakeholders is vital in addressing the challenges and ensuring a brighter future for the Nigerian people.
