The persistent increase in fuel prices as well as importation monopoly by the Nigerian National Petroleum Corporation has shown that the oil industry in Nigeria has not been fully deregulated, experts have said.
Despite the continued rise of Brent crude price, against which Nigeria’s oil is priced, by more than 18 per cent since December 31, 2020, when it closed at $51.22 per barrel, reaching $63.12 per barrel as at Tuesday, the pump price of petrol has however remained unchanged at N163-N170 since November 2020.
The continued increase in oil prices followed the commitment to cut down production by the Organization of the Petroleum Exporting Countries and its allies as demand shrinks.
OPEC and its Russia-led allies, a group called OPEC+, announced last week that there was ‘high compliance’ among member states with agreements to limit supply to prop up prices.
Recall that the Minister of State for Petroleum Resources, Timipre Sylva had said that the deregulation of the downstream oil sector was to ensure economic growth and development of the country.
According to the Minister, it was unrealistic to continue to subsidize the Premium Motor Spirit, stating that it had no economic value and was only beneficial to the rich rather than the poor and ordinary Nigerians.
He said, “Deregulation means that the Government will no longer continue to be the main supplier of Petroleum Products, but will encourage private sector to take-over the role of supplying Petroleum Products. Market forces will henceforth determine the price at the pump.”
However, the Chief Investment Officer, Afrinvest Asset Management Ltd, Robert Omotunde, said that the deregulation has not been fully implemented as current price of the product does reflect the realities of the global market price.
He explained that the sector is still being control by the government, with the introduction of price modulation initiative where prices are reflective of what could be obtained in the market.
This, according to him, has made the market un-free for private operators.
He said, “It seems we have not got to the level of full deregulation that is why NNPC has remained the sole importer of the product, because when you are fully deregulated, all you have to do is tell all petroleum marketers to sell produce at a prices that is competitive for them.
“If full deregulation has taken place, NNPC will not have the monopoly of importation because other petroleum marketers will find it convenient and profitable to go out there and import knowing that they can sell at a market reflective price.”
With oil price rising as high as over $60 per barrel, in a deregulated market, he said the implication on pump price of petrol could be as high as ten percent increase in the current pump price.
“Deregulation is something that we clamoured for, for so many years, it is just unfortunate that it had to be implemented in a year that we have COVID-19, when we had other pressures, like job losses, high electricity tariff and others.
“But it was also an opportunity that government could not have missed, if they had missed the opportunity to deregulate in 2020. I do not know when we would have the opportunity again, but there is need for the government to ensure a complete deregulation,” he added.
He stated that with the weak revenue fundamental of the federal government coupled with the huge debt, subsidizing the product will not be sustainable
Speaking further, Omotunde charged the government on the need to watch its pattern of spending, especially recurrent expenditure, noting that it is not sustainable to approach the debt market or any source of borrowing to fund recurrent expenditure.
He said, “It is going to cause problem down the line because government will have the sense of having resources that it does not have because it can always turn to the market and borrow.
“So it is clear that the government may not have the capacity to fund subsidies and the economy realities do not make sense for the government to continue to do that.”