Energy News

Facts about liberalisation of petrol price in Nigeria

What is the current PMS Pricing Regime in Nigeria? 

The Market-based pricing regime came into effect 19th March, 2020, following Government’s approval for the adjustment of PMS Price from N145.00 to N125.00/litre. Going forward, pricing of PMS will reflect market fundamentals. PPPRA will continue to monitor price trends and advise monthly guiding price for all petroleum products, based on prevailing market realities and other pricing fundamentals.

What necessitated this approach?

The recent plunge in the prices of crude oil and petroleum products occasioned by the outbreak of Coronavirus pandemic and slowing global oil demand, had a direct bearing on the Expected Open Market Price (EOMP) pushing it to a level below the pump price cap of N145.00 per litre. In line with Government’s commitment to the welfare and common good of the populace, the Government directed NNPC, being the sole supplier of PMS into the country at that point, to review downward its Ex-Coastal price of the product for sale to other Marketers to reflect the current low oil price for the benefit of Nigerians. Furthermore, the plunge in global crude prices made it increasingly difficult for Government to finance the 2020 National budget as it was predicated on a crude price of $57 per barrel. The low crude oil prices, therefore, presented the opportunity to address the lingering challenges associated with the Under/Over-Recovery regime and free up vital funds required to develop in other key sectors of the economy. Additionally, the new initiative is expected to stimulate private investment and growth in the downstream sector and encourage the resumption of products importation by Oil Marketing Companies, translating to more job creation as many depots and facilities that were dormant would now become active.

With this price liberalization, will Nigerians not be exposed to high prices once the price of crude picks up?

What we have in place is a market reflective pricing system. Petroleum products prices will be adjusted in line with market realities and the result is what we see presently with prices on the downward slide. Accordingly, price will naturally be adjusted to reflect a true picture of market fundamentals at any particular period (high or low). Also, efforts are being put in place to develop alternative fuels to PMS by deepening the utilization of LPG/CNG as Autogas in Nigeria. This will come into fruition in the medium term and will help to cushion the effect in case of situation of high oil price.

What steps will be taken to insulate Nigerians from high prices?

The liberalized pricing regime will ensure a competitive and more efficient PMS market that guarantees reasonable returns to Operators and ensure consumers pay appropriate prices in line with market reality and ensure they are not over-charged. In addition, strict compliance to the price band at retail outlets will be ensured through effective monitoring and enforcement of extant regulations.

What will be the function of the PPPRA under this new regime?

It is pertinent to state that it is crucial to have a robust regulation in place in a market-based pricing regime in order to protect the interest of the consumers, the nation and ensure the growth of the sector. The PPPRA being the regulatory agency will continue carryout all its mandates as enshrined in the establishment Act of the Agency, which includes: to determine the pricing policy of petroleum products; regulate the supply and distribution of petroleum products; create an information databank and moderate volatility in petroleum products prices, while ensuring reasonable returns to operators. Other functions are: to establish parameters and codes of conduct for all operators in the downstream petroleum sector; maintain constant surveillance over all key indices relevant to pricing policy and periodically approve benchmark prices for all petroleum products and prevent collusion and restrictive trade practices harmful in the sector, amongst others.

What is the difference between price modulation and price liberalization?

The modulation as described in the Press Statement introducing the new pricing regime, refers to monthly adjustment or review of pump prices in line with prevailing market conditions. Price Liberalization is when Expected Open Market Prices (EOMP) prices are completely determined by market forces. Under price liberalization, petroleum products prices will be adjusted in line with market realities. How will the Nation’s refineries be affected under the present policy? The Nation’s refineries are required to key into the new pricing regime just like all other operators both private and public. The new regime will open up the Oil and Gas Sector for more private players and investments in refineries, storage facilities and transportation. At the end of the day we expect to see more private players operating in the industry. The liberalization of the entire industry will make it possible for private investors to recoup their investments, leading to a more vibrant downstream sector. However, in order for the nation’s refineries to continue producing fuels, the authorities in charge of the refineries need to fix the refineries and ensure they come back on stream at optimal level. We believe the upcoming Dangote Refinery and other modular refinery projects nationwide will be able to key into the new pricing regime. What will be the role of DPR, PEF(M)B, NNPC under the new regime? DPR and PEF(M)B will continue to perform their functions in line with the laws establishing them. NNPC being the sole importer of PMS recently is expected to continue importation alongside other Oil Marketing Companies (OMC). Under the former Regime, NNPC was importing almost all the quantity of products needed because marketers were unable to import and sell at the regulated price cap of N145 per litre, in addition to their inability to access Foreign Exchange. NNPC took up the responsibility as the supplier of last resort to import products and sell to interested OMCs for efficient distribution. This also created an opportunity for Marketers to trade within the approved margin.

What is the PPPRA doing to ensure that marketers get Foreign Exchange at the official rate this time around?

The Agency is engaging with the Central Bank of Nigeria (CBN) to determine the applicable Foreign Exchange rates for the importation of petroleum products and modality for accessing the applicable Foreign Exchange window by the Marketers. This rate is reflected on the pricing template to determine the expected open market price of the product. This means that going forward, the guiding price to be advised, will be determined based on the rates quoted by CBN. The price is expected to guide the sale of PMS in Nigeria. In fact, we plan to extend the same pricing mechanism to ATK, AGO, etc. The whole essence of the price band is to ensure price efficiency that is beneficial to both the consumers and oil marketers.

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