Nigerians are in uproar following the report that the cost of Premium Motor Spirit (PMS) also known as petrol, driven by the depreciation of the naira in the forex market, will hit N680 per liter and N720 per liter in the coming weeks.
The Punch reports on Monday, quoting oil marketers, that the recent rise of the dollar to N950/$1 in parallel will inevitably push the pump price of petroleum products as well as other goods and services further up.
After hitting N955/$1 last week, the naira closed at N9450/$1 on Monday, a situation that indicates a scarcity of dollars that oil marketers said has significantly undermined their ability to import PMS.
“Once there is a slack in the naira against the dollar, there is going to be an effect. The demand and supply of forex is a key factor. We should also understand that it is not only petroleum products that use forex,” the National Public Relations Officer, Independent Petroleum Marketers Association of Nigeria, Chief Chinedu Ukadike, was quoted by The Punch as saying.
“Other manufacturers who import one thing or the other are also searching for dollars. So, the surge for dollars has continued to increase. So now that the dollar is hitting N910 to N940, and approaching N1,000, you should expect to buy PMS at the rate of N750/litre.
“It is simple mathematics, once the dollar is going up, have it in mind that the prices of petroleum products would definitely increase because the products are dollar-driven,” he added.
The marketers said they require about $25 million to $30 million to import petrol into Nigeria, but can’t access the fund through the Investor and Exporter window where the naira trades higher at N740/$. This is because there is no fund in the I&E window.
“To buy products, it costs you between $25m to $30m. You can’t find it in the I&E window. So it doesn’t work and that is why people are not importing,” the Executive Secretary, Major Oil Marketers Association of Nigeria, Clement Isong said.
The decision of the Central Bank of Nigeria to float the FX market has been observed putting a lot of pressure on the parallel market.
The inability to access dollar through the I&E window has led dealers who were initially eager to import PMS to suspend their plans, the marketers said.
“Nigerians should brace for a price regime of between N680 to N720 if the exchange rate stays around N910 to N950/$1, but the price is going to hit N750 once the dollar rises to N1,000.
“This is because marketers still source dollars from the parallel market, and not only marketers but virtually all importers in Nigeria. There is no subsidy any more on petroleum products, so you expect the cost to fluctuate with the dollars,” Ukadike added.
The removal of fuel subsidy means that the price of petrol in Nigeria will now be determined by the international cost as well as the naira to dollar exchange rate. Since the floating of the FX market, the disparity between the I&E window and the parallel market exchange rates has grown wide, amounting to about N205.
This is attributed to the lack of dollar liquidity in the I&E window. The oil market leaders said that oil marketers still rely on the parallel market to source dollars.
Another challenge noted by the IPMAN PRO is that the Nigerian National Petroleum Company Limited (NNPCL) remains the sole importer of petrol in the country. He said though recently, Emadeb, an oil-marketing company, which was issued a license, imported petrol – it is grappling to recoup its investment as the dollar has risen further since then.
“NNPC is still the major importer for now. One other company, Emadeb, imported products recently, but because this product is being sold in naira, getting back their funds is another issue since the naira keeps depreciating, while PMS imports is in dollars,” Ukadike said.
“This is why it is often difficult to go back and buy again as an independent importer. That is the problem we are facing.”
While oil marketers agree that having multiple importers will reduce the pump price of petrol per liter – as it will drive competition, the fear of losing their investment to the volatility of the FX market has dampened the willingness of potential importers.
The cry for a solution
In addition to calls for intervention in the FX market, stakeholders have urged the federal government to quickly resolve the crisis in the oil sector by curtailing oil theft in the Niger Delta.
“Nigeria has to sort out the security issues in the Niger Delta so that we can increase our daily crude oil output. If we increase it to 1.8 or two million barrels per day, then there’ll be dollar in the market. So we need to stop oil theft,” Isong said.
Nigeria earns 90% of its foreign exchange from oil but has been experiencing revenue shortfalls due to low oil output attributed to theft. The nation’s daily oil production in July 2023 fell by 13.6% to average 1.08 million barrels per day compared to 1.25mbpd recorded in June, according to the latest production data from the Nigerian Upstream Petroleum Regulatory Commission, (NUPRC.)
With the naira on a swift race to N1,000/$1, analysts believe that it’s only a matter of time before the cost of petrol and goods and services hit the rooftop.
This backdrop, which is increasingly crippling economic activities in Africa’s largest economy, means that the government will need to act fast if the imminent increase in petrol pump prices will be averted.
