Oil sector experts tackle governors for fixing PMS price while advocating deregulation

THE Nigeria Governors Forum may have been wrong to have proposed N385 price for the premium motor spirit (PMS) as energy analysts insist that a deregulated market would not allow price-fixing.

They argue that a deregulated market allows the price to be determined by the forces of demand and supply.

The Nigerian governors had, on Wednesday, at its virtual meeting, considered the report of a committee headed by Kaduna State Governor Nasir el-Rufai and accepted its recommendation backing full deregulation of petrol, with a suggestion that the pump price of the product should hover around N385 per litre.

However, energy analysts argue that many factors come into play in the price determination of PMS product, wondering why the governors are almost fixing the price without considering various market variables.

“There are several factors that come into play in price determination in a deregulated market. There are still multiple exchange rates that the country is still battling with and the issue of access to foreign exchange. These are some of the concerns alongside the daily price of crude at the international market, the landing costs and other variables that are involved. These are all important before determining the price,” President of the Major Oil Marketers Association of Nigeria Adetunji Oyebanji told The ICIR.

Adetunji stressed that if the Federal Government failed to deregulate, several states relying solely on the federal allocations would find it difficult to operate maximally.

“If we don’t do it, states that depend on the federal allocation for their survival would be dealt a blow, and won’t be able to meet up with their obligations. Workers would be sacked and definitely more hardship would be felt.”

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For an efficient market to work, prices should be determined by the market forces. This enables suppliers to allocate products optimally and buyers to obtain products at the required quantity, basic economics says.

An oil sector governance expert Henry Ademola Adigun expressed concern over what informed the governors to fix the price at N385, describing it as non-market reflective. 

“The lead question for the government is, how do you arrive at the price? Did you consult with the PPPRA and the PPMC on the pricing template? The price is still very high. What template did they use in arriving at the price? Even the price they suggest is not market reflective. Ordinarily, if we have the fuel subsidy removal, and considering all the variables, the price band should be between N260-N270 per litre,” Adigun explained.

Speaking on the pros and cons of the PMS subsidy removal, he said:” The cons would be inflation, higher pricing and the pros would be driving efficiency and more revenue for states. The government is still discussing with labour as they are yet to settle with them on why the removal of subsidy should be enforced now, amid concerns of a Covid-19 ravaged economy,” he said.

Professor of Energy Economics at the University of Ibadan Adeola Adenikinju told The ICIR that the National Assembly should hasten up and pass the Petroleum Industry Bill (PIB) to have a defined fiscal template for the oil sector.

“The upstream, midstream and downstream sub-sectors would have a commercially-driven template to drive the sector once the PIB is passed,” he said.

“We have a system that is not enabling us to harvest the benefits in the oil sector. We need to ensure the oil sector works for us effectively. We can’t keep going back and forth on this for a long time like this, for a resource that is at the heart of the economy,” Adenikinju explained.

While presenting the report to his colleagues, el-Rufai reportedly said the increase in the price of petrol to N385 per litre would help stem the increasing smuggling of the product to neighbouring countries.

According to him, if petrol was sold at N385 per litre, FAAC would gain between N1.3 trillion and N2. 2.3 trillion per annum.

The committee also recommended that the Federal Government should sell the three refineries after rehabilitation.

The report revealed that Nigeria lost billions of dollars due to the COVID-19 pandemic, noting that there was already a cash crunch in the states.

NNPC had said that it would remit zero allocation to FAAC in May due to the huge cost of subsidising petrol.

A member of the Presidential Economic Advisory Committee Bismarck Rewane noted that the government’s subsidy removal must be followed by efficient deployment of the resources which would have a direct impact on the lives of the people.

He further warned that the subsidy funds must not be warehoused within the government’s wallet, noting that there could be concerns about accountability if the government warehoused the funds.