Connect with us

Economy

Petrol Subsidy Rises as NNPC Increases Imports by 34%

Published

on

oil rig - Investors King
  • Petrol Subsidy Rises as NNPC Increases Imports by 34%

The Nigerian National Petroleum Corporation has spent more on petrol subsidy this year than it did last year on the back of increased imports and the rally in crude oil prices, ’FEMI ASU writes

The nation imported a total of 15.21 million litres of petrol in the first nine months of this year, up from the 11.33 million litres imported in the same period in 2017.

The NNPC has been the sole importer of petrol into the country for more than a year as private oil marketers stopped importation due to a shortage of foreign exchange and increase in crude oil prices, which made the landing cost of the product higher than the official pump price of N145 per litre.

PMS import, which averaged 56.5 million litres per day in January, jumped to a high of 86.4 million lpd in February, according to data obtained by our correspondent from the Pipelines and Product Marketing Company, a subsidiary of the NNPC.

It stood at 66.8 million lpd in March, 70.7 million lpd in April, 36.7 million lpd in May, and 34.5 million lpd in June. It was 36.5 million lpd in July, 58.4 million lpd in August, and 57.8 million lpd in September.

Analysis of the data obtained by our correspondent from the PPMC and the Department of Petroleum Resources showed that petrol import averaged 55.1 million litres per day in the first nine months of this year, compared to 48.5 million lpd in the same period of last year.

PMS import averaged 49.2 million lpd and 49.8 million lpd in 2015 and 2016 respectively, data from the DPR showed.

The increase in petrol import amid rising crude oil prices in the period under review meant that the NNPC spent more on subsidy.

The Group Managing Director, NNPC, Dr Maikanti Baru, on December 23, 2017 said the Federal Government had been resisting intense pressure to increase the pump price of petrol, noting that the landing cost of the commodity was N171.4 per litre as of December 22, when oil price was around $64 per barrel.

Crude oil price, which accounts for about 80 per cent of the final cost of petrol, rose to a four-year high of $86.74 per barrel early last month.

Using a baseline of N171.4 litre as the landing cost for the 15.21 million litres imported from January to September, it means the NNPC spent more than N395bn on subsidy in the period.

Last month, the Senate initiated a fresh investigation into an alleged illegal subsidy payment on PMS, but the NNPC denied “the insinuation that it has in its custody a $3.5bn subsidy fund.”

The Senate had set up an ad hoc committee to investigate an alleged $3.5bn account kept by the NNPC for petrol subsidy payment.

The corporation noted that it initiated the move to raise a revolving fund of $1.05bn, being the sole importer and supplier of white products in the country, adding that the fund had been domiciled in the Central Bank of Nigeria.

It said, “The fund, dubbed the National Fuel Support Fund, had been jointly managed by the NNPC, the Central Bank of Nigeria, the Federal Ministry of Finance and the Petroleum Products Pricing Regulatory Agency, Office of the Accountant General of the Federation, the Department of Petroleum Resources, and the Petroleum Equalisation Fund.”

The Managing Director, PPMC, Mr Umar Ajiya, in his presentation at an industry event in Lagos this month, said the existence of arbitrage opportunities in neighbouring countries had pushed daily national consumption from less than 35 million lpd to over 55 million lpd .

He said the price of petrol as of June 11, 2018 stood at an equivalent of N367 per litre in Niger; N363.02 in Chad; N328.87 in the Benin Republic; N311.95 in Togo; N378.49 in Ghana, and N401.24 in Cameroun, compared to N145 in Nigeria.

“The arbitrage in the current price of PMS compared to our neighbouring countries has incentivised cross-border smuggling of the product. This increase, together with the rising crude oil price, constitutes a significant drain on our national income,” he added.

The NNPC GMD said in March that the multiplication of filling stations had energised unprecedented cross-border smuggling of petrol to neighbouring countries, making it difficult to sanitise the fuel supply and distribution matrix in Nigeria.

He explained that because of the obvious differential in petrol price between Nigeria and other neighbouring countries, it had become lucrative for the smugglers to use the frontier stations as a veritable conduit for the smuggling of products across the border. He added that this had resulted in a thriving market for Nigerian petrol in Niger Republic, Benin Republic, Cameroon, Chad and Togo as well as Ghana, which has no direct borders with Nigeria.

“The NNPC is concerned that continued cross-border smuggling of petrol will deny Nigerians the benefit of the Federal Government’s benevolence of keeping a fix retail price of N145 per litre despite the increase in PMS open market price above N171 per litre,” he added.

The Federal Government had on May 11, 2016 announced a new petrol price band of N135 to N145 per litre, a move that signalled the end of fuel subsidy.

The media reported on January 15, 2017 that the Federal Government had resorted to subsidy regime following an increase in the landing cost of petrol, with the NNPC bearing the latest subsidy cost on behalf of the government.

The Director-General, Lagos Chamber of Commerce and Industry, Mr Muda Yusuf, said the government should encourage private sector players to take over the downstream sector of the petroleum business.

He said, “When this is done, most of the challenges we see as regards subsidy, refineries and others will be adequately addressed. The government should only play a regulatory and not an operational role.

“Government has no business refining petroleum products, retailing or distributing fuel as well as the marketing of these products. We cannot continue to carry that kind of burden in the oil sector.

“The government should desist from such business because there are more important things to do that have a social impact. Look at our educational system, the health sector, roads, and rail; those are areas the government should channel its attention.”

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

Continue Reading
Comments

Economy

Goldman Sachs Urges Bold Rate Hike as Naira Weakens and Inflation Soars

Published

on

Central Bank of Nigeria (CBN)

As Nigeria grapples with soaring inflation and a faltering naira, Goldman Sachs is calling for a substantial increase in interest rates to stabilize the economy and restore investor confidence.

The global investment bank’s recommendation comes ahead of the Central Bank of Nigeria’s (CBN) key monetary policy decision, set to be announced on Tuesday.

Goldman Sachs economists, including Andrew Matheny, argue that incremental rate adjustments will not be sufficient to address the country’s deepening economic challenges.

“Another 50 or 100 basis points is certainly not going to move the needle in the eyes of an investor,” Matheny stated. “Nigeria needs a bold, decisive move to curb inflation and regain investor trust.”

The CBN, under the leadership of Governor Olayemi Cardoso, is anticipated to raise interest rates by 75 basis points to 27% in its upcoming meeting.

This would mark a continuation of the aggressive tightening campaign that began in May 2022, which has seen rates increase by 14.75 percentage points.

Despite this, inflation has remained stubbornly high, highlighting the need for more substantial measures.

The current economic landscape is marked by severe challenges. The naira’s depreciation has led to higher import costs, fueling inflation and eroding consumer purchasing power.

The CBN has attempted to ease the currency’s scarcity by selling dollars to local foreign exchange bureaus, but these efforts have yet to stabilize the naira significantly.

“Developments since the last meeting have definitely been hawkish,” noted Matheny. “The naira has weakened further, exacerbating inflationary pressures. The CBN’s policy needs to reflect this reality more aggressively.”

In response to the persistent inflation and naira weakness, analysts are urging the central bank to implement a more coherent strategy to manage the currency and inflation.

James Marshall of Promeritum Investment Management LLP suggested that the CBN should actively participate in the foreign exchange market to mitigate the naira’s volatility and restore market confidence.

“The central bank needs to be a more consistent and active participant in the forex market,” Marshall said. “A clear strategy to address the naira’s weakness is crucial for stabilizing the economy.”

The CBN’s decision will come as the country faces a critical period. With inflation expected to slow due to favorable comparisons with the previous year and new measures to reduce food costs, including a temporary import duty waiver on wheat and corn, there is hope that the economic situation may improve.

However, analysts anticipate that the CBN will need to implement one final rate hike to solidify inflation’s slowdown and restore positive real rates.

Continue Reading

Economy

Currency Drop Spurs Discount Dilemma in Cairo’s Markets

Published

on

Egyptian pound

Under Cairo’s scorching sun, the bustling streets reveal an unexpected twist in dramatic price drops on big-ticket items like cars and appliances.

Following March’s significant currency devaluation, prices for these goods have plunged, leaving consumers hesitant to make purchases amid hopes for even better deals.

Mohamed Yassin, a furniture store vendor, said “People just inquire about prices. They’re afraid to buy in case prices drop further.” This cautious consumer behavior is posing challenges for Egypt’s consumer-driven economy.

In March, Egyptian authorities devalued the pound by nearly 40% to stabilize an economy teetering on the edge. While such moves often lead to inflation spikes, Egypt’s case has been unusual.

Unlike other nations like Nigeria or Argentina, where costs soared post-devaluation, Egypt is witnessing falling prices for high-value items.

Previously inflated prices were driven by a black market in foreign currency, where importers secured dollars at exorbitant rates, passing costs onto consumers.

Now, with the pound stabilizing and foreign currency more accessible, retailers are struggling to sell inventory at pre-devaluation prices.

Despite price reductions, the overall consumer market remains sluggish. The automotive sector has seen a near 75% drop in sales compared to pre-crisis levels.

Major brands like Hyundai and Volkswagen have slashed prices by about a quarter, yet buyers remain cautious.

The economic strain is not limited to luxury items. Everyday expenses continue to rise, albeit more slowly, with anticipated hikes in electricity and fuel prices adding to the pressure.

Experts highlight a period of adjustment as both consumers and traders navigate the volatile exchange-rate environment. Mohamed Abu Basha, head of research at EFG Hermes, explains, “The market is taking time to absorb recent fluctuations.”

Meanwhile, businesses face declining sales, impacting their ability to manage operating costs. Yassin’s store has offered discounts of up to 50% yet remains quiet. “We’ve tried everything, but everyone is waiting,” he laments.

The devaluation has spurred a shift in economic dynamics. Inflation has eased, but the pace varies across sectors. Clothing and transportation costs are up, while food prices fluctuate.

With the phasing out of fuel subsidies and potential electricity price increases, Egyptians are bracing for further financial strain. The recent 300% rise in subsidized bread prices adds another layer of concern.

The situation underscores the balancing act between maintaining consumer confidence and attracting foreign investment.

Economists suggest potential stimulus measures, such as lowering interest rates or increasing public spending, to boost demand.

Continue Reading

Economy

MPC Meeting on July 22-23 to Tackle Inflation as Rates Set to Rise Again

Published

on

Interbank rate

The Monetary Policy Committee (MPC) is set to convene on July 22-23, 2024, amid soaring inflation and economic challenges in Nigeria.

Led by Olayemi Cardoso, the committee has already increased interest rates three times this year, raising them by 750 basis points to 26.25 percent.

Nigeria’s annual inflation rate climbed to 34.19 percent in June, driven by rising food prices. Despite these pressures, the Central Bank of Nigeria (CBN) projects that inflation will moderate to around 21.40 percent by year-end.

Market analysts expect a further rate hike as the committee seeks to rein in inflation. Nabila Mohammed from Chapel Hill Denham anticipates a 50–75 basis point increase.

Similarly, Coronation Research forecasts a potential rise of 50 to 100 basis points, given the recent uptick in inflation.

The food inflation rate reached 40.87 percent in June, exacerbated by security issues in key agricultural regions.

Essential commodities such as millet, garri, and yams have seen significant price hikes, impacting household budgets and savings.

As the MPC meets, the National Bureau of Statistics is set to release data on selected food prices for June, providing further insights into the inflationary trends affecting Nigerians.

The upcoming MPC meeting will be crucial in determining the trajectory of Nigeria’s monetary policy as the government grapples with economic instability.

The focus remains on balancing inflation control with economic growth to ensure stability in Africa’s largest economy.

Continue Reading
Advertisement




Advertisement
Advertisement
Advertisement

Trending