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Nigeria Petrol price reduction a relief not enough

by Business News Report

On Sunday the federal government reduced petrol price to N87 from N97 it previously sold. Reduction of fuel prices is a welcome development which all stakeholders should embrace with a sense of responsibility. Fuel is one of the most critical economic enabler which can either upset or stabilize any economy. Fuel dealers as at the time of writing chose to ignore this development selfishly as they wanted to continue ripping-off their clients despite this reduction. This is a clear-cut market force which should stir a downward slump of pump prices. In this vein, Government directive to slash fuel prices Monday is a sober and welcome development which Nigerians should all applause.
The projected direct effect of this development is immediate reduction in the cost of public transport fares, transportation of goods and reduced production costs of goods and services. This would lead ultimately to reduction in prices for basic commodities, and increased buying power for the citizens.
Therefore, if this is applied properly through good compliance by all stakeholders Nigerians are to record a classic improvement on the living standards for the general populace. The federal government gave as its reason for the action the falling oil price which has seen crude oil price drop from $110 to around $47 last week. The government in taking the action did not explain how it reached the N87 price mark. The drop in price is a form of relief for car owners and companies that buy fuel. The drop will be a loss to fuel importers who on regular basis claim subsidy. This also implies that monthly allocation to states and local government through subsidy reinvestment programme is now foreclosed. The revenue accruing to the government via value added tax on petrol sold at pump head will also drop.
There is therefore no more subsidy. Ordinarily, this is a good opportunity for the federal government to deregulate the down stream sector of the oil industry in Nigeria.
For transport companies they will make some savings in fuelling their fleet of vehicles but it stands to be seen if the savings made will be enough to justify reduction in transport fares because of other factors in transport business that will come later. The drop of N10 per liter will also lead to reduction in the cost of transporting agricultural produce from farm gate to the various markets across the country.

Though the reduction in fuel price is marginal in the eyes of many Nigerians it should have immediate impact on the cost of transportation, manufacturing companies such as breweries that substantial part of their input is petrol. If the Nigeria economy was price sensitive, the reduction should boost economic activities; encourage transporters to cut their fares by reasonable margin. The question is what is the right price for petrol in Nigeria today giving the falling price of crude? Nigeria is not in the league of countries whose citizens enjoy the cheapest petrol price.
Looking at prices of petrol across the globe, the ten cheapest countries to find petrol include Venezuela, Saudi Arabia, Libya, Qarter, Kuwait, Algeria etc.
Drivers pay on average 135p a litre for petrol in the UK, but that’s considerably less than the price paid by drivers in Norway’s capital Oslo: at 164p a litre it has the most expensive petrol in the world.
In oil-exporting countries, which are particularly generous, the Middle East and North Africa, account for half of the world’s energy subsidies, lower energy prices make subsidies cheaper. That can make it tempting to postpone hard decisions. In Venezuela
The average price for a litre of petrol is around the 2-3pence mark. This is because Venezuelans consider cheap fuel as a sort of birthright. Saudi Arabia which is estimated to account for 20-25 per cent of the world’s oil reserves, and ranks as the highest exporter of petrol, it is no wonder that it is the second cheapest place in the world, with the average litre costing 8pence. Libya is the 9th biggest producer of petrol in the world and the average litre in the North African country is 9pence.
Car drivers in Turkmenistan are entitled to 120 litres of petrol free per month, so the price is not all that relevant. The average price for a litre in the Central Asian country is 12pence. It is also true that the average price for a litre of petrol in the small island state near the western shores of the Persian Gulf is 13 pence. The country’s recent boom is built on oil, with 60 per cent of its government’s wealth coming from oil production.
In Kuwait with world’s fifth largest oil reserves and this means that the average price for a litre of petrol is 14pence.
The government subsidises petrol and public transport. Qarter, the Middle Eastern country has the world’s largest per capita production and proven reserves of both oil and natural gas, which means the average price per litre is 15 pence. Citizens are estimated to have the 2nd highest incomes in the world and the 7th lowest petrol prices. Egypt, the North African country, which has undergone political and social upheaval, has an uncertain future. But Cairo comes in as the 8th cheapest city in the world for petrol at 19pence per litre. For how much longer remains unclear.
Oman, The Arabic state of Oman in south-west Asia produces 600,000 barrels every day, so the government gives its citizens a break when it comes to petrol prices. The average for a litre of petrol comes in at 20p.
Algeria, The vast North African state gets 60 per cent of its income from oil production. It is the world’s 13th biggest oil producer and 9th biggest exporter. Despite the cheap petrol prices, with the average price for a litre coming in at 20p, Algeria has suffered from shortages in recent months as smugglers have been sending petrol to crisis-torn Libya. Nigeria petrol price is about 28pence per liter.


Position Country City Average price per litre
1 Venezuela Caracas 2/3p
2 Saudi Arabia Riyadh 8p
3 Libya Tripoli 9p
4 Turkmenistan Ashgabat 12p
5 Bahrain Manama 13p
6 Kuwait Kuwait City 14p
7 Qatar Doha 15p
8 Egypt Cairo 19p
9 Oman Muscat 20p
10 Algeria Algiers 20p
* Nigeria 28 pence per liter.
Some countries have done nothing at all. Chief among the laggards is Russia, where in 2013 energy subsidies for gas and electricity cost $40 billion. According to James Henderson of the Oxford Energy Institute, residential and industrial gas prices were frozen during 2014 and are unlikely to change this year. Raising them would dent the popularity of President Vladimir Putin at a perilous juncture.
Cutting consumption subsidies may seem sensible when prices are falling, but it is also the time when struggling energy firms turn to the state for help. As it is, governments in the G20 spend $88 billion each year supporting fossil-fuel exploration, according to the Overseas Development Institute, a think-tank. That figure may grow. In December George Osborne, Britain’s finance minister, announced tax cuts on oil firms in order to support the oil-and-gas industry in the North Sea. The same month Mr Putin bailed out Rosneft, a big oil company suffering from the depreciation of the rouble. America is another big offender, with generous subsidies for exploration and production of oil and gas. There is little talk of trimming them. Whether low prices help to galvanise reform or simply make it easier for governments to procrastinate still remains up in the air.
For the next few months, Nigeria will be too tied up with presidential, state and local elections scheduled for February 2015 to focus on state finances or on the oil sector. Campaigning ahead of the elections will not address broad issues such as the state of the economy but control of the country’s political economy. At the end of the 2015 election Nigerians will know whether the N87 per liter is for real or how long it will say. The price adjustment is temporal as it could change with the swing fortune of crude oil.

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