Petrol price post-subsidy hangs on dollar rates

The Nigerian government’s plan to remove petrol subsidies has raised concerns as it is projected that the naira-dollar exchange rate will determine the pump price of petrol post-subsidy. At present, the product’s price could vary between N390 and N400 per litre across Nigeria, using the official exchange rate. At black market rates, petrol could be sold for as high as N600 per litre, based on the government’s payment of bridging claims to maintain near uniform pricing across the country.

The major components of petrol landing cost in Nigeria include product cost, traders and insurance margin, shipping, charges by government agencies, financing and banking charges, and storage charges. Retailer margins, dealer’s margin, and transport cost add N25, bringing the total costs to N383.24. Pump prices would vary based on station and location, and with subsidised transport charges, could average at N385 per litre using the official exchange rate.

However, at the black market rate of N750/$1, the product cost would rise to N503.91 per litre. Other costs, including traders margin, freight, NPA port charges, NIMASA, financing costs, jetty storage, and wholesale margin, would bring the landing cost to N565.34. Adding retailer’s margin, dealer’s margin, and transport cost would result in a petrol price of N590.34 in Lagos. The price could average around N600 when transported across Nigeria.

The government’s incoming administration from May 29 intends to remove subsidies in phases while maintaining the underlying social contract between the government and the people. Some affiliated with the incoming government have suggested that phased removal is the best option. However, the Buhari government has spent over N11 trillion on subsidies and is using debt to finance payments as oil sales no longer cover subsidy costs. The refineries’ inability to produce sufficient crude for domestic use has also been a significant challenge.

Labour unions have galvanised Nigerians to protest against deregulation based on the government’s inability to fix the nation’s refineries. The current situation shows that only freight and port charges would be saved if Nigeria’s refineries were fully functional and crude is refined at home. The feedstock or crude still represents 86% of the cost per litre, and regardless of whether the product is refined at home or imported, current prices are unsustainable.

Considering the emotional response by many Nigerians to rising petrol prices and the vehement opposition by labour leaders to any suggestion of price increase, claims of over N750 per litre if subsidy is removed can scare Nigerians into agitating against their interests. Therefore, the government needs to handle the situation cautiously, keeping in mind the people’s welfare and economic stability.

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