The seemingly endless shortage of Premium Motor Spirit (PMS), also known as fuel/gasoline, continues to reinforce the need for industry regulators to remove the subsidy. This depends on the following facts.
- Inaccessibility to currencies (FOREX) from the official window CBN FOREX
- The supply monopoly resides with the NNPC, thus eliminating the basic economic principles of demand and supply for free market efficiency.
- Regulators denomination of fulfillment fees (port and other shipping charges) in US dollars, rather than the local currency, increasing pressure on the country’s foreign exchange reserve amounts.
- The opportunity costs/benefits that would arise when the amounts paid as subsidies are redirected and invested in infrastructure development in other critical areas of the economy, such as Education, Health, Safety and Energy through the energy efficiency project/program.
The inability to implement the deregulation policy proposed by the federal government in March 2021 and the continued confusion of the location of the payment of fulfillment fees by the regulatory bodies (NPA and NIMASA) has continued to put pressure on the cost gasoline landing for storage facilities before being delivered to retailers for sale to consumers.
When you consider that most of the traders do not have access to the CBN FOREX window and where they are forced to pay the logistics fees to the regulatory agencies in US dollars, which they must obtain from the parallel FOREX markets to transfer products after the purchase of the only NNPC supplier to your preferred retail storage facilities, adds to the already high cost of landing gasoline.
For example, the following table shows the additional costs that are attributable to logistics management for the transshipment of products to storage for retail sale.
This in no way increases the cost per liter of gasoline by NGN 12.86. This is based on the standard conversion table where 20,000 MT equals about 24.8 million liters of gasoline. With strict adherence to the 2021 federal government policy that all regulatory agency fees are denominated in Naira, at the official CBN FOREX rate of all regulatory agencies involved, we would immediately get NGN12.86 reduction in price ex-deposit of gasoline, as well as a reduction in the claims of insufficient recovery on the part of the marketers of around NGN318.88 million.
In order to address these gaps and inefficiencies within the sector to avoid persistent gasoline shortages across the country and level the playing field for complete deregulation that will take effect from the second half of 2023, when the regime is expected to subsidy comes to an end. Ultimately, there is a need for all parties involved to collaborate in all areas ensuring the following
- Work with CBN to get the necessary FOREX access in the official market to eliminate inefficiencies and reduce the cost per liter by around NGN12.86.
- All parties agree how potential savings could be applied through an infrastructure finance pool to be applied to infrastructure development in the offshore and downstream oil and gas sector.
- With full deregulation, the federal government should allow sellers to access the official CBN FOREX window, which would also ensure that sellers with foreign currency income participate in the official market to finance their local transactions, thus helping to stop the continued depreciation of NGN to USD.
In conclusion, when one considers the fact that around a third of the country’s spending forecast in the 2023 deficit budget would be committed to paying subsidies for the inefficiencies caused by the supply monopoly, which has created the functioning of a market imperfect. in the downstream oil and gas sector of the economy, in the context of basic economic principles of supply and demand, the onus for me falls on NPA, NIMASA and Marketers to address the reality that only collaborations and associations of all parties truly oil the inefficiencies of the imperfections of the downstream sector to one that creates opportunities for large-scale investment in infrastructure and human capital.
… Downstream efficiency: Oiling the collaboration between NPA, NIMASA and traders Read more at… Naijaonpoint.