Mr Martins Arogie, Chairman, Power Sector Group, Lagos Chamber of Commerce and Industry, LCCI has hinted that a downward review of current prices of Premium Motor Spirit (PMS) also known as petrol is dependent on the improvement in the value of Naira against the US Dollar and global prices of crude oil.
Arogie who is also the Partner, Energy and Natural Resources (ENR) unit of the Tax, Regulatory and People Services division of KPMG, Nigeria made this known in a chat with EnergyDay on the sideline of the optimism that the new price template of PMS would drop when healthy competition begins in the downstream sector.
Recall that Mele Kyari, Group Chief Executive Officer, Nigerian National Petroleum Company Limited, in a recent interview allayed the fear of Nigerians on the rising prices of petrol across the country, claiming that competition among all the new and old petroleum products marketers would force down the price of the commodity.
Arogie, disclosed that any drop in the prices of petrol will be dependent on the global cost of crude dropping as well as improvements in the value of the Naira as against the Dollar.
Nigeria operates multiple exchange rates at the moment, and it will be difficult for the value of the Naira to make a significant appreciation in the short term, in such a manner that would affect the cost of importing petroleum products into the country.
Arogie said, “Crude oil prices drop may not happen in the short term.”
Commenting on the impact of dual/multiple exchange rate system on full deregulation of the downstream sector, the Chairman, LCCI Power Sector Group noted that it will be difficult for independent marketers to begin to import petroleum products into the country if they cannot get foreign exchange at the same rate as the NNPC.
He said, “Maintaining a different forex regime for different importers will create a competitive imbalance that will negatively impact the inflow of new players.
“This is not an argument for a single exchange rate regime though as that is a different conversation altogether. It’s just saying all players must compete on an even keel.
“Deregulation itself is an opportunity for all investors in Nigeria. The country has sufficient hydrocarbon resources enough to address all its energy needs.
“There is also the market for consumption and exportation of refined and processed petroleum products. So basic economics tells us that this is a sufficient incentive for investment and investors.
“Of course, there are other fundamental measures that must be addressed such as easing the licensing process for importers and those interested in building refineries, fixing power and infrastructure, security, and all but most of these are long-term fixes.
“We can also deal with issues around the importation of equipment and the customs clearance process for those looking to invest in building local refining capacity.
Arogie further emphasised that at the end of the day, the most important process is having an open market which is what deregulation brings.
Reacting to the statement of the CGEO subsidy removal has paved the way for oil firms in the country to import PMS and other products into the country, the KPMG’s ENR Partner, explained that he agrees with this assertion but this may also be dependent on the assumption that the country would also migrate to a single FX rate as promised by President Bola Tinubu.
He said, “It’s instructive that we haven’t seen the pricing template used in arriving at the N488 per litre to N557/l of petrol. If the NNPC used the current official rate to determine the prices, then it means it may not even be tenable at the long-term, unless the Federal Government plans to continue to maintain those rates for all petroleum products marketers which would be another form of subsidy.
“If that is what happens, then we really haven’t eliminated the subsidy regime and may have offered the incentive for arbitrage and unwanted practices.
Speaking on the decision of the NNPCL to release a price template without providing a breakdown, Arogie insisted that in a truly open market, the NNPCL as a private company, does not owe anyone the responsibility of sharing its price template. Also, it is important to note that NNPCL was only instructing its own retail outlets and not the entire market.
According to him, Nestle doesn’t share its template for the retail price of Milo, and Cadbury does not give a breakdown of the retail price of Bournvita. I am also not sure a lot of people understand how electricity tariffs are computed which is another utility.
It will be the responsibility of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMPDRA) to carry out its regulatory function in a truly open market, and ensure that there is no collusion and sellers don’t form cartels.
“We can’t have price fixing or regulation in a truly deregulated market” Arogie noted.