09 Dec

What is the true cost of petrol in Nigeria?

In Nigeria, the continuous repetition of a set of beliefs in the public space is all it takes to accept them as true, even in the face of data clearly showing otherwise.

Nothing typifies this truth more than the argument about the fuel subsidy being one of the ways that the most Nigerians benefit from the “national cake”. This argument however falls Short when held up to scrutiny.

Based on figures from the NNPC website, accurate as of December 7, 2015, the subsidized price for petrol is N87, and the expected open market price (OMP), which is what we should be paying if there was no subsidy is N93.18, down from the November 26 OMP of N100.94. This is essentially a reflection of the fall of oil prices from from $42 per barrel to $38.

But, what are ordinary Nigerians paying?

SBM interviewers visited randomly selected petrol stations in twelve states across Nigeria, two in each of the six geopolitical zones.

We found a disparity in petrol prices in each state, with prices tending to be higher in rural petrol stations. To get a mean figure, we simply calculated the average petrol price in each station selling petrol in a city that we visited, and rounded the figure to the nearest naira.

Fuel_price_map

In NNPC branded stations, petrol prices were a constant N87 per litre of product, when found. However, commercially owned petrol stations, except in Lagos and Abuja, tended to sell at above the official pump price. As a matter of fact, the vast majority of Nigerians buy each litre of petrol at almost N30, and in some cases in the Port Harcourt area, N60 above the unsubsidised prices!

The regulatory agencies also need to wake up to their responsibilities. A removal of subsidy is not tantamount to a removal of regulation of fuel prices. As the data shows, today, petrol at the pumps are sold to Nigerians at exorbitant rates, far above what is expected in the open market.

There are two possibilities responsible for this. First, it is possible that the economics behind the pricing template utilized by the PPPRA is divorced from economic realities on ground, as often happens in Nigerian officialdom. Therefore, a thorough, objective and comprehensive review of the pricing template is in order, so Nigeria can make sure that the pricing is based on reality and is flexible enough to accommodate new developments.

Once this is done the second possibility becomes obvious. There are people who will always want to make a quick buck if they can get away with it. The agencies will need to strengthen their surveillance, supervision and monitoring capacities as well as ensure that adequate penalties, including financial losses are incurred by errant players in the field.

201512_Nigerians-fuel-subsidy

Download the complete report (pdf; 7 pages)