Here's why petrol may soon sell for N175 per liter

The sole reason why Nigeria experienced the kind of scarcity of petrol that crippled the economy during the festive season, was because marketers were no longer importing petrol. And the reason why marketers were no longer importing petrol was because they were going to be selling the product at a loss if they did.

What this means is that in the last quarter of 2017, only the state owned Nigerian National Petroleum Corporation (NNPC) was importing the product. And like everyone already knows, the NNPC doesn’t have the capacity or manpower to “wet” the Nigerian market with petrol.

Landing price

During a public hearing on the petrol crisis jointly convened by the Senate and House of Representatives on Thursday, Kachikwu disclosed that selling petrol at N145 at the pumps was no longer tenable, especially because it makes little economic sense.

The minister’s words were; “We need to address the issue of pricing. If we are going to sell at N145 per litre, we are going to put mechanisms in place, so that the private sector can go back into importation.

“The landing cost of the product is about N170 to N171. The price at which we sell today is N145. So, there’s a disparity between N171 and N145. What this means is that those individuals who are really there, not with an obligation like NNPC which has to meet national supply, but with a commercial bend, will not bring in products or they are going to sell at a loss”.

In essence, Kachikwu was saying if we are to prevent petrol shortage in the future, the market has to be liberalized and the pump price of petrol will then be determined by market forces. Independent marketers will then buy and sell based on the landing cost of petrol and not be coerced to sell at the government’s pegged price.

During the public hearing, Kachikwu also said the NNPC has incurred a cumulative loss of N85.5 billion in importing petrol and selling at the current retail price of N145 per litre, since October 2017.

Why petrol is hoarded across borders

Kachikwu added that when petrol sells at the nation's borders for prices higher than the pegged N145/liter, marketers are left with no option but to hoard the product.

ALSO READ: 'No plans to increase fuel price,' Minister insists

Kachikwu said; “We need to free the marketers to do their business. To do their business, we need to address the pricing issue.

“One model, for example, is at the time we got the approval of N145, the exchange rate was N285 to $1. Today, it is N305. So, even at the minimum, there’s a gap. One mechanism will be to work with the Central Bank of Nigeria in terms of exchange rate mechanisms.

“We are looking at whether, theoretically, you could respect the N145 per litre price and have a plural pricing system, so that NNPC and all its stations and affiliates sell at N145. And at the same time, the private marketers are able to bring in product at their own cost and sell.

“As long as prices are hovering around N350 per litre on the borders and we are hovering at N145, there is a huge incentive to export product illegally. We have not been able to police our borders properly. Trackers must be placed in every truck that is carrying product in this country.

“You also need to deal with the infrastructural deficit issues. If we cannot repair our pipes at the speed at which we want, we will need to bring in the private sector and concession some of these pipelines, so that they can repair them and put them to use, so that in moments of emergency, we will not go through this kind of problem.”

Here's a summary of what you just read:

When price of crude oil goes up in the international market, expect petrol scarcity as long as we still run a regulated market in the downstream sector. Not my words. Kachikwu's.

Because Nigeria still can't refine the petrol it produces, Nigerians would have to pay for imported petrol as the international market dictates.

Marketers have been loudly complaining that they aren’t making a profit selling the product at N145 because they import for far higher.

If there’s one thing we learnt from the senate hearing this week, it is that Kachikwu who jointly draws up petroleum policies alongside President Buhari, is favourably disposed to a deregulation--or what you will call allowing the private sector retain a bigger role in the market.

And in a deregulated market, petrol will sell for N175 today. You dig?