16/5/2016/Cowry Asset Management Research

On Wednesday, 11 May 2016, the Federal Government of Nigeria announced the deregulation of the downstream petroleum industry with immediate effect.

Background & Policy Decisions

Reasons which informed the decision by the fiscal authority included: the current fuel scarcity and supply difficulties in the country; the exorbitant prices being paid by Nigerians for the product; and more importantly, the inability of importers of petroleum products to source foreign exchange at the official rate owing to significant decline of the government’s foreign exchange earnings given incessant disruptions in crude oil production vis a vis relatively low crude oil prices.

As a result, the government reviewed the benchmark pump price of Premium Motor Spirit (PMS) from a regulated price of N87 a barrel to an expected ceiling price of N147 a barrel. In addition, government lowered the barrier for new entrants into the downstream sector in order to increase the supply of refined petroleum products, a move it expects to mirror the benefits of deregulating the Automotive Gas & Oils (i.e. diesel) market.

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