July 19, 2023/CSL Research
Yesterday, the retail outlets of the national oil company Nigerian National Petroleum Company Limited, (NNPCL) in Abuja adjusted the pump price of petrol from N537 per litre to N617 per litre. The price change triggered price changes in other outlets around the country. Mele Kyari, group chief executive officer of the NNPCL Kyari, noted that the adjustment is a fall out of market realities as it impossible to keep the price stable in a liberalised market.
President Bola Ahmed Tinubu at his inauguration, eliminated the long standing subsidy on Petroleum Motor Spirit (PMS), noting that the subsidy could no longer be sustained given the ever-increasing costs amidst a very tight fiscal space. Though the current 2023 budget had provision for fuel subsidy till June, the pump price of petrol was immediately adjusted after the President’s announcement on 29 May.
Attempts in the past to eliminate the subsidy on petrol has been met with resistance from the populace, causing the government to backtrack or resort to only a partial subsidy removal. Current economic realities, however, may make it impossible to reintroduce the subsidy. That said, the removal of the subsidy is biting hard on an already impoverished populace who have been hard hit by two recessions and a pandemic in the last 7 years amid rising food and utility costs. Worse still, the price of petrol stands to rise with an increase in the price of crude and other parameters like a rise in the Foreign Exchange rate.
Last week, the federal government disclosed plans to disburse the sum of N8,000 as palliatives to 12 million poor Nigerians. The disbursement is to be coordinated by the National Social Safety Net Coordinating Office (NASSCO) and would be paid via digital transfers through the National Cash Transfer Office (NCTO). In our view, the plan to disburse N8,000 will not in any way provide the needed cushion compared with the increase in petrol price and the associated increase in prices of other goods and services.
Again, the World Bank as of March last year reported that 4 in every 10 Nigerians, out of an estimated 200m people are poor, putting the figure much more higher than 12m. Also, given the way covid palliatives went, it is almost certain that targeting will be a major problem. A better use of government resources in our view will be providing free bus transit, which will certainly be targeted at the poor as the rich will most likely not get on a bus.
