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LAGOS – The Federal Government and fuel marketers are at daggers drawn over the cost of fuel which is at variance with the reduction of price of crude oil in the global market.
With a further reduction in the Brent oil around $70, it’s expected that local prices of the product should drop correspondingly to ease the pains of most Nigerians amid the growing level of inflation in the country.
The over two months tensions in the Middle East spiked crude oil prices globally, created unsettled effects on local pricing and affected purchasing power in Nigeria.
Although Dangote Refinery and few others have dropped their prices lately, Nigerians believe the margins don’t match the level of reduction in the cost of crude oil.
Petrol prices range between N1,140 and N1,210 in Nigeria. Marketers say it would take about six months before the spikes ease off to enable Nigerians benefit from cheaper crude oil.
Institutional Warnings
The Nigerian Midstream and Downstream Petroleum Regulatory Authority have warned oil marketers against profiteering and arbitrary increases in the pump prices of petroleum products despite the decline in global crude oil prices.
The authority said on Wednesday it had begun monitoring depots and retail outlets nationwide to ensure fuel prices remain cost-reflective in line with the Petroleum Industry Act.
It warned that marketers found engaging in price gouging would face regulatory sanctions, adding that it was working with security agencies and the Federal Competition and Consumer Protection Commission to protect consumers.
The warning follows a directive by the Minister of State for Petroleum Resources (Oil), Heineken Lokpobiri, for the regulator to ensure Nigerians benefit from the recent drop in international crude oil prices.
He said although the downstream sector had been fully deregulated, and that the regulator must ensure that deregulation does not become an avenue for profiteering at the expense of consumers.
Similarly, the Federal Competition and Consumer Protection Commission (FCCPC) warned operators in the downstream petroleum sector against exploiting consumers following refusal to reflect the sharp decline in global crude oil prices at retail pump stations.
Executive Vice Chairman/ Chief Executive of the Commission, Tunji Bello, noted that ongoing surveillance of the downstream petroleum market by the commission had revealed that reductions in gantry prices by local refiners, marketers, depot operators, and retail outlet operators had been marginal and far below current global crude oil prices.
According to a statement issued by FCCPC spokesman, Ondaje Ijagwu, Bello stressed that although the commission does not regulate or approve petroleum prices in the country’s deregulated downstream market, it would not hesitate to investigate and sanction operators found to be engaging in anti-competitive, deceptive, or exploitative practices in violation of the Federal Competition and Consumer Protection Act (FCCPA), 2018.
Bello said, “To be clear, the Commission does not regulate or approve petroleum prices in a deregulated downstream market. Our responsibility under the Federal Competition and Consumer Protection Act, 2018, is to promote competitive markets, prevent anti-competitive conduct, and protect consumers from unfair, deceptive, and exploitative business practices.
“We are concerned that while dealers often respond swiftly by hiking pump prices whenever crude prices rise, it is curious that it is taking forever for consumers to benefit significantly when crude prices fall. Competitive markets must work fairly in both directions.”
According to him, international crude prices have dropped sharply to about $73 per barrel following the ceasefire agreement between the United States and Iran and the reopening of the Strait of Hormuz, compared with a peak of about $120 per barrel recorded in April at the height of tensions in the Gulf.
He noted that crude prices had effectively returned to their February levels, yet the decline had not been matched by a commensurate reduction in domestic fuel prices.
Marketers’ Counter Threat
The National Publicity Secretary of the Independent Petroleum Marketers Association of Nigeria, Chinedu Ukadike, said that filling stations would stop dispensing fuel to Nigerians should the Federal Government try to enforce price control.
He denied allegations of profiteering, saying many marketers are running into losses with the series of reductions carried out lately by the Dangote refinery.
According to him, the Federal Government should first investigate the root cause of the current high petrol prices and boost competition by making sure its refineries work, stressing that marketers will sell what they buy.
He added: “Marketers will shut down if they try somehow to enforce price control. We are going to shut down our stations nationwide. You can’t be regulating a deregulated market. You can’t tell me how much to sell my product without trying to know how much I bought it.
“We, the independent marketers, are losing money. We bought petrol at a particular rate a few days ago; on our way to our filling stations, there was a reduction. We have been struggling with the price.
“We have been struggling against financial losses. We are also struggling against stagnation due to low patronage of our products. Because those marketers who are purchasing now are purchasing at a lower price, and they are selling cheaper.
“If you don’t bring down your price, you cannot see buyers. This is the beauty of deregulation. If you cannot compete, you will not survive in the market. And because most of us are trading on bank loans, the bank does not know when the price goes up or goes down. Their interest rate is fixed; their return on investment is fixed. So, you must pay them. This is the situation we find ourselves in.”
Ukadike maintained that the factors of demand and supply should determine price.
“By the time more products come in, you will see that the prices will go down. What we, independent marketers, are asking for is not about regulation or trying to bring price control or trying to force marketers to sell below or trying to force Dangote to sell below its production cost.
“What we are asking is to open up the various channels, boost importation, and let local refineries start refining. This will push the competition to the peak. With this, prices will drastically go down,” he stated.
Ukadike said the Federal Government has to find out the remote cause of the high fuel prices before calling for price control.
“The primary cause of this is that there is no competition. If there should be competition, the refineries will be working. That is where the minister should put his energy – to ensure that our local refineries or whatever partnership we have with the Chinese will work.
“It is not about going to filling stations to check who is selling at higher prices. Do you know how much I bought the fuel for? Can you have a regulated market in a deregulated economy? You can’t be blowing hot and cold at the same time. The PIA must be followed to the letter. If they try to enforce price control, we will shut down,” Ukadike said.
But the National President of the Petroleum Products Retail Outlet Owners Association of Nigeria, Billy Gillis-Harry, said the minister has the power to intervene in ensuring consumers are not exploited.
He maintained that this must be in consultation with major stakeholders in the sector.
“The Minister of Petroleum has the power to intervene in ensuring that Nigerians are treated fairly. The NMDPRA has the power, and so does the FCCPC. However, these decisions to discipline or not to discipline should follow stakeholder practice.
“We have the petroleum stakeholder conference that is being headed by the minister. And I think that this is the time for the minister to convene a meeting of all the stakeholders to unravel what the scenario is and what the situation is and make a decision that is beneficial for Nigerians. That’s what I think we should do,” he said.
According to him, the government should act without the consent of the stakeholders.
“They have the right to intervene, but if they do that and the stakeholders have a different view, that will be difficult. And that’s why the minister should mandate a meeting to speak to all stakeholders as fast as possible.
“The minister has the power to intervene in matters like this, and every stakeholder, including the refineries, must comply,” he said.
Resolving The Impasse
Prof. Wumi Iledare, Professor Emeritus of Petroleum Economics, criticised the threat and warned that executive fuel price fixing would undermine the very purpose of the Petroleum Industry Act, PIA.
He said a rules-based downstream petroleum market cannot simultaneously operate under deregulation and executive price directives for obvious reasons.
The rule of law and the sanctity of the PIA, he maintained, must be religiously preserved in the industry.
He noted that fuel prices rise quickly when crude rises, but fall slowly when crude falls — what economists call “asymmetrical price transmission.”
He added: “Crude up, prices take the elevator. Crude down, prices take the staircase. Immediate cuts are neither automatic nor economically inevitable.”
According to him, under the PIA, government’s responsibility is not to set prices, but to ensure a contestable market, transparency, competition, and consumer protection through regulation, not politics.
The Chief Executive Officer of Centre for Promotion of Private Enterprise, Dr. Muda Yusuf, cautioned the Federal Government against exercising price control to resolve through imbroglio.
He said the issue is a double edge sword: public interest and the profit angle on the part of the marketers which is geared towards sustaining them in the fuel marketing business.
He added that any price control moves by the Federal Government must be tactful and evidence-based so as to avoid wielding the big sticks unduly on fuel marketers in the country.
The agency should not be too carried away to pursue price control agenda when it only needs to weigh options that would not endanger the country’s economic environment.
Following the deregulation of the sector, he said it’s delicate to dub several thousands of marketers profiteers in the face of stiff competition which determines consumers patronage in Nigeria.
He faulted the issuance of threat by the NMDPRA, maintaining that it is not its peculiar turf to accurately determine who profiteers from the same of fuel.
Energy expert, Charles Adesanya told this paper that the agency’s planned action is in order and does not constitute any danger to the country’s business environment.
He maintained that it’s within the regulatory powers of the NMDPA to wield the big stick on institutions whose actions would endanger Nigerians.
