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8 reasons why the new petrol price regime is our best bet – FG

Vice President Yemi Osinbajo and the Minister of State for Petroleum, Ibe Kachikwu, were the two key officials of the Federal government at the meeting held at the Presidential Villa in Abuja last Wednesday where the decision was made to implement a new petrol price regime that led to increase of pump price to an upper limit of N145.

Both the Vice President and the Minister have variously been defending the decision, and Daily Times has been able to enumerate eight reasons that they have given for going for the option. Below, in their own words, are these reasons:

  1. We’ve moved from a position where the government earned between $110/$117 a barrel, to an average of about $40 a barrel which is about 70% drop in supply of forex. Two, with the problems of vandalization, militancy and the like, we are losing about 500,000 to 600,000 barrels a day and, as a matter of fact, we are now down from production of 2.2million to 1.4million barrels a day; so in terms of volume and in terms of value, we are far away from where we were before. There is, largely, very substantial diminishing income, so government cannot therefore make, as a priority, the downstream sector to continue to get forex to import. That’s practical reality because you don’t give what you don’t have. (Kachikwu in an interview on television last week)
  2. We’ve done everything we can.   We first went on to the issue of the subsidies that we inherited – which were based on 50/55million liters per day. But we said these numbers were bloated. And we did our findings and came up with a figure of 45million liter consumption a day. And that was the first attempt at subsidy and then we came to the second pint of saying we are not even going to have subsidy again.   We are going to exit it because there was so much fraud involved in it. And from January to March, if you look at our books, there were no subsidies. The price modulation helped us to achieve that, but in April, the bleeding started when the price of oil went forward and we couldn’t find the forex we needed, subsidy came right back.(Kachikwu in an interview on television last week)

  3. The ultimate of what we are headed for is that everybody should be able to do the business…  the basic objective is what was achieved with diesel or kerosene, which is that  government will have less control over the business and individuals will be free to compete and Nigerians would reap the benefit. (Kachikwu in an interview on television last week)

  4. What happened is as follows: our local consumption of fuel is almost entirely imported. The NNPC exchanges crude from its joint venture share to provide about 50% of local fuel consumption. The remaining 50% is imported by major and independent marketers. These marketers up until three months ago sourced their foreign exchange from the Central Bank of Nigeria at the official rate. However, since late last year, independent marketers have brought in little or no fuel because they have been unable to get foreign exchange from the CBN. The CBN simply did not have enough. (In April, oil earnings dipped to $550 million. The amount required for fuel importation alone is about $225million!) . Meanwhile, NNPC tried to cover the 50% shortfall by dedicating more export crude for domestic consumption. (Vice President Osinbajo in a statement issued on May 13)

  5. Besides the short term depletion of the Federation Account, which is where the FG and States are paid from, and further cash-call debts pilling up, NNPC also lacked the capacity to distribute 100% of local consumption around the country. Previously, they were responsible for only about 50%. (Partly the reason for the lingering scarcity). (Vice President Osinbajo in a statement issued on May 13)

  6. At the moment, even if all the refineries are working optimally they will produce just about 40% of our domestic fuel needs. (Going forward) we expect that with competition, more private refineries, and NNPC refineries working at full capacity, prices will drop considerably. Our target is that by Q4 2018 we should be producing 70% of our fuel needs locally. (Vice President Osinbajo in a statement issued on May 13)

  7. It will relieve government of monthly cash call funding and create a sustainable self-funding arraignment for government equity in existing joint ventures. It will ensure effective development of Nigerian gas market with adequate and sustainable gas supply to power, industrial sector and develop gas-based industries for national economic growth and development (Kachikwu, briefing the House of Representatives on May 16)

  8. The new fuel price regime would encourage massive investment in infrastructure by attracting foreign directive investment (FDI) in the country. It would encourage foreign investors to focus on the big tickets, such as pipelines and refineries for the development of the upstream oil and gas sectors. (Kachikwu, briefing the House of Representatives on May 16)

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