Nigeria engages oil marketers on petrol price

The Nigerian government is currently in discussions with oil marketers regarding the calls for an upward adjustment in the pump price of petrol and bridging claims payment in the downstream oil sector. Luke Ofojebe, the Head of Research at Vetiva Research, recently discussed this ongoing development with CNBC Africa. Ofojebe pointed out that the current challenges in the downstream oil segment were anticipated, highlighting massive subsidy payments and low margins as key factors driving the demand for a price hike. He explained that the government's subsidy expenditure in the first quarter of the year was alarmingly high, nearly matching the total subsidy payments for the entire previous year. This unsustainable trend necessitates a reevaluation of the petrol price to ease financial burdens on both the government and oil marketers. Ofojebe suggested that even a partial deregulation, coupled with a price adjustment, could benefit all parties involved, leading to improved margins for marketers and reduced subsidies for the government. However, he acknowledged the political sensitivity surrounding petrol prices, especially in an election year, which might limit immediate actions by the government. Despite pressures from oil marketers for a price increase to cushion their shrinking margins, the government may opt to maintain the status quo to avoid political repercussions. Ofojebe highlighted the tough business environment for marketers and the potential risks they face if they unilaterally raise prices without government approval. While the looming elections may delay substantial policy changes, post-electoral reforms could pave the way for a phased deregulation of the downstream oil sector. The government's commitment to ensuring adequate petrol supply across the country has been reiterated amid concerns of market disruptions. Ofojebe raised questions about the significant spike in petrol imports from 15 million to 65 million liters in just two years, questioning the sudden surge in demand amidst the backdrop of the COVID-19 pandemic. He speculated that some imported petrol might be smuggled to neighboring countries where prices are higher, contributing to artificial scarcity and queues at local petrol stations.