Energy Crisis1

WHEN the price of crude oil started crashing in August last year, expectations were high that domestic pump prices of refined petroleum products would also decline, giving businesses and individuals a much-needed relief. The price of crude oil, which constitutes a major component in the pricing template, had plunged by about 60 per cent since June 2014 when it peaked at $115 per barrel. Transporters and haulage services providers were at least expectant that fuel cost which account for almost 30% of operating cost will drastically reduce; commuters and haulage services users were also anticipating that fares and freight cost respectively will experience a southward movement; major corporations and parastatals were also simultaneously looking forward to a regime of drastic energy cuts riding on the heels of the crude oil price crash.

Surprisingly however, the price of the product in filling stations across the country has remained consistently high ranging between N140 and N165 per litre with the Petroleum Products Pricing and Regulatory Agency (the agency that sets the cost and pricing template) and the Department of Petroleum Resources, the industry regulator not lifting a finger about the price or raising eyebrows about the unwholesome trend. In January 2015, the maximum indicative benchmark of open market price of diesel stood at about N99.11 per litre, going by PPPRA. In February, PPPRA’s website showed the landing cost of diesel at N99.03 and after margins, arrived at an Indicative Open Market Price of N108.37, meaning that marketers have been ripping Nigerians off for over 2 months!

Marketers of petroleum products have indeed been having a field day raking in up to N132 billion in eight months (according to a newspaper report in March 2015) by maintaining diesel prices at N145 per litre even when crude oil prices had crashed by over 55 per cent.

When late President Umaru Musa Yar’Adua decided to deregulate diesel price in 2006, it was in line with his administration’s pledge to dismantle an alleged fuel cartel holding the market to ransom. But several years after the deregulation, the expected market behaviour of a deregulated product is far from being realized in Nigeria. Following President Yar’Adua’s approval, the NNPC increased the ex-depot price of AGO from N60 per litre to N69, while the price of LPFO was raised from N22 per litre to N44, representing a 100 per cent hike. But in no time, under the disguise of rising oil prices, the price of diesel went up to N162 per litre. But prices of crude have long crashed and diesel price has not come down in line with global market practice in a free market environment.



Today, more than 90 per cent of petroleum products consumed in the domestic market are imported, usually at costs which naturally reflect international crude-oil prices. It is therefore an affront to rational thinking that development in the international oil market would now not reflect in domestic diesel pricing.

Nigerians are now in fact paying more money than Americans and Britons in real terms for diesel, a bye-product of the crude oil for which Nigeria is Africa’s leading producer and the 6th largest in the world. Currently, the daily average consumption of diesel or Automotive Gas oil as it is technical called is put at between 12,000,000 -15,000,000 Liters.

AGO’s staggering demand and consumption is driven by Nigeria’s grossly inadequate supply of power to business places; a poor road infrastructure and chaotic urban traffic menace that ensured that more diesel is burnt per travel time; a neglected and underdeveloped rail, water and air transport system that ensured that road transport remained the only functional means for moving goods, materials and people and hence more pressure on the demand for diesel; an epileptic domestic power supply situation that rhas elevated alternative power sources from generators to a primary position while that from the national grid has now been reduced to a backup position. Households, offices, eateries, banks, hospitals and government parastatals are spending billions and will still spend billions on diesel consumption as the electricity supply situation is not likely to change significantly any soon, hence dependence on generators and mini-power plants will surge. The same applies to haulage firms and commercial transport operators for as long as road transport continues to remain the preferred and economically viable means of moving from one place to another. While businesses, households, offices, eateries, banks, hospitals and government parastatals that depend on diesel to operate are being ripped off daily by the current sharp practices in the diesel racketeering, it is the ordinary Nigerian that ultimately bears the burden.



Americans are paying between N60 and N50 less than Nigerians for diesel. The US average Pump price for diesel fell from an all-time high of $4.021 per gallon (four litres equivalent) in the preceding year to $3.137 in January 2015. The price in further response to the changing international crude price fell to $2.900 in February and rose slightly to $2.944 in March. Between April and 1st week in May, the price fluctuated between a low of $2.664 and a high of $2.854. At an average exchange rate of N185/$ for the period under review, the Naira equivalent for the US buyer would be N580.35 for four litres in January as against the N620 that a Nigerian pays for a similar volume at N155 per litre, N536.50 in February as against N620 for the Nigerian buyer and N544.60 in March as against N580 that Nigerians pay following a slight but yet fluctuating reduction in average per litre price to N145.00.

As a general rule, richer countries have higher prices while poorer countries and the countries that produce and export oil have significantly lower prices. However, two notable exceptions to this rule are Nigeria and the United States. US is an economically advanced country but has low gas prices, while Nigeria is a less developed country and yet has very high diesel prices. The differences in prices across countries ordinarily are attributable to various taxes and subsidies for diesel. All countries have access to the same petroleum prices of international markets but then decide to impose different taxes. As a result, the retail price of diesel is different. In some cases, like Venezuela, the government even subsidizes diesel and therefore people there pay close to nothing to drive their cars.

However, a little dig beyond the surface has revealed that much more extra-ordinary fundamental reasons may underlie the exception to the rule as typified by the perpetually upward drive of diesel price in Nigeria. We consider this and much more in PART TWO of this article.



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