Economy

The Advantage Of Price Hike Of Fuel And Power

The recently announced hike in the pump price of Premium Motor Spirit (PMS) and electricity tariff is generally perceived as doom for most Nigerian homes. This is comprehensible as many are still grappling with the backlash of the total lockdown occasioned by the Covid-19 pandemic. It won’t be out of place to express such apprehension as the citizenry has suffered similar fate from successive governments, the effect of which is an unprecedented inflationary rate.

The country’s Bonny Light Crude Oil ranks amongst the best in the world which grants Nigeria, a big seat at the roundtable of the global Organization of Petroleum Exporting Countries (OPEC). Since the discovery, exploration and exportation of the fecund crude oil in Oloibiri, Afam and Boma (all in the Niger Delta region) in 1958, the economic life wire of the country has become a nightmare to the ordinary man on the street.

Owing to the establishment of the first oil in Okan field, off the coast of old Bendel State, and more oil wells within the South-South region, the nation swiftly gravitated towards a mono-product economy, while the once buoyant Agricultural sector suffered utter abandonment.

Due to the increased demand for the Nigerian crude oil between 1970 and 1978 with an average of 23.4% increase, the Warri refinery was established in 1978 with a total production of 100,000 barrels per day (bpd) and another one was opened at Kaduna in 1980 with a potential capacity of 260,000. No doubt, the Oil sector has since become the prime mover of the Nigerian economy influencing every part of the economy.

As it is expected of such a highly priced essential commodity within any economy, any increase in the prices of the fuel product would spell doom for other sectors of the economy. Following in its trail is a galloping inflationary rate which is not healthy for the economic state of the country, judging from the fact that the currency is hinged on the dominance of other importing foreign economies.

If the reports that the manufacturing sector contributes less than 2.5% to the Gross Domestic Product (GDP) is anything to go by, a further push in the prices of goods and services will mean that unemployment would shoot up and there would gross hardship in the land.

In the 1982, the Shagari-led administration increased the pump prices of fuel from an initial 0.5k to 0.20k which was sustained till 1985 when General Ibrahim Babangida’s government further pushed the price index to 0.395.

Still under IBB’s watch, the prices went up again in 1990 to 0.60k; in 1991 to 0.70k; 3.25k to 1992; 11:00k in 1993. His successor, General Sani Abacha maintained the pump prices and there was generally a stable economy for his 5-year stint at Aso Rock. Chief Olusegun Obasanjo’s civilian administration increased the price to 20 Naira in 1999; 22:00Naira in 2000; 26 Naira in 2001; 30 Naira in 2002. The successive increase in prices continued in 2003 to a price of 40 Naira; 55 Naira in 2004; 60 Naira in 2005; 65 Naira in 2006 and 70 Naira in 2007. The succeeding Musa Yar’Adua administration reduced the price to 65 Naira until the Goodluck Jonathan administration increased the price to 120 Naira.

In the beginning of 2000s, there has been clarion been call for deregulation of the upstream and downstream of the Nigerian oil sector. The reason being that the government aims to get rid of certain unscrupulous elements who feed fat from the subsidy meant to cushion the effect of the importation cost of the oil products. Sadly, the oil subsidy generates c0mments and analysis only on the pages of dailies and dies a natural death. Again, the nation pays for what it can’t enjoy.

The Honourable Minister of State for Petroleum Resources, Timipre Sylva, in a statement affirmed that the long overdue deregulation is set to take off. Speaking on the deregulation of the oil sector, he noted that ‘Deregulation means that the Government will no longer continue to be the main supplier of Petroleum Products, but will encourage private sector to take over the role of supplying Petroleum Products… It has become expedient for the Ministry of Petroleum to explain misconceptions around the issue of Petroleum Products Deregulation… After a thorough examination of the economics of subsidising PMS for domestic consumption, the government concluded that it was unrealistic to continue with the burden of subsidising PMS to the tune of trillions of Naira every year. More so, when the subsidy was benefiting in large part the rich rather than the poor and ordinary Nigerians.’

The newly introduced pump prices of petroleum products is meant to open up the oil sector (downstream) to more operatives which leaves for a balanced, more transparent, efficient and realistic pricing system for petroleum products of fuel in the country.

In this case, the government will only perform the regulatory role for the sector and will desist from its age-long role of being the fixer of prices. The equilibrium market prices will then be determined by the ‘invisible hands’ of demand and supply. Hence, the announcements made by Petroleum Products Pricing Regulatory Agency (PPPRA) on the increase of pump prices of fuel from N143.80 per litre to N151.56 per litre. The deregulation of Premium Motor Spirit (PMS) known as petrol is partly due to the fact that the budget can no longer sustain the funding the subsidy of such product.

 On the other hand, the tariff adjustment by the Nigerian Electricity Regulatory Commission (NERC) which has resulted into over 50% increase is part of the move by the government to further improve poor transmission capacity and distribution capacity of electricity in the country. The project will be undertaken by Siemens, a foreign company, in no distant time.

Truth be told, these are the hardest of times. The effect of the covid-19 pandemic leaving many out of jobs, the lucky ones that are retained are either half-paid or losing out in one way or the day. An increase in the price of fuel from N145 Naira to N151.56 per litre and electricity tariff from N30.23 per kwh to over N66 would definitely hit hard at people.

The cost of transportation and food items would increase by some percentages and living standards further brought down. Why then, is the increase of any these essential commodities a good lease of life?

Both fuel and power are very crucial aspects of the everyday life. The degree of responsiveness of the people to the price changes of any of the two commodities and services would cause a significant effect on the economy in ways that reduces the intrusive powers of government in the realms of demand and supply. These infrastructural changes employed by the government is for the greater good, for the greatest number of the citizenry because it will cause positive change(s) in the nearest future.

Babatunde Odunbawo

Categories: Economy, Obverse

Leave a Reply

Your email address will not be published.