Representatives tackle circles in petrol pricing
A United States banker Walter Bigelow Wriston said that, “when a
system of national currencies run by central banks is transformed into a
global electronic market place driven by currency traders, power
changes hands.” It is a pithy saying that has some proven truth in
Nigeria. Nigeria is going in pricing circles with currency traders
controlling monetary policies that favour their portfolios. But a cause
for worry now is the reliance of the country on petrodollar from
International Oil Companies, IOC to fund the importation of petroleum
products.
For almost a year now the paucity of foreign exchange has made the
Nigerian National Petroleum Corporation, NNPC to go into an arrangement
with IOCs to sell foreign currencies to importers of premium motor
spirit, PMS or petrol. Alleged lack of transparency dogging the scheme
has caused marketers drumbeat for upward review of petrol price which
the vast majority of Nigerians are very much against.
Nigerians are yet recovering from the May 11, 2016 increment by about 70 percent from N87 to N145 per litre of petrol. Are Nigerians that have been pummelled by rash economic policies are all geared up for the next round of price increases? The complexity and controversy are around government agencies including regulators and the security as well as the operators. Many people believe that the NNPC acts like an independent entity that accounts to neither the government nor the people.
Access to foreign exchange to import products into the country was at the front burner as local petrol traders involved in importation source foreign exchange on their own. The IOCs that get 40 percent in joint venture agreements with the NNPC bring in foreign currencies which are exchange for the Naira to fund local operations. Part of this fund is what the NNPC pooled for petrol marketers since the CBN Special Market Intervention Sales, SMIS which is for all importers hardly meet the ever increasing demands for foreign exchange.
But who approves, who gets the facility that is available and at what foreign exchange rate appear to be the knotty issues threatening petrol availability in the country. Ordinarily the IOCs sell foreign exchange to marketers to import products. For alleged lack of transparency in the process petrol marketers prefer the CBN to the IOCs in foreign exchange deals. That the IOCs sell foreign currencies to the CBN means that there could be an additional cost charged per dollar eventually sold to marketers. The IOCs trade in currencies so as to profit from price differences for the same currency in different markets.
The activities of regulators have also caused Nigerians the agony of paying N11.02 charges that are avoidable if Nigeria refined products locally. Again, the cargo (crude oil) sold and cargo (petrol) bought attract duties that are paid by Nigeria to other countries, and freight cost added make the landing cost of petroleum products in Nigeria expensive. Experts believe that Nigeria can get petrol at the pump for N100 if all bottlenecks of importation are reduced.
As petrol pricing issues resurfaced, the House of Representatives constituted an Ad Hoc Committee on the review of pump price of petrol. The subject appears complicated that the Hon. Raphael Igbokwe (Imo-PDP), led committee may go into the extra ordinary realm to seek out the puzzling thing in the petroleum industry. The committee may operate in the fortune teller’s globe to get solutions, but the Chairman’s voice exuded confidence that his committee would tackle the circles that have made Nigeria appear to be very busy without achieving anything.
On the barrel controversy, at last Monday’s continued public hearing, “I want to assure Nigerians that this committee will break the jinx concerning those who believe that they are above the law and they have all the contacts in the world that will make them not to report to Nigerians on the activities of their companies, which have been at the centre of managing crude, the collective resources of this country in the last 20 years,” Igbokwe said. The operators are few and have used the crude oil swap for one product (petrol) that Nigeria has had raw deals from them. Some of them make colossal amount of money but have no corporate identities in Nigeria.
Last Monday, the Igbokwe’s committee interrogated a number of organisations including regulators, agencies and operators involved in the importation of petrol. Members were marveled that the CBN feign ignorance on who the NNPC sold foreign exchange to. If truth be told, one of the two directors that represented the CBN was uninspiring; he said that the CBN has no access to the NNPC records on foreign exchange from IOCs. That impression was however clarified on Tuesday when the CBN Deputy Governor in charge of Economic Policy, Dr. Sarah Alade submitted that there is a CBN Act that authorized banks and non-banking institutions to buy and sell foreign exchange. She explained that the arrangement was not permanent and that as soon as there was sufficient foreign exchange the normal interbank process takes over.
The Central Bank we know is primarily concerned with the regulation of government’s fiscal and monetary activities. The monetary authorities devalued and floated the currency in June 2016, with the flexible exchange rate between N300 and N350, an adjustment difference for the increase drifting between 52.28 and 77.66 percent. President Muhammadu Buhari took swipes at the monetary authorities by throwing them almost to the wolves on the current floating exchange rate that enabled market variables determine the value of the currency. The President was visibly angry that the CBN devalued the dollar to exchange for between N300 and N350.
The wholesale devaluation of the naira just after the petrol price increment appears to be the present day controversy. Nigeria spent over US$6 billion in the importation of petroleum products in the first half of 2016. The current reserve is put at US$29.8 billion. The CBN’s priority areas for allocation of foreign exchange are: the settlement of mature Letters of Credit already opened for importation, importation of raw materials and the importation of petroleum products.
The Minister of State for Petroleum, Dr. Ibe Kachikwu gave the impression that the landing cost per litre of petrol is about N10-N15 higher than what is sold at the pump. Although he cannot justify Nigeria’s imports of petrol, currency devaluation added to the problem. On May 11, 2016, the Federal Government exited the subsidy regime when petrol was increased from N87 to N145.
Perhaps what is being subsidised for marketers are the costs to be passed to the consumer at the pump soon. The situation is different in Brasil where the state run oil company, Petrobras a fortnight ago reduced the pump prices of gasoline or PMS and diesel or AGO at refineries and at the pump to reflect the fall in international petroleum products prices. We don’t need petrol price increase!
SOURCE:Vanguard
Nigerians are yet recovering from the May 11, 2016 increment by about 70 percent from N87 to N145 per litre of petrol. Are Nigerians that have been pummelled by rash economic policies are all geared up for the next round of price increases? The complexity and controversy are around government agencies including regulators and the security as well as the operators. Many people believe that the NNPC acts like an independent entity that accounts to neither the government nor the people.
Access to foreign exchange to import products into the country was at the front burner as local petrol traders involved in importation source foreign exchange on their own. The IOCs that get 40 percent in joint venture agreements with the NNPC bring in foreign currencies which are exchange for the Naira to fund local operations. Part of this fund is what the NNPC pooled for petrol marketers since the CBN Special Market Intervention Sales, SMIS which is for all importers hardly meet the ever increasing demands for foreign exchange.
But who approves, who gets the facility that is available and at what foreign exchange rate appear to be the knotty issues threatening petrol availability in the country. Ordinarily the IOCs sell foreign exchange to marketers to import products. For alleged lack of transparency in the process petrol marketers prefer the CBN to the IOCs in foreign exchange deals. That the IOCs sell foreign currencies to the CBN means that there could be an additional cost charged per dollar eventually sold to marketers. The IOCs trade in currencies so as to profit from price differences for the same currency in different markets.
The activities of regulators have also caused Nigerians the agony of paying N11.02 charges that are avoidable if Nigeria refined products locally. Again, the cargo (crude oil) sold and cargo (petrol) bought attract duties that are paid by Nigeria to other countries, and freight cost added make the landing cost of petroleum products in Nigeria expensive. Experts believe that Nigeria can get petrol at the pump for N100 if all bottlenecks of importation are reduced.
As petrol pricing issues resurfaced, the House of Representatives constituted an Ad Hoc Committee on the review of pump price of petrol. The subject appears complicated that the Hon. Raphael Igbokwe (Imo-PDP), led committee may go into the extra ordinary realm to seek out the puzzling thing in the petroleum industry. The committee may operate in the fortune teller’s globe to get solutions, but the Chairman’s voice exuded confidence that his committee would tackle the circles that have made Nigeria appear to be very busy without achieving anything.
On the barrel controversy, at last Monday’s continued public hearing, “I want to assure Nigerians that this committee will break the jinx concerning those who believe that they are above the law and they have all the contacts in the world that will make them not to report to Nigerians on the activities of their companies, which have been at the centre of managing crude, the collective resources of this country in the last 20 years,” Igbokwe said. The operators are few and have used the crude oil swap for one product (petrol) that Nigeria has had raw deals from them. Some of them make colossal amount of money but have no corporate identities in Nigeria.
Last Monday, the Igbokwe’s committee interrogated a number of organisations including regulators, agencies and operators involved in the importation of petrol. Members were marveled that the CBN feign ignorance on who the NNPC sold foreign exchange to. If truth be told, one of the two directors that represented the CBN was uninspiring; he said that the CBN has no access to the NNPC records on foreign exchange from IOCs. That impression was however clarified on Tuesday when the CBN Deputy Governor in charge of Economic Policy, Dr. Sarah Alade submitted that there is a CBN Act that authorized banks and non-banking institutions to buy and sell foreign exchange. She explained that the arrangement was not permanent and that as soon as there was sufficient foreign exchange the normal interbank process takes over.
The Central Bank we know is primarily concerned with the regulation of government’s fiscal and monetary activities. The monetary authorities devalued and floated the currency in June 2016, with the flexible exchange rate between N300 and N350, an adjustment difference for the increase drifting between 52.28 and 77.66 percent. President Muhammadu Buhari took swipes at the monetary authorities by throwing them almost to the wolves on the current floating exchange rate that enabled market variables determine the value of the currency. The President was visibly angry that the CBN devalued the dollar to exchange for between N300 and N350.
The wholesale devaluation of the naira just after the petrol price increment appears to be the present day controversy. Nigeria spent over US$6 billion in the importation of petroleum products in the first half of 2016. The current reserve is put at US$29.8 billion. The CBN’s priority areas for allocation of foreign exchange are: the settlement of mature Letters of Credit already opened for importation, importation of raw materials and the importation of petroleum products.
The Minister of State for Petroleum, Dr. Ibe Kachikwu gave the impression that the landing cost per litre of petrol is about N10-N15 higher than what is sold at the pump. Although he cannot justify Nigeria’s imports of petrol, currency devaluation added to the problem. On May 11, 2016, the Federal Government exited the subsidy regime when petrol was increased from N87 to N145.
Perhaps what is being subsidised for marketers are the costs to be passed to the consumer at the pump soon. The situation is different in Brasil where the state run oil company, Petrobras a fortnight ago reduced the pump prices of gasoline or PMS and diesel or AGO at refineries and at the pump to reflect the fall in international petroleum products prices. We don’t need petrol price increase!
SOURCE:Vanguard
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