The price of fuel has been a niggling and touchy issue in Nigeria over the decades since the 1880s and counting, not least because every increase affects the prices of goods and services in most parts of the country, and by implication, livelihoods.
The recent price dilly-dallying in the price of fuel came as a shock to many Nigerians considering the fact that COVID-19 has caused loss of jobs, and salary cuts to many, slowdown of business activities, to name just a few. It is noteworthy that double digit inflation has been a steady upward trend over the years also.
Coupled with that, a salient ingredient of the Nigerian economy, the country’s labour market is undergoing a structural shift, which requires that large segments of the country’s labour force learn new skills.
However, fact be told, the federal government simply had no choice this time around but to remove fuel subsidy. No thanks to COVID-19, government revenues have taken a southward trajectory for the large part of 2020. Hence, any alternative action or inaction would mean borrowing money to meet recurrent responsibilities or, some recurrent responsibilities would not be met in the coming months, and probably years.
That the federal government has absolved itself of subsidy interest means that there is no guarantee that the price of fuel will remain static for the unforeseeable future. The price of petroleum products will be determined by the forces of supply and demand.
Since Nigeria currently does not refine petroleum products at all, the price of petroleum products will be determined by prices on the international market, which will largely be determined by crude oil prices, which will in turn be determined by prophylactic and therapeutic solutions to the coronavirus pandemic. If major economies remain only partially open, demand for crude oil will remain bearish.
Health experts posit that in the best-case scenario, vaccines will be made available on a global scale by next summer, although there have been approvals in a few countries.
Given that prognosis, and cautious reopening of major economies around the world, the price of crude Brent on the international market has hit $50.00 per barrel, with likely gradual increases from time to time, which means the pump price of fuel in Nigeria may continue to be readjusted from time to time, especially considering the fact that the winter months are already when demand for fuel in the West will push up prices, ceteris paribus.
A spat between Nigeria Labour Union and the federal government to reduce the price, sequel to further jacking of price of the commodity to N170 has arm-twisted government to settle at N162 per liter, albeit temporarily.
On the other hand, with the promised take-off of the Dangote Refinery, slated for the first quarter of 2021, the federal government will have the leeway and muscle to apply moral suasion on the company, and other private investors either to leave the price of fuel at N162 per liter, in which cases, government will be able to subsidise the sale of crude oil to Dangote Group and others by supplying at a discount for fuel to the local market, crash the price for the local market, or continue to allow the forces of supply and demand to determine the price of fuel.
That may be the likely scenario if the federal government sells crude oil to the likes of Dangote at international rate.
It is only subsidy on local production of fuel that will assuage or serve as a buffer from that additional painful happenchance on Nigerians.
Happily, Nigeria recently witnessed the commissioning of a 5,000 barrels/day private refinery in Imo State. It is hoped that such private sector driven investments will continue.
It may be recalled that Dangote Refinery, which is currently more than 80 percent complete is designed to more than double supply Nigeria’s current daily demand of petroleum products.
That’s not all, it may also be recalled that BUA Group recently signed an agreement with Axens of France for the supply of process technologies for its upcoming 10 million tonnes per annum mega refinery and petrochemicals facility to be sited in Akwa-Ibom.
Other modular refineries are coming on board soon to serve the local market.
So, the mix of progress on the development of COVID-19 vaccines, government action, as well as the speed of completion and coming on board of local private refineries will determine the northward, southward or stagnancy of fuel price in Nigeria over the next one year.
This prognosis does not take into account the likely impact the long-expected Petroleum Industry Act will have on the price of petroleum products.