As the Central Bank of Nigeria (CBN) signals a subtle harmonisation of exchange rates with the removal of N379/$1 official rate from its website, all is set for labour unions to lock horns with the Federal Government on petrol subsidy removal.
The return of subsidy has posed new challenges for the country in terms of discrepancies in the volume of daily consumed fuel about to be worsened by the apex bank’s adoption of the Investors and Exporters (I&E) window rate, pushing subsidy claims above N120 Billion every month.
While the Presidential Economic Advisory Council had last week asked President Muhammadu Buhari to remove subsidy on petrol and adopt a pricing regime that reflects the cost of the commodity, the Nigeria Labour Congress (NLC), in a swift reaction at the weekend, insisted that petrol subsidy must not be removed and that it would not shift grounds on this position until Nigeria’s refineries were fixed.
As oil prices near $70 a barrel, the adoption of the Nigerian Autonomous Foreign Exchange Rate (NAFEX) also called the Investors’ and Exporters’ Forex Window, in an apparent move to harmonise exchange rates, will further increase the landing cost of petrol, considering that rates have oscillated between N408 and N412 for months, a significant fall from the N379 quoted as the official rate.
Activities at the NAFEX window showed the Naira trading as low as N426.67/$ at the weekend before closing at N411.67. At the parallel market, Naira also declined to N484.00. The policy shift also confirmed longtime speculation that the NAFEX is the default official rate.
The effect of this notably will be upward movement in energy prices, which includes subsidies and pricing frameworks in petrol/gas/power bills. The move by the CBN raises concerns about the devaluation of the currency that has long struggled amid declining government revenue and foreign exchange. With the widened margin in exchange rate and rebound in crude prices, the landing price of petrol is expected to increase, same as the subsidy paid on the pump price of the commodity.
The Federal Government, had through the Minister of State for Petroleum Resources, Timipre Sylva, at the joint Senate and House of Representatives Committees on Petroleum sitting, said that the closure of the land borders by the Nigeria Customs Service had cut down the consumption of Premium Motor Spirit, also known as petrol, to 52 million litres per day. Data from the Nigerian Bureau of Statistics, which is usually verified and compared with data by the Petroleum Products Pricing Regulatory Agency (PPPRA) showed that by the end of 2019, Nigerians consumed 20.8 billion litres of petrol translating to about 57.2 million litres daily.
From December 2019 to December 2020, NNPC noted that consumption of petrol in the country stood at 18.325 billion litres. That translated to about 49.5 million litres daily. The low consumption was attributable to the pandemic-induced lockdown and sustained closure of borders during the period.
It would be recalled that petrol was revised five times last year, rising from N121.50 to N123.50 per litre in June, then from N140.80 to N143.80 in July, N148 to N150 in August, N158 to N162 in September and N165 to N170 in November. Without a doubt, an attempt to revise the price to the current N234/litre implied price will be strongly resisted by the populace who have been hard hit by two recessions and a pandemic in the last five years.